A subsidiary that is identified as a single cash-generating unit (CGU)has property,plant and equipment assets with a carrying amount of $100 000 and a recoverable amount of $80 000.On acquisition of the subsidiary,goodwill of $60 000 was recognised.The amount to be identified as goodwill impairment loss is:
A) $100 000.
B) $80 000.
C) $20 000.
D) $60 000.

Question

Quizplus · Accepted Answer

When a CGU has assets with a carrying amount higher than their recoverable amount, a goodwill impairment loss is recognized to reduce the carrying amount of goodwill. In this case, the recoverable amount of the CGU is $80,000, which is less than its carrying amount of assets of $100,000. Therefore, the impairment loss is calculated as the difference between the carrying amount of goodwill ($60,000) and the implied fair value of goodwill after the impairment loss ($40,000). Thus, the amount to be identified as goodwill impairment loss is $20,000 (C).

A Subsidiary That Is Identified as a Single Cash-Generating Unit