Optimistic, Ltd., is currently carrying out an asset impairment review of its intangible asset of goodwill on its statement of financial position. The goodwill has a carrying value of $250,000 and relates to an acquisition made several years ago. The company has become aware of a decline in market expectations in relation to this acquisition, and its management does not expect the value of the goodwill to be sustainable beyond a 5-year period. The company anticipates the net cash flows as a result of continued use of the goodwill to be as follows:Year 1

Year 2

Year 2

Year 4

Year 5

Cashflow($)50,000

50,000

40,000

30,000

20,000

The company uses a discount rate of 8% for the purposes of carrying out discounted cash flow calculations. However, its management acknowledges that this rate may be too low given its current weighted average cost of capital. This is closer to 11% and may rise further depending upon the risk profile of the company.

The company has recently received an offer in respect of the prior acquisition, which would value the goodwill at $130,000, but it is not prepared to sell at this price.

With these thoughts in mind, in a 750- to 1,000-word response, submit your Hand-In-Assignment bytheend of Day 7 (Wednesday).

Required:

• In accordance with the regulatory environment, you are required to carry out an asset impairment review of the goodwill, based upon the information available and any other justified assumptions that you choose to make. Should the company write off some of its goodwill as an impairment charge and, if so, how much should be written off and why?
• Additionally, you are required to critically evaluate the asset impairment review process.