On September 2017, Princes Corporation acquired Royal Mile Incorporated for a cash payment of $864,300.At the time of the purchase, Royal Mile's statement of financial position showed assets of $890,600, liabilities of $469,700, and owners' equity of $420,900.The fair value of Royal Mile's assets is estimated to be $1,162,900.Assume that Princes Corporation is a public company and that the goodwill was allocated entirely to one cash-generating unit (GU).Two years later, the CGU's carrying amount is $3,530,300, the value in use is $3,458,200, and the fair value less costs to sell is $3,058,200.
Goodwill is
A)not impaired.
B)impaired by $72,100.
C)impaired by $472,100.
D)Not enough information is provided to assess impairment.

Question

Quizplus · Accepted Answer

Goodwill is impaired by $72,100. To determine if there is impairment, we need to compare the CGU's carrying amount ($3,530,300) with its recoverable amount. The higher of the two is the fair value less costs to sell ($3,058,200), which means there is impairment. To calculate the impairment loss, we need to subtract the CGU's recoverable amount ($3,058,200) from its carrying amount ($3,530,300), which results in $472,100. However, since goodwill was allocated entirely to the CGU, we need to reduce the impairment loss by the carrying amount of goodwill at the time of the purchase ($864,300 - $420,900 = $443,400), which results in an impairment loss of $28,700. Since the impairment loss is less than the carrying amount of goodwill, goodwill is impaired by $72,100 ($864,300 - $792,200 = $72,100).

On September 2017, Princes Corporation Acquired Royal Mile Incorporated for a Cash