Toy Ltd has two business units, Barnacles and Pingu, which represent separate ca
ID: 2486655 • Letter: T
Question
Toy Ltd has two business units, Barnacles and Pingu, which represent separate cash-generating units (CGU). At 30 June 2015, the carrying amounts of the assets of the units, valued pursuant to the cost model, are provided as follows.
Barnacles
Pingu
$
$
50,000
-
165,000
125,000
-
185,000
25,000
-
45,000
15,000
285,000
325,000
On 30 June 2015, the directors of Toy Ltd estimate that the fair value less cost to sell for Barnacles and Pingu amount to $255,000 and $297,500 respectively. The value in use of Barnacles and Pingu are estimated at $260,000 and $295,000 respectively.
Required:
Provide the journal entries to account for Toy Ltd’s impairment loss. It is essential to show all your workings and explain your answers where necessary. Show the carrying amounts of the individual assets of each unit after recognising any impairment losses.
Barnacles
Pingu
$
$
Motor vehicles50,000
-
Plant and equipment165,000
125,000
Land and buildings-
185,000
Patents and trademarks25,000
-
Goodwill45,000
15,000
Total285,000
325,000
Explanation / Answer
for calculation of inpairment loss
impairment loss = (carrying amount - recoverable amount)
carrying amount = that is book value after depriciation
recoverable amount = net selling price or value in use which ever is higher
= impairment loss on barnacles
IL = (285000-260000)
IL=25000
that is adjusted to goodwill
1. profit and loss a/c dr 25000
to impairment loss 25000
2.impairment loss a/c dr 25000
to goodwill a/c 25000
= impairment loss on pingu
IL = (325000-297500)
IL= 27500
1.profit and loss a/c dr 27500
to impairment loss dr 27500
2. impairment loss a/c dr 27500
to good will a/c 15000
to plant & eq. a/c 5040
to land and building a/c 7460
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