Rose ltd has three cash generating units, Amber Division, Purple Division and Cerise Division. The head office is in the city, and the infrastructure for the divisions is located outside the city centre. Because of the potential for the company to have problems of an environmental nature or in relation to social justice, particularly with it mix of employees, Rose Ltd has recently established a social responsibility centre (SRC), which interacts with the divisions, generating information and statistics for the production of a triple-bottom-line social responsibility report. At 31st December 2018, the net assets relating to each of the divisions as well as the headquarters section and the SRC were as follow;
Amber
Division
Purple
Division
Cerise
Division Head office SRC
Land $120,000 $140,000 $80,000 $10,000 $5,000
Plant and Equipment 420000 310000 270000 40000 15000
Accumulated Depreciation (120000) (100000) (80000) (5000) (4000)
Inventories 150000 110000 100000 0 0
Accounts Receivable 90000 80000 50000 0 0
660000 540000 420000 45000 16000
Liabilities 60000 50000 50000 0 0
Net Assets $600,000 $490,000 $370,000 $45,000 $16,000
Rose Ltd believes that the corporation's headquarters supplies approximately equal service to the three divisions, and an immaterial amount to the SRC. Because the SRC has been established only recently, it is not possible at this stage to allocate the assets of the SRC to the three divisions. Economic indicators suggest that the company's assets may have been impaired, so management has determined the value in use of the three divisions- the Head office and the SRC do not generate cash inflows. The value in use of the three divisions was calculated to be:Amber Division $720,000,Purple Division $500,000 Cerise Division $400,000 Required:
Required: determine how Rose Ltd should account for any impairment loss to the entity. Prepare journal enteries as at 31/12/17 to record accoutning for impairment losses
