Reference no: EM132973849
On 1 July 2018, Carmichael Ltd acquired all the assets and liabilities of GeminiJets Ltd. GeminiJets Ltd has a number of operating divisions, including one whose major activity is the manufacture of model aircraft, particularly those of historical significance. The model division is regarded as a CGU. In paying $2 million for the net assets of GeminiJets Ltd, Carmichael Ltd calculated that it had acquired goodwill of $240,000. The goodwill was allocated to each of the divisions, and the assets and liabilities acquired measured at fair value at acquisition date.
At 30 June 2021, the carrying amounts of the assets of the model division were
Factory: 250,000
Inventories: 150,000
Key model brand: 50,000
goodwill: 50,000
There is a declining interest in aircraft models because of the aggressive marketing of computer-based entertainment, so the management of Carmichael Ltd measured the value in use of the model division at 30 June 2021, determining it to be $475,000.
Required:
Problem (a) Prepare the journal entries to account for the impairment loss at 30 June 2021.
Problem (b) Prepare the journal entries as above, but now, assume the value in use of the model division at 30 June 2021 was determined to be $423,000.
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