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The part where the answer is saying:
”The fact that Primal Burger Co’s revenue is projected to fall by 3.9% indicates that impairment of assets could be an issue, increasing risk of misstatement.”
My query:What is the relation between the fall in revenue and impairment of assets?
In my opinion revenue is projected to fall and hence there is already a sign of impairment being recognised in the SPL.
Please explain coz I am confused.Thank you in advance.
Primal is a CGU within the Group. On initial recognition, cost of investment/net assets are measured at fair value – FV of assets (including goodwill in the consolidated FS) anticipates a future profit stream. Therefore fall in revenue is an indicator of impairment – it doesn’t mean there will have to be a write-down – only that there must be a test to determine whether write down is needed.
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