On November 15, 2010, Abar Corporation acquired Rapids, a Company that operates a scenic railway along the coast of a popular tourist area. The summarized statement of financial position at fair values of Rapids on July 1, 2010, reflecting the terms of acquisition was: P 200,000 1,200,000 Goodwill Operating license Property-train stations and land Rail track and coaches Steam engines (2) Purchase consideration 300,000 300,000 1,000,000 P3,000,000 The operating license is for ten years. It has recently been renewed by the transport authority and is stated at the cost of its renewal. The carrying amounts of the property and rail track and coaches are based on their estimated replacement cost. The engines are valued at their net selling price. On December 1, 2010, the boiler of one of the steam engines exploded, completely destroying the whole engine. Fortunately, no one was injured but the engine was beyond repair. Due to its age, a replacement could not be obtained. Because of the reduced passenger capacity, the estimated value in use of the business after the accident was assessed at P2 million. Passenger numbers after the accident were below expectations even after allowing for the reduced capacity. A market research report concluded that tourists were not using the railway because of the fear of a similar accident occurring to the remaining engine.
On November 15, 2010, Abar Corporation acquired Rapids, a Company that operates a scenic railway along the coast of a popular tourist area. The summarized statement of financial position at fair values of Rapids on July 1, 2010, reflecting the terms of acquisition was: P 200,000 1,200,000 Goodwill Operating license Property-train stations and land Rail track and coaches Steam engines (2) Purchase consideration 300,000 300,000 1,000,000 P3,000,000 The operating license is for ten years. It has recently been renewed by the transport authority and is stated at the cost of its renewal. The carrying amounts of the property and rail track and coaches are based on their estimated replacement cost. The engines are valued at their net selling price. On December 1, 2010, the boiler of one of the steam engines exploded, completely destroying the whole engine. Fortunately, no one was injured but the engine was beyond repair. Due to its age, a replacement could not be obtained. Because of the reduced passenger capacity, the estimated value in use of the business after the accident was assessed at P2 million. Passenger numbers after the accident were below expectations even after allowing for the reduced capacity. A market research report concluded that tourists were not using the railway because of the fear of a similar accident occurring to the remaining engine.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:In the light of this, the value in use of the business was reassessed on December 31,
2010 at P1.8 million. On this date, Abar received an offer of P900,000 in respect of the
transferable operating license.
REQUIRED: Based on the above and the result of your audit, compute the carrying
amount of the following as of December 31, 2010 after recognizing the impairment loss, if
any:
Transcribed Image Text:On November 15, 2010, Abar Corporation acquired Rapids, a Company that operates a
scenic railway along the coast of a popular tourist area. The summarized statement of
financial position at fair values of Rapids on July 1, 2010, reflecting the terms of
acquisition was:
P 200,000
1,200,000
Goodwill
Operating license
Property-train stations and land
Rail track and coaches
300,000
300,000
1,000,000
Steam engines (2)
Purchase consideration
P3,000,000
The operating license is for ten years. It has recently been renewed by the transport
authority and is stated at the cost of its renewal. The carrying amounts of the property
and rail track and coaches are based on their estimated replacement cost. The engines
are valued at their net selling price.
On December 1, 2010, the boiler of one of the steam engines exploded, completely
destroying the whole engine. Fortunately, no one was injured but the engine was beyond
repair. Due to its age, a replacement could not be obtained. Because of the reduced
passenger capacity, the estimated value in use of the business after the accident was
assessed at P2 million.
Passenger numbers after the accident were below expectations even after allowing for
the reduced capacity. A market research report concluded that tourists were not using
the railway because of the fear of a similar accident occurring to the remaining engine.
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