Cash Generating Unit Accounting Assignment

Assignment Task

Questions

1. The entry is as follows:-

First Entry

1. 50,000

Equipment - 1,450,000 (Dr)

Building - 1,500,000(Dr)

Land - 3,000,000(Dr)

Goodwill - 1,200,000(Dr)

To Cash A/c - 7,000,000 (Cr)

 To Loan A/C - 200,000(Cr)

Second entry

 Impairment loss A/c - 1,150,000 (Dr)

To Goodwill A/c - 1,150,000 (Cr)

The workings are as follows:-

Consideration transferred - 7,000,000

Previously held equity int - 0

Non-controlling interest.- 0

Total - 7,0000,000

Less: FV on net asset

Acquired - 5,800,000

Goodwill = 1,200,000 (7,0000,000- 5,800,000)

CGU

• Equipment - 1,450,000
• Building - 1,500,000
• 3,000,000
• Total - 5,950,000
• Less - Recoverable amount 4,800,000
• Impairment Loss - 1,150,000
• Less - Goodwill 1150,000

If a cash-generating unit or CGU has an impairment loss, any goodwill that is still in place must be used up first because goodwill can't make cash flows on its own without other assets. Since the amount of the impairment loss is only $1,150,000, the whole amount must be taken away from the goodwill. As a result, the goodwill account still has a sum of 50,000.

2. The change in lease accounting standards was made to make sure that business processes and financial reports are as open and trustworthy as possible (Raoli, 2021). By the end of the year, private businesses will have to stop following their old rules and start following the latest IFRS and FASB standards in full. The use of IFRS 16 is intended to make firms' lease obligations more clear and give a more accurate picture of their financial situation. With the Standard in place, it will be easier for companies that lease their assets and companies that borrow money to buy assets to compare their financial statements. This will make the market fairer (Díaz, Hernández & Voicila, 2019). This is the main reason why it is beneficial for financial reporting purposes.

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