Texts: Petra Co is preparing its financial statements for the year ended 30 June 20X5. The following points are relevant: Petra Co manufactures network printers for use in large offices. The market for these printers is in decline, and so an impairment review of the network printer production unit as a single cash generating unit was conducted on 30 June 20X5 in response to changes in the market. Petra Co is setting up a new production line to manufacture small desktop printers that are used with laptops. It purchased a machine on 15 December 20X4, and the following costs are relevant to the new production line: $4,000 for the machine (useful life 15 years), $200 for reinforcement of the factory floor to accommodate the machine, $50 for transport and installation in the factory, $10 for insurance (12 months), $15 for maintenance (12 months), $20 for estimated dismantling costs after 15 years (present value), $5 for testing of the machine, $4 for staff training in the use of the machine, and $2 for safety inspection of the machine prior to use.
The cash generating unit is considered to be impaired because of a decline in demand for the product. This is an external indicator of impairment. Which TWO of the following would also be external indicators of the potential impairment of an asset or cash generating unit? An increase in market interest rates leading to a rise in the entity's discount rate used in calculating the asset's value in use and a rise in the market capitalization of an entity, so that it now exceeds the carrying amount of its net assets. The introduction of legislation limiting the use of an asset and adverse changes in the economic performance of the asset.
