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.