Question

Grouper Corporation purchased Skysong Company 3 years ago and at that time recorded goodwill of $380,000. The Skysong Division’s net assets, including the goodwill, have a carrying amount of $790,000. The fair value of the division is estimated to be $720,000.

Prepare Groupers' journal entry, if necessary, to record impairment of the goodwill. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Impairment Loss A/c Dr $ 70,000

To GoodWill A/c $ 70,000

Loss on Impairment is first adjusted against Goodwill before adjusting it against other assets

Gooodwill is an Intangible asset and recorded in books only when purchased through acquisitions and mergers.Goodwill has to be amortised within a reasonable time.It has a finite life.

Impairment loss is the difference between Fair value or Value in use and the carrying amount of the asset

$ 70000 arrived is the difference between $ 790000- $ 720000 . The difference can be considered as difference between recorded goodwill and Implied Goodwill