Problem
On December 31, 2020, a franchise that is owned by Southgate Inc., an IFRS company, has a remaining life of 28 years and a carrying amount of $900,000. Management estimates the following information about the franchise:
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Fair Value
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$1,000,000
|
|
Disposal Costs
|
44,000
|
|
Discounted cash flows (value in use)
|
1,150,000
|
|
Undiscounted future cash flows
|
1,300,000
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Make sure your final answer(s) are accurate to 2 decimal places.
I. Determine if the franchise was impaired at the end of 2020 and prepare the journal entry, if any. Enter an appropriate description, and enter the date in the format dd/mmm (ie. 15/Jan).
II. Assume now that the recoverable amount was $750,000. Prepare the journal entry for the impairment, if any. Enter an appropriate description, and enter the date in the format dd/mmm (ie. 15/Jan).
III. Assume now that the fair value at the end of 2020 was $1,150,000. Determine if the franchise was impaired at the end of 2020 and prepare the journal entry, if any. Enter an appropriate description, and enter the date in the format dd/mmm (ie. 15/Jan).
IV. Assume now that the franchise was estimated to have an indefinite life and last into perpetuity. Do the answers in parts a), b) and c) change as a result?