A large manufacturing company, St. George Ltd, has its operations in Newcastle. It has two cash-generating units,
Question:
A large manufacturing company, St. George Ltd, has its operations in Newcastle. It has two cash-generating units, Red Unit and Dragon Unit. At 30 June 2015, the management of the company decided to conduct impairment testing. It calculated that the recoverable amounts of the two divisions were $1 245 000 (Red Unit) and $930 000 (Dragon Unit). In considering the assets of the cash-generating units the company allocated the assets of the corporate area equally to the units.
The carrying amounts of the assets and liabilities of the two cash-generating units and the corporate assets at 30 June 2015 were as follows:
Red Unit | Dragon Unit | Corporate | |||||||||||
Equipment Accumulated depreciation (Equipment) Land Buildings Accumulated depreciation (Buildings) Furniture & fittings Accumulated depreciation (Furniture & fittings) Goodwill Cash Inventory Receivables Total assets Provisions Debentures Total liabilities Net assets | 960000 (360 000) 270000 330000 (120000) — — — 36 000 90 000 60 000 1 266000 60000 90000 150000 $1 016000 | — — 450000 420000 (180000) 90000 (30000) — 24 000 120 000 24 000 918000 120000 198000 318000 $600000 | 630 000 (150 000) 42 000 ______ 522 000 | ||||||||||
In relation to these assets:
•the receivables of both units were considered to be collectable
•the land held by the Dragon Unit had a fair value less costs of disposal of $405000.
Required
Prepare the journal entry(ies) required at 30 June 2015 to account for any impairment losses.