Question
Part A Impairment testing and goodwill (4 marks) With reference to relevant standards, briefly discuss: (a) The purpose of the impairment test. (b) How the
Part A Impairment testing and goodwill (4 marks)
With reference to relevant standards, briefly discuss: (a) The purpose of the impairment test. (b) How the existence of goodwill will affect the impairment test.
Part B Allocation of impairment losses, two cash-generating units (8 marks)
Miles Ltd has two divisions, Jericho and Jackson. Each of these is regarded as a separate cash-generating unit. At 31 December 2009, the carrying amounts of the assets of the two divisions were:
Jericho | Jackson | |
$ | $ | |
Plant | 1,500 | 1,200 |
Accumulated depreciation | (650) | (375) |
Patent | 240 | - |
Inventory | 54 | 75 |
Receivables | 75 | 82 |
Goodwill | 25 | 20 |
The receivables were regarded as collectable, and the inventorys fair value less costs to sell was equal to its carrying amount. The patent (Jericho) had a fair value less costs to sell of $220.
Miles Ltd undertook impairment testing at 31 December 2009, and determined the value in use of the two divisions to be: Jericho $1,044, Jackson $990.
Required:
Prepare the journal entries for Miles Ltd in relation to the impairment exercise for 31 December 2009. Explain and justify your answers, showing all necessary workings.
Note: round all figures to the nearest dollar.
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