The toy trains division is regarded as a CGU. In paying $2 million for the net assets of Wolf Ltd, Bad Ltd calculated that it had acquired goodwill

Financial Accounting Intro Concepts Meth/Uses
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ISBN:9781285595047
Author:Weil
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Chapter10: Long-lived Tangible And Intangible Assets
Section: Chapter Questions
Problem 25E
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IMPAIRMENT LOSS, GOODWILL

 

On 1 January 2012, Bad Ltd acquired all the assets and liabilities of Wolf Ltd.

 

Wolf Ltd has several operating divisions, including one whose major industry is the manufacture of toy trains, particularly those of historical significance.

 

The toy trains division is regarded as a CGU. In paying $2 million for the net assets of Wolf Ltd, Bad Ltd calculated that it had acquired goodwill of $240 000.

 

The goodwill was allocated to each of the divisions, and the assets and liabilities acquired measured at fair value at acquisition date.

 

At 31 December 2014, the carrying amounts of the assets of the toy train division were:

 

Factory

$250 000

Inventory

$150 000

Brand — ‘Froggy’

$50 000

Goodwill

$50 000

Total

500 000

 

There is a declining interest in toy trains because of the aggressive marketing of computer-based toys, so the management of Bad Ltd measured the value in use of the toy train division at 31 December 2014, determining it to be $423 000.

 

Required:

 

Prepare the journal entries to account for the impairment loss at 31 December 2014.

 

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