Reference no: EM132572443
Ludd Ltd. (LL), a publicly accountable entity, has a cash-generating unit (CGU). LL is required to perform an impairment test on the CGU. LL provided the following information relating to its CGU:
Carrying value Fair value less costs of disposal
Equipment $ 800,000 $ 300,000
Building 1,200,000 1,100,000
Land 500,000 650,000
Goodwill 600,000 N/A
Total $3,100,000 $2,050,000
The CGU is expected to generate cash flows of $250,000 per year for the next 10 years, after which the residual value is expected to be the value of the land only, at a fair value less costs to sell of $800,000. LL has a discount rate of 7%.
Required
Question a) Identify and describe one internal and one external source of information that are indications of an asset's impairment.
Question b) Calculate the impairment loss on LL's CGU. Show your calculations.
Question c) Allocate the impairment loss to the assets of LL's CGU.
Question d) Prepare the journal entry to record the impairment of the CGU.
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