A cash-generating unit of a French company has a fair value of €3 million. The carrying value of the unit, including goodwill of €400,000, is €3.5 million. The present value of the future expected cash flows is €3.2 million. Assuming selling costs of €350,000, the impairment loss, in accordance with IFRS, is closest to:
a. €300,000.
b. €400,000.
c. €850,000.
Solution
To determine the impairment loss for the cash-generating unit (CGU) of the French company in accordance with IFRS, we need to follow these steps:
Given Information:
- Fair Value of CGU: €3 million
- Carrying Value of CGU (including goodwill): €3.5 million
- Present Value of Future Expected Cash Flows: €3.2 million
- Selling Costs: €350,000
Step 1: Calculate the Recoverable Amount
The recoverable amount is the higher of:
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