12-107 Determining Goodwill Impairment - ASPE and IFRS
Gandaph Corporation $\bold{\text{Carrying Amount of Net Assets Including Goodwill}}$

question 22

Essay

12-107 Determining goodwill impairment - ASPE and IFRS
Gandaph Corporation purchased a division five years ago for $ 3 million. The division has been identified as a reporting unit that is cash-generating under IFRS. Management is reviewing the division for impairment of goodwill and has estimated the fair value of the reporting unit to be $ 3.8 million and the unit's value in use to be $ 3.9 million. In addition, there would be $ 75,000 in direct costs should the company decide to sell. The carrying amounts of the division's net assets, including the associated goodwill of $ 1,350,000, are listed below.
$\bold{\text{Carrying Amount of Net Assets Including Goodwill}}$
$$\begin{array} { l r } \text { Cash } & \$ 300,000 \\\text { Receivables } & 450,000 \\\text { Inventory } & 1,050,000 \\\text { Property, plant, and equipment (net) } & 1,200,000 \\\text { Goodwill } & 1,350,000 \\\text { Less: Accounts and notes payable } &\underline{ ( 750,000 ) }\\\text { Net assets, at carrying amounts } & \underline{\$ 3,600,000}\end{array}$$
Instructions
Would goodwill be considered impaired under ASPE? Would your answer change under IFRS?

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Definitions:

Excess Capacity

A situation where a company or economy can produce more goods than are being demanded, indicating underused resources.

Average Total Cost

Average total cost is the total cost of production divided by the total quantity produced, representing the cost per unit of output.

Economic Profits

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, indicating surplus beyond the normal profit level.

Demand Curves

Graphical representations that show the relationship between the price of a good or service and the quantity demanded by consumers.