On 30 September 2020, Casal plc, a UK based company, acquired for 1,200m 75% of the share

capital of Fregula plc, a company operating in the telecommunication sector. Casal plc recognised

Fregula plcs goodwill using the full goodwill method. At the acquisition date the fair value of Fregula

plcs identifiable net assets was 950m and the fair value of Fregula plcs non-controlling interests

was 290m.

On 30 September 2021, Casal plc perform an impairment test of Fregula plcs goodwill in accordance

with IAS 36, Impairment of Assets. The impairment review performed at this date reveals the

following information:

- Fregula plcs carrying book value of net identifiable assets, after deducting all depreciation

expenses for the period, is equal to 650m.

- Fregula plc is expected to generate 200m of cash flow every year for the following five years.

- Fregula plcs net assets would raise a net total of 930m if placed on the current market on 30

September 30 2021.

- Actualization rate is 5%.

REQUIRED:

(a) Calculate the impairment loss, if any, and the goodwill that Casal plc should recognise in its

financial statements for the year ended 30 September 2021. You are required to show all your

calculations and fully state any assumptions, accounting decisions and judgements that you make

in your calculations.

(b) Explain the difference between impairment and depreciation. Support your explanations by

discussing the relevant accounting principles.