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Prepare journal entry to account for impairment of goodwill

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Reference no: EM132525177

Snowy Ltd acquires Pax Ltd on 1 July 2018 for $5,000,000 being the fair value of the consideration transferred. At that date, Pax Ltd's net identifiable assets have a fair value of $4,400,000. Goodwill of $600,000 is therefore the difference between the aggregate of the consideration transferred and the net identifiable assets acquired.

The fair value of the net identifiable assets of Pax Limited are determined as follows:

($000)

Patent rights 200

Machinery 1,000

Buildings 1,500

Land 2,300

       5,000

Less: Bank loan 600

Net assets 4,400

At the end of the reporting period of 30 June 2019, the management of Snowy Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Pax Ltd, totals $4,500,000. The carrying amount of the net identifiable assets of Pax Ltd, excluding goodwill, is unchanged and remains at $4,400,000.

Required:

Question a) Prepare the journal entry to account for any impairment of goodwill.

Question b) Assume instead that at the end of the reporting period the management of Snowy Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Pax Ltd, totals $4,200,000. Determine the impairment of goodwill amount. (No journal entries required)

Reference no: EM132525177

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