Company Z has goodwill carrying amount ₹180 crores at year end. The fair value less costs of disposal of the CGU is ₹150 crores and value in use is ₹170 crores. Calculate the impairment loss on goodwill and state the journal entry required to record it.
Answer
Impairment loss ₹10 crores; Debit Impairment Loss ₹10 crores, Credit Goodwill ₹10 crores
The correct answer is Impairment loss ₹10 crores; Debit Impairment Loss ₹10 crores, Credit Goodwill ₹10 crores — Journal entry: Debit Impairment Loss ₹10 crores, Credit Goodwill ₹10 crores
Step-by-step solution
- Recoverable amount = higher of Fair value less costs of disposal and Value in use
- Recoverable amount = higher of ₹150 crores and ₹170 crores = ₹170 crores
- Impairment loss = Carrying amount – Recoverable amount
- Impairment loss = ₹180 crores – ₹170 crores = ₹10 crores
- Journal entry: Debit Impairment Loss ₹10 crores, Credit Goodwill ₹10 crores
Common mistake: Using lower of the two recoverable amounts
Concept tested: Goodwill impairment
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