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In April 2016 the company purchased a segment of another business from Karen’s Coffees Ltd and paid $ 950 000 for it. Karen’s Coffees is a coffee bean roasting business and the book value of the net assets acquired amounted to $ 620 000. We are unsure as to how we should record this transaction in our books of account. Margaret who used to write up the books for us mentioned that the difference was “goodwill” and that we should show it in our books as an asset, namely goodwill.
However Kate thinks we should treat this quite differently and has told the board of directors that the business segment we purchased (namely, coffee bean roasting) may not be as successful as we think. She thinks that we may have overpaid for the business and is suggesting we evaluate the business segment as a cash generating unit and consider the need to impair it.
The board is quite confused and would like very clear guidelines about this matter.Hi,
If you’re asking me to give the guidelines to the board then I’d suggest that the acquisition gives rise to goodwill on the purchase of the business and then the goodwill may subsequently be impaired at the reporting date. To assess any impairment we need to compare the carrying value to the recoverable amount, following the guidelines in IAS 36.
Thanks
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