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Dear Mike,
I am not completely sure about the rule to assign the impairment to the cash generating unit.
Could you kindly confirm it ?I will explain it by an example.
Let say there is an impairment of 500
Cash generating unit
Building 900
P&E 700
Goodwill 500
Patent 120One of the machine at 300 is damage and will have to be scrapped.
The fair value of the Patent is 100Solution
Impairment 500
Damage (300)
Lost on patent (20)
Goodwill (180)Basically, first we deduct any damage which have to be scrapped.
Secondly the different between the fair value and carry amount of the asset
Then goodwill.Or .. should the goodwill be deducted first?
Thanks in advance for your response.
Gabriella
The individual machine at 300 should be dealt with first and written off
That brings the asset total value down to 1,920 (from 2,220)
You tell me that the total impairment is 500 and 300 has already been dealt with.
So just 200 more to impair
Still dealing with individual impaired assets, the 20 needs to come off the patent value leaving 180 more to impair and that 180 comes off the goodwill leaving the goodwill figure at 320
The final asset values are therefore:
Building 900
PPE 400
Patent 100
Goodwill 320= a total of 1,720
If you had set up the example with 950 impairment (so an additional 450 to come off) that would have completely eliminated goodwill by a further 320 and still leave 130 more to allocate on a pro-rata basis across the remaining assets
Those assets are:
Building 900
PPE 400So that remaining 130 impairment would be 90 against the building and 40 against the remaining PPE and a final list of assets as follows:
Building 810
PPE 360
Patent 100A total of 1,270 after an impairment of 950 coming off the original 2,220
OK?
Dear Mike,
Perfect!. Thank you so much for your explanations, always amazing
Best Regards
Gabriella
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