Question

At reporting date, the carrying amount of a cash-generating unit was considered to have been impaired...

At reporting date, the carrying amount of a cash-generating unit was considered to have been impaired by $8000. The unit included the following assets: Land $40000; Plant $3000; Goodwill $10000. The carrying amount of Goodwill after the impairment loss is allocated is:

A. $9000

B. $2000

C. $0

D. $10000.

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Answer #1

Option B. $2000 is the correct answer.

Explanation:

Whenever a cash-generating unit (CGU) is impaired, first of all, the impairment loss is entirely allocated to Goodwill (if any) and after that, if there is impairment loss left then it shall be allocated to other assets of the company proportionately.

In the given situation the impairment loss is $8,000 and the carrying value of goodwill is $10,000. Hence, all the impairment loss will be allocated to goodwill.

Hence, the carrying amount of Goodwill after the impairment loss is allocated = Carrying Value before goodwill - Impairment Loss of CGU

Hence, the carrying amount of Goodwill after the impairment loss is allocated = $10,000 - $8,000 = $2,000

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