Garrick has a division that it identifies as a cash generating unit (CGU). During the year, the
Question:
Garrick has a division that it identifies as a cash generating unit (CGU). During the year, the division suffered a drop in revenue on the arrival of a new competitor into the market. Garrick believes the impact on the division's performance will be long-term and so undertakes an impairment review. The carrying amount of the assets immediately before the impairment review are: £'000
• Goodwill 15
• Patent 10
• Factory 70
• Machinery 20
• Inventory 5
The future cash flows of the division are expected to total £140,000. The net present value of these cash flows is £90,000. Garrick expects it could sell the division for £96,000 but would incur selling costs of 10%.
a) Calculate the impairment write-down to be applied to the CGU
The carrying amount of the inventory shown above reflects its measurement at the lower of cost and net realisable value. The recoverable amount of the patent is £9,000.
b) Identify how much of the impairment should be allocated to the Factory.
International Financial Reporting A Practical Guide
ISBN: 978-1292200743
6th edition
Authors: Alan Melville