Accounting

Accounting for impairment of assets

On 1 January 2016 Bright Ltd (Bright) acquired all the assets of Star Ltd (Star). It was decided that Star is a Cash Generating Unit in its own right.

At 31 December 2016, the carrying amounts of the assets for Star, including the goodwill that was recognised upon acquisition, were as follows:

 

$

Buildings

1,200,000

Accumulated depreciation – buildings

(320,000)

Machinery

800,000

Accumulated depreciation – machinery

(200,000)

Inventory

320,000

Cash

200,000

Goodwill

80,000

Bright undertook impairment testing at 31 December 2016 and determined that the value in use of Star to be $1,920,000. The inventory is recorded at lower of cost and net realisable value. The buildings had a fair value less costs to sell of $836,000.

Required:

Provide the journal entries to account for the impairment loss for Star for the year ended 31 December 2016. It is essential to show all your workings and explain your answers where necessary.

 

 

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