The carrying amount of a cash-generating unit was considered to be impaired. The impairment loss was €600. The cash-generating unit included the following assets:
$\bullet$Goodwill €1000;
$\bullet$Buildings €2000;
$\bullet$Plant and Equipment €1500.
The carrying amount of Goodwill after allocation of the impairment loss is:
A) €0;
B) €867;
C) €600;
D) €400.

Question

The carrying amount of a cash-generating unit was considered to be impaired. The impairment loss was €600. The cash-generating unit included the following assets: 
$\bullet$Goodwill €1000;
$\bullet$Buildings €2000;
$\bullet$Plant and Equipment €1500.
The carrying amount of Goodwill after allocation of the impairment loss is:
A) €0;
B) €867;
C) €600;
D) €400.

Quizplus · Accepted Answer

When allocating an impairment loss, the loss is first applied to reduce the carrying amount of any goodwill allocated to the cash-generating unit. The remaining impairment loss is then allocated to the other assets of the unit on a pro-rata basis. Since the impairment loss is €600 and goodwill is €1000, the entire impairment loss is absorbed by the goodwill, reducing its carrying amount to €400 (€1000 - €600).

The Carrying Amount of a Cash-Generating Unit Was Considered to Be