Question

Q1. (25 marks) Calculation of and journal entries for impairment of goodwill Gandaph Corporation purchased a division five years ago for $ 3 million. The division has been identified as a reporting unit that is cash-generating under IFRS. Management is reviewing the division for impairment of goodwill and has estimated the fair value of the reporting unit to be $ 3.2 million and the unit's value in use to be $ 3.3 million. In addition, there would be $ 75,000 in direct costs should the company decide to sell. The carrying amounts of the division's net assets, including the associated goodwill of $ 1,350,000, are listed below. Carrying amount of Net Assets Including Goodwill Cash $ 300,000 Receivables 450,000 Inventory 1,050,000 Property, plant, and equipment (net) 1,200,000 Goodwill 1,350,000 Less: Accounts and notes payable (750,000) Net assets, at carrying amounts $ 3,600,000

Answer 1

recoverable amount is higher of "value in use" and "fair value less cost to sell"

3300000 - value in use and 3200000-75000=3125000 - fairvalue less cost to sell

recoverable amount = 3300000

carrying amount = 3600000

impairment loss = 300000

so the impairment will charge on the goodwill first and if the goodwill remaining then it tis charge to other assets on pro-rata basis

goodwill = 1350000-300000=1050000

journal entries

DR impairment loss $300000

CR goodwill $300000