You must be a registered user and login to this site before practicing questions on this software. 
Use user login form to login or to request for new account. 
Use contact form if you require further assistance on this issue.

Tufnell identified two manufacturing units, North and South, which it had decided to dispose of in a single transaction. These units comprised non-current assets only. One of the units, North, had been impaired prior to 30 September 20X7 and it had been written down to its recoverable amount of $35 million. The criteria in IFRS 5 Noncurrent Assets Held for Sale and Discontinued Operations, for classification as held for sale had been met for North and South at 30 September 20X7. The following information related to the assets of the cash generating units at 30 September 20X7:

 Fair value less costs of disposal and recoverable amount

 

Depreciated historical cost

FV less cost of disposal and recoverable amount

Carrying amount under IFRS 5

 

$m

$m

$m

North

50

35

35

South

70

90

70

Total

120

125

105

 

 

The fair value less costs of disposal had risen at the year end to $40 million for North and $95 million for South. The increase in the fair value less costs of disposal had not been taken into account by Tufnell. (7 marks)

Requirements:

Discuss the accounting treatment of the above transactions and the impact that the resulting adjustments to the financial statements would have on ROCE

Marks: 7