Question 2

You are the financial accountant for Flounder Ltd. (Flounder), a large multinational company headquartered in Dublin, Ireland. You are currently preparing the financial statements for the year ended 31 December 2018 and are trying to resolve one single issue relating to impairment, detailed below. Flounders operations consist of a number of cash generating units (CGUs).

At 31 December 2018, the carrying amount of one CGU is as follows:

Goodwill 50,000 Property 700,000 Trade Receivables 150,000 Total carrying amount 900,000 T

he fair value of the CGU was determined to be 600,000. Five years of cashflows were used to estimate the value in use. Net cash inflows of 140,000 are expected in years one to four and a net cash inflow of 500,000 is expected in year five. A discount rate of 8% should be used for all value in use calculations and all cashflows should be assumed to occur at the end of each year. The company also estimates that any disposal of the CGU would result in disposal costs of 50,000. Requirements:

a) Provide the name of the accounting standard that primarily deals with impairment. Provide the definition of impairment including a brief explanation of all specific terms that relate to the core definition. (11 marks)

b) Calculate the impairment charge arising on the CGU and provide the appropriate journals to account for the impairment in the accounts of Flounder.