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Hi Mike!
I have some issue solving a problem in the BPP kit.
Need your help!During the year to 31 December 20X7 Systria acquired Dominica for $10 million, its tangible assets being valued at $7 million and goodwill on acquisition being $3 million. Assets with a carrying amount of $2.5 million were subsequently destroyed. Systria has carried out an impairment review and has established that Dominica could be sold for $6 million, while its value in use is $5.5 million.
What is the CV of goodwill?
1. The answer is $1.5M
2. I have done:
The CV is $10M. The RA is $6M, therefore an impairment loss of $4M.
$2.5M should be impaired, leaving a balance of$7.5M (7-2.5+3) and an impairment of $1.5M.
Therefore if we allocate it goodwill, then $0.6(3/7.5 x1.5) should be duducted.3. Could you locate where I am getting things wrong and also how to obtain the answer?
With an impairment, before we start allocating to different classes of asset, we eliminate goodwill – in full if necessary.
Thus, with the question that you have posted, the full $1.5m impairment will be allocated to goodwill.
Had the impairment been $3.5m, then $3m would have gone against goodwill bringing it down to $nil and then $.5m would be allocated pro-rata against the various sub-classes of other assets
OK?
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