Question

Kirby Corporation has three divisions. It purchased one division, Pritt Products, four years ago for $2 million. Unfortunately, Pritt experienced operating losses over the last three quarters. Kirby management is now reviewing the division for purposes of recognizing an impairment. The carrying value of Pritt Division’s net assets, including the associated goodwill is presented below:

Assets	Fair Value
Cash	$200,000
Accounts receivable	300,000
Inventory	700,000
PPE (net)	800,000
Goodwill	900,000
Liabilities	(500,000)
Fair value of net assets	$2,400,000

Kirby determines the fair value of Pritt Division at the time of the impairment analysis is $1,900,000.The fair value and carrying value of the assets are the same.

Write the journal entry to record any impairment loss (if any).

Date	Account	Debit	Credit

Answer 1

Ans: Asset impairment is said to have occurred when the fair market value of a fixed asset falls below the carrying value of the asset and the carrying value is not recoverable and here we can see in the case of Kirby the fair value of Pritt is $1.9 million but the carrying amount is $2.4 million.

First check whether FV> Carrying amount or not+ goodwill

Here 1.9mn<1.5mn+0.9mn(Goodwill)

So here the implied goodwill must be (2.4 mn-1.9mn) 0.5mn

So the journal entry is :

1 Impairment loss account   dr                    0.5million

            Goodwill account         cr                                  0.5 million

2 Profit & loss account          dr       0.5million

        Impairment loss account   cr                    0.5million