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Chapter 12: Q12-8IFRS (page 656)

Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of \(400,000. The Johnson Division’s net assets, including the goodwill, have a carrying amount of \)800,000. The recoverable amount of the division is estimated to be $1,000,000. Prepare Waters’ journal entry, if necessary, to record an impairment of the goodwill.

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Step by step solution

01

Meaning of Goodwill 

Goodwill is the fraction of the purchase price that is greater than the net fair value of all the assets and liabilities sold. When a firm buys a new business, it obtains goodwill, which is an intangible asset (one that isn't tangible but has a long-term worth).

02

Preparing journals entry 

Goodwill is not deemed to be damaged since the recoverable amount of the division exceeds the carrying amount of the assets. There is no need to register any entry.

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