Question

A substitution elimination recognises consolidation goodwill of $60 000 at control date 1 January 20X2. Goodwill impairment recognised in the following year is below: Goodwill Impairment: 20X2 20X3 20X4 5,000 22,000 2,000 Required: a) Record the eliminations for goodwill and its impairment at 31 December 20X2, 20X3 and 20X4 into general journal. b) Record the eliminations of the goodwill and its impairment, if any, that are necessary 10 years after the control date, assuming no further impairment has been recognized.

Answer 1

Opening value of Goodwill as on 01/01/20x2 = $ 60000/-

(a)

(i) Journal Entry for the impairment of Goodwill as on 31/12/20x2 will be :-

By Goodwill Impairment Expense A/c - Dr. $ 5000/-

To Goodwill A/c - $ 5000/-

(Being Impairment in the value of Goodwill is recognised and transferred to the Income Statement)

Carrying Amount of Goodwill to the Balance Sheet will be - $ 55000/-

(ii) Journal Entry for the impairment of Goodwill as on 31/12/20x3 will be :-

By Goodwill Impairment Expense A/c - Dr. $ 22000/-

To Goodwill A/c - $ 22000/-

(Being Impairment in the value of Goodwill is recognised and transferred to the Income Statement)

Carrying Amount of Goodwill to the Balance Sheet will be - $ 33000/-

(iii) Journal Entry for the impairment of Goodwill as on 31/12/20x4 will be :-

By Goodwill Impairment Expense A/c - Dr. $ 2000/-

To Goodwill A/c - $ 2000/-

(Being Impairment in the value of Goodwill is recognised and transferred to the Income Statement)

Carrying Amount of Goodwill to the Balance Sheet will be - $ 31000/-

(b) On every Balance Sheet date, we should assess the Carrying Value of the Reporting Unit with its Fair Value, and if Fair Value of the Reporting Unit exceeds its Carrying Value, then  Income should be recognised in the Income Statement by reversing the Impairment of Goodwill entry already mae in earlier years., (only to the extent the value of Goodwill impaired earlier).

Thanks.