Adam's Bikes Produces Specialized Bicycle Frames Required:
A

question 16

Essay

Adam's Bikes produces specialized bicycle frames. The production process uses two machines, which together form a cash generating unit (CGU). The following information is relevant to the evaluation of impairment for these machines.
$$\begin{array} { | l | r | r | r | } \hline & \text { Bending machine } & \text { Welding machine } & \text { Total CGU } \\\hline \text { Net carrying value } & 550,000 & 450,000 & 1,000,000 \\\hline \text { Fair value less costs to sell } & 380,000 & \text { See requirement } & \text { See requirement } \\\hline \text { Value in use } & & & 950,000 \\\hline\end{array}$$ Required:
a. Assume that the welding machine has a fair value less costs to sell of $420,000. Determine the amount of impairment that should be recorded for the cash generating unit and for each of the two machines.
b. Assume that the welding machine has a fair value less costs to sell of $455,000. Determine the amount of impairment that should be recorded for the cash generating unit and for each of the two machines.

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Definitions:

Unit Variable Costs

The cost associated with producing one additional unit of a product or service.

Price Equation

A formula representing the determinants of the price of a good or service, including production costs, competition, demand, and supply.

Setting Prices

The process of determining the value that will be charged for a product or service in the market, taking into consideration factors like cost, competition, and demand.

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded by consumers over a certain period, typically illustrating the inverse relationship between price and demand.