the blissopia leisure group consists of three divisions blissopia 1 which operates m 1572039

The Blissopia Leisure Group consists of three divisions: Blissopia 1, which operates mainstream bars; Blissopia 2, which operates large restaurants; and Blissopia 3, which operates one hotel – the Eden. Divisions 1 and 2 have been trading very successfully and there are no indications of any potential impairment. It is a different matter with the Eden however. The Eden is a ‘boutique’ hotel and was acquired on 1 November 2006 for $6.90m. The fair value (using net selling price) of the hotel’s net assets at that date and their carrying value at the year-end were as follows:

The following facts were discovered following an impairment review as at 31 October 2007:

(i) During August 2007, a rival hotel commenced trading in the same location as the Eden. The Blissopia Leisure Group expects hotel revenues to be significantly affected and has calculated the value-in-use of the Eden to be $3.52m.

(ii) The company owning the rival hotel has offered to buy the Eden (including all of the above net assets) for $4m Selling costs would be approximately $50,000.

(iii) One of the hotel vehicles was severely damaged in an accident whilst being used by an employee to carry shopping home from a supermarket. The vehicle’s carrying value at 31 October 2007 was $30,000 and insurers have indicated that as it was being used for an uninsured purpose the loss is not covered by insurance. The vehicle was subsequently scrapped.

(iv) A corporate client, owing $40,000, has recently gone into liquidation. Lawyers have estimated that the company will only receive 25% of the amount outstanding.

Required

Prepare a memo for the directors of the Blissopia Leisure Group explaining how the group should account for the impairment to the Eden Hotel’s assets as at 31 October 2007.