At 30 June 2014, Longreach Ltd is considering undertaking an impairment test. Having only recently adopted the international accounting standards, the management of Longreach Ltd seeks your advice in relation to this test under AASB 136 Impairment of Assets.
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Write a report to management, specifically explaining:
- the purpose of the impairment test
- how the existence of goodwill will affect the impairment test
- the basic steps to be followed in applying the impairment test.
Part B:
Crossbow Ltd is an entity that specialises in the manufacture of leather footwear for women. It has aggressively undertaken a strategy of buying out other companies that had competing products. These companies were liquidated and the assets and liabilities brought into Crossbow Ltd.
At 30 June 2015, Crossbow Ltd reported the following assets in its statement of financial position:
Land $200 000
Inventory products 180 000
Brand ‘Crossbow Shoes’ 160 000
Shoe factory 700 000
Machinery for manufacturing shoes 400 000
Goodwill on acquisition of competing companies 40 000
$1 680 000
Because of the competition from overseas as customers pursue a strategy of buying online rather than visit Crossbow Ltd’s stores, Crossbow Ltd assessed its impairment position at 30 June 2015. The indicators suggested that an impairment loss was probable. Crossbow Ltd calculated a recoverable amount of its company of $1 420 000. The fair value less costs of disposal of the land was $171 000.
Required
Prepare the journal entry(ies) for any impairment loss occurring at 30 June 2015.
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