Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Can you help me to solve this question, please. We follow the rule that inventory should not be subjected to impairment so the allocation of

Can you help me to solve this question, please. We follow the rule that inventory should not be subjected to impairment so the allocation of impairment loss will not go into inventory.

image text in transcribed
Question 2 (a) Explain briefly what is a Cash Generating Unit (CGU), and why impairment testing requires the use of CGUs. (b) In late 2018, Starry Night Company acquired Irises Company. The statement of financial position of Irises Company as of 31 December, 2018 was as follows: Irises Company Statement of Financial Position as at 31 December, 2018 Assets Equity and Liabilities Land $125,000 Share capital-ordinary $ 800,000 Plant assets 600,000 Retained earnings 510,000 Accumulated depreciation - Plant (75,000) Accounts payable 375,000 Inventory 275,000 Receivables 550,000 Cash 210,000 Total assets $1,685,000 Total equity and liabilities $1,685,000 An appraisal, agreed to by the parties, indicated that the fair value of the inventory was $350,000 and the fair value of the plant assets was $625,000. The fair value of the receivables is equal to the amount reported on the statement of financial position. The agreed purchase price was $1,720,000, and this amount was paid in cash to the previous owners of Irises Company in early 2019. Required: (i) Determine the amount of goodwill (if any) implied in the purchase price of $1,720,000. Show your calculations. (ii) At 31 December 2019, the recoverable amount of Irises was calculated to be $310,000 less than the carrying amount of the assets of the entity. Depreciation of plant was $25,000. At 31 December 2020, the recoverable amount of Irises' assets was calculated to be $68,000 greater than the carrying amount of the assets of the entity. As a result, Starry Night Company recognised a reversal of the previous year's impairment doses Depreciation charge on plant was $18,400. Prepare ALL journal entries relating to impairment of Irises as a CGU at 31 Deceo ber 2019 and 2020. Note: In accordance with IAS 36, company should allocate the impairment loss of CGU by first writing down goodwill and then allocating loss to noncurrent assets rata on the basis of their carrying amounts. For reversal of impairment loss of CGluth amount of reversal would be allocated to noncurrent assets pro rata to their carr SHOTON MI 9T PRO 48MP3TRIPLE CAME amounts at the time of reversal, but limited to carrying amounts that would resu there had been NO impairment. Any amount thereby restricted from allocation can assigned to other non-current assets. OO

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting Creating Value in a Dynamic Business Environment

Authors: Ronald Hilton, David Platt

12th edition

1259969517, 1260566390, 978-1260417043

More Books

Students also viewed these Accounting questions

Question

What is your theoretical orientation? (For Applied Programs Only)

Answered: 1 week ago

Question

Do not pay him, wait until I come

Answered: 1 week ago

Question

Do not get married, wait until I come, etc.

Answered: 1 week ago

Question

Do not come to the conclusion too quickly

Answered: 1 week ago