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Question - The Beverages Division is regarded as a cash-generating unit of Delta Ltd. At 30 June 2017, the carrying amounts of the assets of the CGU were as follows:
Premises $500,000
Inventory 90,000
Machinery 120,000
Vehicles 30,000
Goodwill 50,000
Delta Ltd measured the value in use of the Beverages Division at 30 June 2017, determining it to be $710,000. The company also determined that the fair value of the premises is $490,000.
Required
a. Explain why impairment testing requires the use of cash generating units (CGU).
b. Prepare the journal entry to account for the impairment loss at 30 June 2017 according to the requirements of AASB 136 Impairment of Assets. Explain the rationale for each working and journal entries.
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