Goodwill Impairment Test
Assume that the equity method Equity Investment account relating to a subsidiary has a reported balance of $6,250,000, including a carrying value of goodwill of $619,000. You currently value that subsidiary at $5,625,000, and estimate that the fair value of the subsidiary’s net assets, other than goodwill, is $5,375,000.
Submission Requirements:
Attach a PowerPoint presentation indicating:
please find below answer. ..
| The steps required in assessing for goodwill impairment. | ||||||
| Steps required to asses for goodwill are as below - | ||||||
| Assessment of event of circumstances- Management need to assess event which can be like- Reduction in product demand, reduction in share price, decline in cash flow, increase in cost etc.. | ||||||
| Assess fair value of cash generating unit, this can be done using present value technique | ||||||
| Compare fair value with carrying value | ||||||
| If fair value is lower than carrying value goodwill should be impaired and loss should be booked | ||||||
| The determination if the above scenario indicates that goodwill is impaired | ||||||
| Goodwill should be impaired as per below calculation | ||||||
| Carrying value of goodwill = | 619000 | |||||
| Fair value of goodwill = 5,625,000-5,375,000 | 250000 | |||||
| Impairment loss = | 369000 | |||||
| The required journal entries if indeed there is goodwill impairment. | ||||||
| Dr | Cr | |||||
| Loss on goodwill impairment | 369000 | |||||
| Goodwill | 369000 | |||||
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