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How the loss should be accounted for entity

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Reference no: EM132569812

Entity C has a subsidiary - Three. It was purchased a few years ago when the payment exceeded the fair value of the subsidiary by £180,000. The following assets and liabilities of Subsidiary Three are available at 31 March 2020:

£'000

Plant and machinery        450

Equipment                       150

Patent                             90

Inventory                         50

Receivables                      40

Bank overdraft                  20

Payables                           35

Inventory, receivables and payables are all stated at their fair values. Subsidiary Three has the following expected cash flows in the next 3 years.

£'000

2021           100

2022             75

2023               50

Cash flows generated from 2023 and beyond are expected to stay at £50,000. The cost of capital for Entity C and its subsidiary Three for the purpose of impairment loss review is 10% p.a.

Question 1: Determine the impairment loss and show clearly how the loss should be accounted for in 2020 in Entity C.

Reference no: EM132569812

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