Application of AASB 136 on Wentnor Dairy Company Ltd.

Solution-1
To,
The Chief Financial Officer,
The Wentnor Dairy Company Ltd.
Dear Sir,
Subject: Advice on application of AASB 136 to the company’s various activities
This letter is in reference to the application of AASB 136, “Impairment of assets” on the company’s
various activities. Let’s start with the definition of cash generating units.
A cash generating unit (or CGU) is a smallest identifiable group of assets, which generates cash inflows
and these cash inflows are largely independent from the cash inflows generated by other assets or other
cash generating units.
Para 66 of AASB 136, states that the impairment testing should be conducted on a single asset basis, but
if the recoverable amount for a single asset cannot be determined for the reason because the cash inflows
of that asset cannot be separately identified or are not independent from the cash inflows of other assets or
its value in use cannot be determined then the impairment testing should be conducted on a cash
generating units basis.
So, considering above, the impairment testing is conduct on a CGU basis, because the cash inflows
involved in the individual assets cannot be reliably estimated or calculated.
Further, for identifying the CGUs of the company, the following factors should be considered.
(a) Whether there is an identifiable group of assets whose cash flows are largely independent from
the cash flows of other assets
(b) Whether an active market exists for the assets being produced by above group of assets
irrespective of the fact that whether the produced products are used internally or externally.
Further, para 70 of AASB 136, states that (Aasb.gov.au, 2018)
“If an active market exists for the output produced by an asset or group of assets, that asset or group of
assets shall be identified as a cash-generating unit, even if some or all of the output is used internally.”
So, considering the above factors we can conclude that the milk production section is a separate CGU
since, the milk produce by the CGU can be sold externally means an active market exists for it and
further, the CGU’s cash inflows are independent of the cash inflows of other factories.
Hope it helps and have clarified the issues.
Thanks,

With Regards,
XYZ

Solution-2
Part – A – Ratio Calculation
Sr.
No. Particulars Formula 2017 2016
1 Current Ratio
Current assets/ Current
liabilities 6994.2/8824.2 7427/8992.7
0.79 0.83
2 Acid Test Ratio
(Current assets-Inventories)/
Current liabilities (6994.2-4080.4)/8824.2 (7427-4558.5)/8992.7
0.33 0.32
3
Inventory Turnover
ratio COGS/ average inventory
39,739.7/
((4080.4+4558.5)/2)
42,676.7/
((4558.5+4,872.2)/2)
9.20 9.05
4 Days in Inventory Inventory / (COGS/365) 4080.4/(39,739.7/365) 4,558.5/(42,676.7/365)
37.48 38.99
5 Gross Profit Ratio Gross Profit / Sales 15928.9/55,475.0 15,598.8/58,085.7
28.71% 26.85%
6
Accounts receivable
turnover ratio Sales / Average receivables 55475/ ((744.7+763.9)/2) 58,085.7/ ((763.9+885.2)/2)
73.55 70.45
7
Day's Sales in
Receivables Receivable / (sales/365) 744.7/(55475/365) 763.9/(58,085.7/365)
4.90 4.80
8 Debt Ratio Total debt / Total Assets (2,777.0+253.5)/22,915.8 (3,870.9+490.7)/23,502.2
13.22% 18.56%
9 Debt to Equity Ratio Total Debt / Total Equity (2,777.0+253.5)/9,876.1 (3,870.9+490.7)/8,781.9
0.31 0.50
10
Rate of return on net
sales ratio EBIT / Sales 2326/55,475.0 1,605.2/58,085.7
4.19% 2.76%
11
Rate of return on
total assets ratio EBIT / Total Assets 2326/22,915.8 1,605.2/23,502.2
10.15% 6.83%
12
Assets Turnover
Ratio
Net sales / Average total
assets
55,475.0/
((22,915.8+23,502.2)/2)
58,085.7/
((23,502.2+25,336.8)/2)

2.39 2.38
13
Rate of return on
ordinary
shareholders equity
Net income / Average
Shareholder's Equity
1,593.4/
((9,876.1+8,781.9)/2)
(2,347.9)/
((8,781.9+11,132.0)/2)
17.08% -23.58%
14 Dividend Yield DPS / MPS 2.67%
15 Dividend Payout DPS / EPS 0.62% 2.04%
Note: MPS for 30 June, 2016 is not available, hence ignored.