On 30 June 2020 Sunny Ltd acquired all assets (except for cash), and assumed the accounts payable of Snowy Ltd. At this date, the carrying amounts of assets and liabilities of Snowy Ltd were:

Cash	$40,000	Accounts payable	$36,000
Inventory	15,000	Debentures (5%)	160,000
Building	405,000	Share capital ($4.00 shares)	440,000
Accumulated depreciation	(180,000)	Retained earnings	172,000
Land	408,000
Patent	120,000

The assets and liabilities of Snowy Ltd are at fair value except for: land, which has a fair value of $420,000; and building, which has a fair value of $200,000.

In exchange for these net assets, Sunny Ltd agreed to:

• issue three (3) Sunny Ltd shares for every four (4) shares in Snowy Ltd. On 30 June 2020 Sunny Ltd shares were valued at $4.50
• transfer a block of land. On acquisition date, the land has a fair value of $205,000 (carrying amount in Sunny Ltd accounts $170,000)
• provide sufficient additional cash in order for Snowy Ltd to redeem the debentures at 5% premium and pay liquidation costs of $3,000.

After recording all assets acquired, and any arising out of the combination, management of Sunny Ltd will assess the new business as a cash-generating unit (CGU) for impairment testing purposes. If goodwill arises in business combinations, Sunny Ltd assigns this to the division that has been acquired.

Required

a) Prepare an acquisition analysis for Sunny Ltd’s acquisition of Snowy Ltd on 30 June 2020. (10 marks)

On 31 December 2020, management of Sunny Ltd believed that due to changes in demand for some of the services, the assets belonging to the recently acquired division (acquired from Snowy Ltd) were impaired. They calculated recoverable amount for the CGU to be $700,000.

Assume that in the 6 months since acquiring the division from Snowy Ltd that the building has an up-dated carrying amount of $190,000 and the inventory account has a balance of $18,000. All other assets acquired are at amounts recorded by Sunny Ltd on 30 June 2020.

Sunny Ltd does not use a revaluation model to measure any assets. However Sunny Ltd has been able to obtain a fair value for the land on 31 December 2020 as $400,000.

Required:

b) Calculate impairment loss for the division and record the necessary journal entry. (10 marks)