Carlos Division of Santana, Inc. Assignment Help With Solution

Carlos Division of Santana, Inc. Assignment Help

 
1.Presented below is net asset information related to the Carlos Division of Santana, Inc.
 

CARLOS DIVISION
NET ASSETS
AS OF DECEMBER 31, 2017(IN MILLIONS)
Cash$ 53
Accounts receivable191
Property, plant, and equipment (net)2652
Goodwill192
Less: Notes payable(2649)

 
The purpose of the Carlos Division is to develop a nuclear-powered aircraft. If successful, traveling delays associated with refueling could be substantially reduced. Many other benefits would also occur. To date, management has not had much success and is deciding whether a write-down at this time is appropriate. Management estimated its future net cash flows from the project to be $408 million. Management has also received an offer to purchase the division for $326 million. All identifiable assets’ and liabilities’ book and fair value amounts are the same.
 
Instructions:
 
Calculate the impairment, if any, at December 31, 2017.
 
 
2.The directors of Alfreton plc have decided that it is necessary to arrange for an impairment review of a subsidiary company, Barrington plc, at 30 September 2012. The business of Barrington plc comprise a single cash generating unit within the activities undertaken by the Alfreton group of companies.
 
The summarised draft statement of financial position of Barrington plc at the date of the impairment review, which took place on 30 September 2012, contained the following information:
 

Statement of financial position of Barrington plc at 30 September 2012

£million

Goodwill

100

Franchising arrangement

172

Special-purpose freehold property

195

Other tangible non-current assets

354

Inventories

107

Financial assets held for trading

18

Other assets

122

Total assets

1,068

Shareholders’ equity
Share capital

600

Reserve arising from revaluation of special-purpose property in 2010

50

Retained profit

335

985

Liabilities

83

Total equity and liabilities

1,068

 
The following information is relevant to the impairment review:
 
1. The accounts department of Alfreton plc has estimated the net cash inflows from the future activities of Barrington plc to be as follows:
 

Year to 30 September

£million

2013

256

2014

340

2015

275

2016

104

 
2. Barrington plc could be sold on 30 September 2012 for £620 million.
 
3. The franchising arrangement has no reliably identifiable market value. However, it is expected to generate future cash flows at least equivalent to the carrying value in the above statement of financial position.
 
4. The fair value less costs to sell of the special-purpose freehold property is estimated to be £130 million.
 
5. Neither the inventories nor any of the ‘other tangible non-current assets’ has a net selling price that is greater than its carrying value.
 
6. The financial assets held for trading are estimated to be worth £43 million
 
7. ‘Other assets’ are stated at their recoverable amounts.
 
8. Liabilities are stated at the amounts which are expected to be paid.
 
Required:
 
(a)Compute the amount of the impairment of the Barrington plc cash generating unit arising from the impairment review.
 
(b)Allocate the impairment loss between the relevant components of the assets of Barrington plc.
 
(c)Prepare and present the journal entry required to incorporate the effect of the impairment review in the books of Barrington plc.
 
Notes:The discount rate appropriate to the activities of Barrington plc is 12%.
 
Assume that the forecast net cash inflows of Barrington arise at the end of each year to which they relate.
 
Assume you are making the calculations on 30 September 2012.
 
All calculations should be made to the nearest £0.1 million.
 

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3. Sandler Corporation bases its predetermined overhead rate on the estimated machine hours for the upcoming year. Data for the upcoming year appear below.
 

Estimated machine hours73,000
Estimated variable manufacturing overhead$3.49per machine hour
Estimated total fixed manufacturing overhead$838,770

 
Required:
 
Compute the company’s predetermined overhead rate.
 
 
4. Heckaman Corporation produces and sells a single product. Data concerning that product appear below.
 

Selling price per unit$230.00
Variable expense per unit$112.70
Fixed expense per month$239,292

 
Required:
 
Determine the monthly break-even in unit sales.
 
 
5.(Ignore income taxes in this problem.) Five years ago, the City of Paranoya spent $30,000 to purchase a computerized radar system called W.A.S.T.E. (Watching Aliens Sent To Earth). Recently, a sales rep from W.A.S.T.E. Radar Company told the city manager about a new and improved radar system that can be purchased for $50,000. The rep also told the manager that the company would give the city $10,000 in trade on the old system. The new system will last 10 years. The old system will also last that long but only if a $4,000 upgrade is done in 5 years. The manager assembled the following information to use in the decision regarding which system is more desirable:
 

Old System        New System
Cost of radar system…………………..$30,000$50,000
Current salvage value………………….$10,000
Salvage value in 10 years……………..$5,000$8,000
Annual operating costs………………..$34,000$29,000
Upgrade required in 5 years…………$4,000
Discount rate……………………………..14%14%

 
Required:
 
a.What is the City of Paranoya’s net present value for the decision described above? Use the total cost approach.
 
b.Should the City of Paranoya purchase the new system or keep the old system?
 
 

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