View an Impairment Accounting Entry

This example shows how impairment loss is calculated for a cash-generating unit (CGU).

Scenario

BOX Corporation has five business units. One of the business units handles packaging for the company. The company treats each business unit as a separate cash-generating unit for the purpose of calculating and recognizing impairment loss. The packaging business unit has three machines:

• Automatic form fill seal machine

• Batch coding machine

• Wrapping machine

Transaction Details

The company must calculate and recognize the impairment loss for the unit in the current quarter. The details are as follows:

• The goodwill amount allocated to this packaging unit is 2,000.00.

• The estimated net selling price of the packaging unit is 10,000.00.

The cost and depreciation details of the assets are as follows:

Amounts	Automatic Form - Fill and Seal Machine	Batch Coding Machine	Wrapping Machine	Packaging Business Unit
Cost	10,000 USD	10,000 USD	20,000 USD	40,000 USD
Accumulated Depreciation	5,000 USD	5,000 USD	10,000 USD	20,000 USD
Net Book Value	5,000 USD	5,000 USD	10,000 USD	20,000 USD

Details of the impairment loss calculation for the CGU are as follows:

Type	Amount
Packaging CGU Net Book Value	20,000 USD
Add: Goodwill	2,000 USD
Minus: Net Selling Price of the CGU	10,000 USD
Impairment Loss of the CGU	12,000 USD

Results of the Allocation of Impairment Loss

The impairment loss is allocated as follows:

• Goodwill asset: 2,000 USD.

• Packaging CGU: 10,000 USD is allocated to the three assets as follows:

  • Automatic Form Fill Seal Machine

    Calculation: Packaging Business Unit CGU Impairment Loss * Net Book Value (NBV) of the Automatic Form - Fill and Seal Machine / NBV of the Packaging Business Unit CGU.

    <10,000> * 5,000 / 20,000 = <2,500>

    The following table shows the accounting entry for the Automatic Form - Fill and Seal Machine impairment loss:

    Accounting Entry	DR	CR
    Impairment Expense	2,500 USD
    Impairment Reserve		2,500 USD

  • Batch Coding Machine

    Calculation: Packaging Business Unit CGU Impairment Loss * NBV of the Batch Coding Machine / (NBV of the Packaging Business Unit CGU).

    <10,000> * 5,000 / 20,000 = <2,500>

    The following table shows the accounting entry for the impairment loss of the Batch Coding Machine:

    Accounting Entry	DR	CR
    Impairment Expense	2,500 USD
    Impairment Reserve		2,500 USD

  • Wrapping Machine

    The impairment loss is calculated as follows:

    Packaging Business Unit CGU Impairment Loss * NBV of the Wrapping Machine / (NBV of the Packaging Business Unit CGU).

    The following table shows the accounting entry for the impairment loss of the Wrapping Machine:

    Accounting Entry	DR	CR
    Impairment Expense	5,000 USD
    Impairment Reserve		5,000 USD