Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Snowy Ltd acquires Pax Ltd on 1 July 2018 for $5,000,000 being the fair value of the consideration transferred. At that date, Pax Ltd's net

Snowy Ltd acquires Pax Ltd on 1 July 2018 for $5,000,000 being the fair value of the consideration

transferred. At that date, Pax Ltd's net identifiable assets have a fair value of $4,400,000. Goodwill of

$600,000 is therefore the difference between the aggregate of the consideration transferred and the

net identifiable assets acquired.

The fair value of the net identifiable assets of Pax Limited are determined as follows:

($000)

Patent rights 200

Machinery 1,000

Buildings 1,500

Land 2,300

5,000

Less: Bank loan 600

Net assets 4,400

At the end of the reporting period of 30 June 2019, the management of Snowy Ltd determines that

the recoverable amount of the cash-generating unit, which is considered to be Pax Ltd, totals

$4,500,000. The carrying amount of the net identifiable assets of Pax Ltd, excluding goodwill, is

unchanged and remains at $4,400,000.

Required:

a) Prepare the journal entry to account for any impairment of goodwill. (6 marks)

b) Assume instead that at the end of the reporting period the management of Snowy Ltd determines

that the recoverable amount of the cash-generating unit, which is considered to be Pax Ltd, totals

$4,200,000. Determine the impairment of goodwill amount. (No journal entries required)

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

Financial Accounting

Authors: Carl S. Warren, Christine Jonick, Jennifer Schneider

16th Edition

1337913103, 9781337913102

More Books

Students also viewed these Accounting questions

Question

What is depreciating the US dollar?

Answered: 1 week ago

Question

14. Now reconcile what you answered to problem 15 with problem 13.

Answered: 1 week ago