Impair goodwill on the yogurt brand The current carrying val

Impair goodwill on the yogurt brand. The current carrying value of the goodwill is 900. Net cash flows for next 5 years are 100, 100, 100, 100, and 500. Assume net cash flow is available at the end of each year. The appropriate interest rate is 5%. Apply it to the fictitious financial statements. How recorded it? What account did you debit? What account will you credit? How well you think yogurt will sell in the future?

Solution

Impairement loss is when carrying value exceeds the recoverable value In this case fair value is not given so discounted cash flow will be taken Year Amt Discount factor 5% Discounted cash flow 1 $100 0.95238 $95.24 2 $100 0.90703 $90.70 3 $100 0.86384 $86.38 4 $100 0.82270 $82.27 5 $500 0.78353 $391.76 Total $746.36 Carrying value $900 Impairment loss $153.64 Impairment Loss is dr by $153.64 and Goodwill be credited by $153.64