Question

Collinsworth LTD., a U.K. company, prepares its financial statements according to International Financial Reporting Standards. Late in its 2021 fiscal year, a significant adverse change in business climate indicated to management that the assets of its appliance division may be impaired. The following data relate to the division’s assets:

	(£ in millions)
Book value		£	290
Undiscounted sum of estimated future cash flows			280
Present value of future cash flows			206
Fair value less cost to sell (determined by appraisal)			201

Required:
1. What amount of impairment loss, if any, should Collinsworth recognize?
2. Assume that Collinsworth prepares its financial statements according to U.S. GAAP and that fair value less cost to sell approximates fair value. What amount of impairment loss, if any, should Collinsworth recognize?

Answer 1

Part 1) Calculation of Impairment loss(as per IFRS)

Impairment loss is recognized when book value exceeds recoverable amount

Recoverable amount is higher of present value of future cash flows or fair value less cost to sell

Recoverable amount = higher of 206 or 201

Recoverable amount = 206

Impairment loss = Book value - recoverable amount

Impairment loss = 290 - 206 = 84

Part 2) calculation of impairment loss ( as per US GAAP)

Impairment loss is recognized when book value exceeds undiscounted sum of estimated future cash flows

Impairment Loss = Book value - Fair value

Impairment loss = 290 -201

Impairment loss =89