Question

Mam Ltd acquired Bo Ltd on 1 July 2018 for cash of $7 000 000. At that date, Bo Ltd’s net identifiable assets had a fair value of $5 800 000. The fair value of the net identifiable assets of Bo Ltd are determined as follows: (in $000)

Customer List	50
Machinery	1450
Buildings	1500
Land	3000
	6000
Less: Bank Loan	200
Net assets	5800

At the end of the reporting period of 30 June 2019, the management of Mam Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Bo Ltd, totals $6 200 000. The carrying amount of the net identifiable assets of Bo Ltd, which excludes goodwill, has not changed since acquisition and is $5 800 000.

REQUIRED

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

(b)Assume instead that at the end of the reporting period the management of Mam Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Mam Ltd, totals $4 800 000. Prepare the journal entry to account for the impairment.

Answer 1

Journal entry to account for any impairment of Goodwill
Goodwill calculation
Amount paid for acquisition	$7,000,000
Fair value of assets	$5,800,000
Goodwill	$1,200,000
Recoverable amount	$6,200,000
Fair value of assets	$5,800,000
Goodwill	$400,000
Impairment of goodwill = $1200000 - $400000 = $800,000
Loss on impairment of goodwill	$800,000
Goodwill		$800,000

b. It is assumed that the only assets is investment in Bo. Ltd, which has a fair value of $5,800,000. Now the

recoverable amount is $4,800,000 thus there is loss on impairment $1,000,000 (5800000-4800000)

Loss on impairment $1,000,000

Investment in Bo. Ltd $1,000,000