Reference no: EM132621315
Sydney Drome Ltd is started a company to undertake research and development of a new type of drome. For this research and development (R & D) it has incurred the following expenditure in June 2020:
Transaction Amount Payment status
a) Obtaining a general understanding of wind-flow dynamics $25,000 Paid
b) Understanding what local customers expect from a drome $15,000 Incurred
c) Testing and refining a certain type of drome $45,000 Incurred
d) Developing and testing a full prototype of the drome, to be called the 'invisible drome'. $95,000 Incurred
e) Marketing of the drome $60,000 Paid
It is expected that there is a large market for the dromes, which will generate millions of dollars in revenue.
On 1 July 2020 Sydney Drome Ltd acquired Solar Dromes Ltd for cash of $10,000,000. At that date, Solar Drome's net identifiable assets had a fair value of $8,700,000. The fair value of the net identifiable assets of Solar Dromes are determined as follows:
Customer list $75,000
Machinery $2,175,000
Buildings $2,250,000
Land $4,500,000
$9,000,000
Less: Bank loan $300,000
Net assets $8,700,000
At the end of the reporting period of 30 June 2020, Solar Drome Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Solar Dromes Ltd, totals $9,000,000. The carrying amount of the net identifiable assets of Solar Dromes Ltd, which excludes goodwill, has not changed since acquisition and is $8,700,000.
REQUIRED:
Question 1: Prepare journal entries for each transaction
Question 2: Calculate the amount for impairment of goodwill as at 30 June 2020. Show all workings.
Question 3: Prepare journal entries to record impairment of goodwill as at 30 June 2020.