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Compute the amount of hammerhead press impairment

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Reference no: EM132553910

Scenario 1: Hammerhead Paper Company owns a press used in the production of fine paper products. The press originally cost $2,000,000, and it has a current carrying amount of $1,200,000. A decrease in the demand for fine paper products has caused the company to reassess the future cashflows from using the machine. The company now estimates that it will receive cash flows of$160,000 per year for 12 years. The company uses a 10% discount rate to compute the present value for this investment. A similar machine recently sold for $1,000,000 in the second hand market. Hammerhead estimates that it would cost $50,000 to sell the machine.

Scenario 2: Sterling Co. acquires Vineyard Aging, Inc., on January 1, 2017, by paying $2,000,000in cash. At the date of acquisition, the price is allocated as follows:

Price paid $2,000,000,

Fair value of Vineyard's identifiable assets (1,600,000)

Goodwill $ 400,000

One year later, on December 31, 2017, Sterling estimates the fair value of the unit to be$1,800,000. The carrying value of Vineyard's identifiable assets is $1,500,000 after impairment tests are applied.

REQUIRED

Question a. Compute the amount of Hammerhead's press impairment, if any, under IFRS treatment.

Question b. Compute the amount of Sterling's goodwill impairment, if any.

Question c. How is the goodwill impairment reflected in the financial statements?

Reference no: EM132553910

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