Conditions of impairment have been identified. The company has established that thereare two CGU's: the merchandising division and the construction division. The assets ofthe merchandising division include Building 1 and Equipment 1 and 3. The assets of theconstruction division include Building 2 and the remaining equipment. Information oneach of these assets is provided below:Carrying Value at Dec 31, 20x5$4,700,0003,236,752433,500223,125595,000306,000585,706555,000AssetResidual ValueBuilding 1Building 2Equipment 1Equipment 3Equipment 4Equipment 5Equipment 6Equipment 7$500,000200,000100,00040,000100,00030,000The following additional data has been provided.MerchandisingConstructionDivisionDivisionFair value of assetsEstimated costs to sell5,200,000500,000$5,000,000450,000Future cash flow budget$500,000500,000500,000500,000400,000$250,000350,000450,000500,000600,00020х620х720x820x9Beg of 20x10 – end of 20x24 The relevant discount rate is 6%.Required – For each of the two CGUS, prepare the impairment journal entry (if any) atDecember 31, 20x5. Assume the company follows IFRS.

Impairment is the reduction in fair value of assets in market below the carrying value of assets in…

Answered: Required – For each of the two CGUS,…

Required – For each of the two CGUS, prepare the impairment journal entry (if any) at December 31, 20x5. Assume the company follows IFRS.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Conditions of impairment have been identified. The company has established that there
are two CGU's: the merchandising division and the construction division. The assets of
the merchandising division include Building 1 and Equipment 1 and 3. The assets of the
construction division include Building 2 and the remaining equipment. Information on
each of these assets is provided below:
Carrying Value at Dec 31, 20x5
$4,700,000
3,236,752
433,500
223,125
595,000
306,000
585,706
555,000
Asset
Residual Value
Building 1
Building 2
Equipment 1
Equipment 3
Equipment 4
Equipment 5
Equipment 6
Equipment 7
$500,000
200,000
100,000
40,000
100,000
30,000
The following additional data has been provided.
Merchandising
Construction
Division
Division
Fair value of assets
Estimated costs to sell
5,200,000
500,000
$5,000,000
450,000
Future cash flow budget
$500,000
500,000
500,000
500,000
400,000
$250,000
350,000
450,000
500,000
600,000
20х6
20х7
20x8
20x9
Beg of 20x10 – end of 20x24

The relevant discount rate is 6%.
Required – For each of the two CGUS, prepare the impairment journal entry (if any) at
December 31, 20x5. Assume the company follows IFRS.

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