QUESTION FOUR  

Pratola plc has identified a cash generating unit that has a carrying value of £740,000 and that is composed of the following assets: 

At the end of 2019 the cash generating unit has been subjected to an impairment review. The review has indicated that an item of equipment (included in the above figure of £140,000) with a carrying value of £40,000 has been severely damaged and is virtually worthless. There is no other evidence of obvious impairment of other specific assets. The impairment review also revealed that the cash generating unit has a value in use of £410,000 and could be sold for £490,000. The associated selling costs would be £60,000.

Required:

(a) Calculate the associated impairment losses and allocate the impairment losses to the items of the cash generating unit at 31st December 2019. Explain the basis of your calculations.

(b) Goodwill is not an asset. Discuss if you agree or disagree with this statement by supporting your opinion with relevant arguments.