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Hello,
I have a question concerning the example 2 of Chapter 12.
You give directly an impairment to the franchise costs because the franchise recoverable value is 30 000 while the book value is 50 000. Why?Is it because it’s a franchise and so its value is really linked to the value of going concern? Or is it in general?
If we didn’t have the possibility to sell back the franchise, the franchise would have been impaired by 30 000 * (50/200)=7 500.
It means that the right to sell back the franchise decreases its value in our books. Is it logical?Hi,
If you are only going to receive $30 million on selling it back then that is the fair value that should be reflected in the accounts, hence it is impaired.
Thanks
Hi,
But if we didn’t have the option to resell the franchise, we should impair it by 50 000?
The value of an asset is the maximum of its value at use and its recoverable price right? How can we be so sure that the value at use is less than 30 000? Of course the assets of the cash generating are impaired but why would it fall specifically on the franchise?
Hi,
If we didn’t have the resale option then the impairment would be pro rated alongside the other assets. We do not impair it in full first as it is not goodwill.
If the value in use was less than 30,000 then the higher would be the 30,000 and so we would still impair it to this amount.
Thanks
Hi,
Would it be wrong to do the full depreciation of the goodwill (-90,000) and then make the rest of the impairment on a pro-rata basis:
Buildings -15,000 (30,000*(100,000/(100,000+50,000+50,000))
Franchise costs -7,500 (30,000*(50,000/(100,000+50,000+50,000))
Other net assets -7,500 (30,000*(50,000/(100,000+50,000+50,000))After the impairment, all the assets are higher than their realisable value.
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