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Entity C has a subsidiary - Three. It was purchased a few years ago when the payment exceeded the fair value of the subsidiary by £180,000. The following assets and liabilities of Subsidiary Three are available at 31 March 2020:
£'000
Plant and machinery 450
Equipment 150
Patent 90
Inventory 50
Receivables 40
Bank overdraft 20
Payables 35
Inventory, receivables and payables are all stated at their fair values. Subsidiary Three has the following expected cash flows in the next 3 years.
2021 100
2022 75
2023 50
Cash flows generated from 2023 and beyond are expected to stay at £50,000. The cost of capital for Entity C and its subsidiary Three for the purpose of impairment loss review is 10% p.a.
Question 1: Determine the impairment loss and show clearly how the loss should be accounted for in 2020 in Entity C.
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