1. Impairment Reversal
Look at the 2/22/2014 annual report of the British supermarket chain Tesco:
Answer the following questions:
a. Did the company have any property, plant and equipment impairment reversals in the year ended 2/22/2014? How much?
b. Calculate the following ratio: Impairment reversals/Profit before tax for 2014. Were the reversals significant relative to the profit before tax? 
c. What are the Cash Generating Units in Tesco? How is impairment measured for each CGU? What was the explanation for the impairment reversals? Do the reversals include any goodwill impairment reversals?
d. What is the U.S. GAAP rule with regard to impairment reversals?

2.PP&E Impairment
The managers of ABC Company give you the following presentation:
“Times are hard for ABC. This year’s reservations for its new cruise liner are down 70% over last year. The liner’s carrying value is $70 million and at 85% budgeted capacity, was expected to generate a 23% rate of return over a 12-year total useful life.
Management expects the downturn in bookings to recover next year but does acknowledge that there is a 30 percent chance that they will remain at present levels (only 25 percent capacity). Due to the present global economic downturn, no one has expressed an interest in buying the cruise liner and, in a buyer’s market, ABC would not expect to receive more than $40 million for it.
Using probability-weighted cash flow forecasts, ABC estimates that gross (undiscounted) cash flows over the remaining 10 years of the cruise liner’s expected time in service will be $72 million. Present value of these cash flows is $55 million.”
a) What would be the impairment charge (if any) under US GAAP? 
b) What would be the impairment charge (if any) under IFRS?
c) You believe that some of the assumptions made in the cash flows forecast are too optimistic, especially in the last few years of the forecast. You believe that the undiscounted cash flows will add up to only $66 million, and that the present value of the payments will be $52 million. What would now be the impairment charge under IFRS and US GAAP?
d) Looking at your answer to part c, which standards system (U.S. GAAP or IFRS) do you believe is more sensitive to changes in assumptions of the cash flow forecast? 

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3. Goodwill Impairment:
A company is testing a CGU for impairment at the end of 2020. The CGU has a carrying amount of $820 million which includes $350 million of goodwill. The cash flow forecast is for 10 years. The net cash flow from the CGU is expected to be $90 million in 2021, and to grow by 6% every year until 2025, and then grow by 3% every year from 2025 to 2030. The fair value of the CGU is $750 million (assume cost to sell in inconsequential). The company estimates that its discount rate (to be used in value-in-use calculations) is 7%. 
a. What is the goodwill impairment charge under IFRS? (Hint: you should use an Excel sheet to project the cash flows for the 10 years and then discount them to find value-in-use. Also assume that cash flows occur at the end of the year, so for example, the cash flow in 2021 is received only at the end of 2021). 
b. Assume the CGU is also a Reporting Unit (RU) under U.S. GAAP. What is the goodwill impairment charge under U.S. GAAP?
c. Repeat parts a and b, but now assume that the carrying value of the goodwill is only $35 million (out of the total $820 carrying value of the CGU/RU). In addition to calculating the goodwill impairment under IFRS and US GAAP, calculate the impairment required for the other identifiable assets in the CGU under IFRS, and explain why you may not have enough information to calculate the impairment required for the other identifiable assets in the RU under US GAAP. 
d. Go back to assuming that the carrying value of the goodwill is $350 million. Now assume that the company wants to do a sensitivity analysis and check what would be the goodwill impairment charge if assumptions were a bit more conservative, and specifically, if the growth of cash flow until 2025 would be 5% a year instead of 6%, and the growth in the years 2026-2030 would be zero instead of 3%. Solve parts a and b again with these new, more conservative, assumptions. 
e. (This part of the question is unrelated to the rest of the parts above). Assume a company has a Reporting Unit (RU) under US GAAP. In IFRS that RU would be split to two CGUs (CGU A and CGU B). Calculate the goodwill impairment under IFRS and US GAAP using the following information (do not include impairment of other identifiable assets):
  use the table in the attachment below 

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