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(Solved by Expert Tutors) Case 10-2Eagle Impairment LossEagle Company (Eagle) is a manufacturing c


Serbia.Eagle in Italy:In addition to other assets, Eagle owns and operates a commercial building in Italy that iscarried at its cost less any accumulated depreciation and any accumulated impairment losses.The building represents a cash-generating unit (CGU) for which the following information isavailable as of December 31, 2010:Building 12/31/10 inthousandsCarrying amount $1,100Value in use 900Fair market value less costs to sell 800Fair market value 850Undiscounted future cash flows 1,150Eagle in Serbia:In Serbia, in 2008, Eagle acquired a smaller competing company and goodwill was allocatedto the CGU shown below. Activities in Serbia represent the lowest level at whichinternal management monitors goodwill. At the end of 2008 and 2009, the value in use of theCGU including goodwill exceeded its carrying amount. Therefore the activities of Eagle inSerbia and the goodwill allocated to those activities were regarded as not impaired.However, at the end of 2010, the newly elected government passed legislationsignificantly restricting exports of Eagle's main product.The information below relates to the CGU (which includes goodwill) of Eagle's operationsin Serbia before the impairment analysis is performed. For this case, assume the basis ofsegmentation for CGUs and reporting units (RU) is the same under IFRSs and U.S. GAAP.Copyright 2009 Deloitte Development LLCAll Rights Reserved.Case 10-2: Eagle Impairment Loss Page 2Eagle's Serbian CGU carrying value 12/31/10in thousandsCash $50Property, plant, and equipment (PP & E) 1,100Land 150Goodwill 300Total assets $1,600Liabilities (200)Carrying value $1,400As a result of the change in legislation, Eagle?s production will be significantly affected for theforeseeable future. In addition, external industry reports estimate no growth rate for theforeseeable future. The significant export restriction and the resulting production decrease areimpairment indicators that require Eagle to estimate the recoverable amount of its operations atthe end of 2010.Eagle?s management estimates the amount of the present value of discounted cash flows is$1.05 million. Assume this $1.05 million is the appropriate fair value under U.S. GAAP andthe recoverable amount under IFRS. Further assume management estimates no costs to sellwould be incurred.The remaining useful life of Eagle's identifiable assets is eight years at the beginning of 2010.Eagle uses straight-line depreciation and anticipates no residual value.Required:? Question 1 ? Given the facts provided for Eagle in Italy, is the building impairedunder IFRSs as of December 31, 2010, and if so, what is the amount of theimpairment?? Question 2 ? Given the facts provided for Eagle in Italy, is the building impairedunder U.S. GAAP as of December 31, 2010, and if so, what is the amount of theimpairment?? Question 3 ? Using the information given for Eagle?s CGU in Serbia, including theamount of the present value of discounted cash flows, determine the following:1. Is there an impairment loss on goodwill? If so, determine the amount of theimpairment loss under IFRS and U.S. GAAP as of December 31, 2010.Assume that the fair value of PP&E is $1 million and the fair value of allother identifiable assets and liabilities, excluding goodwill, equal theircarrying amounts when testing for impairment.2. Calculate the new carrying value of assets and CGU under IFRSs. As notedabove, assume that the fair value of PP&E is $1 million and the fair value ofall individual assets and liabilities, excluding goodwill, equal their carryingamounts.Copyright 2009 Deloitte Development 1-1-( AllRights Rescued.Case 10-2: Eagle Impairment Loss Page 3? Question 4 ? Assume that during, 2011, the effects of the export laws on Eagle'sproduction in Serbia are less dramatic than initially expected by management. As aresult, management estimates that the recoverable amount of its Serbian CGU at theend of 2011 increased to $1,200. On the basis of this information and the informationfrom the above, calculate the reversal of loss, if any, under IFRSs and the carryingvalue as of December 31, 2011. The remaining useful life of PP&E is seven years atthe beginning of 2011. Assume there have been no other changes in the carryingvalue of other assets or liabilities during 2011.

 


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