CASE #005IAS 36
The Factory Everyone Pretended Was Fine.
The machines are still running. The biggest customer isn’t. Someone has to test the plant for impairment.
01The situation
Site visit · Northport plant · Kestrel Industrial Group
Kestrel Industrial Group bought a components company three years ago. The Northport plant was one of the main reasons. This year it lost its largest customer, margins fell and two lines are running below capacity.
MIKE — CEO
“The factory is working. The machines are still here. I don’t see any impairment.”
SARAH — AUDITOR
“A machine still standing doesn’t tell us how much we can recover from it.”
| Goodwill | €500,000 |
|---|---|
| Building | €3,000,000 |
| Machinery | €2,000,000 |
| Equipment | €1,300,000 |
| Total carrying amount | €6,800,000 |
| Value in use | €5,600,000 |
| Fair value less costs of disposal | €5,900,000 |
02Your mission
Stop pretending. Measure it.
- Determine the recoverable amount.
- Calculate the total impairment loss.
- Allocate the loss to goodwill first.
- Allocate the remainder to the other assets.
- Prepare the journal entry.
- Explain what a future reversal could and could not do.
03Think first
What would you do?
Every case asks for your answer before it shows you the solution. Getting it wrong here is part of the method.
04The solution
This is how the solution starts. The rest is in the full case.
STEP 1 · RECOVERABLE AMOUNT
Higher of 5,600,000 and 5,900,000
€5,900,000
Loss, goodwill allocation, pro-rata split, new carrying amounts and the reversal limit.
Unlock for $9.90What’s included
Everything you need to solve it.
- PDF caseThe story, the facts and the questions.
- Excel modelRecoverable amount, goodwill first and pro-rata allocation.
- Complete solutionStep-by-step reasoning, not just the final number.
- Journal entriesInitial impairment and a later reversal.
- Common mistakesThe ones Leo would make. And probably you too.
- Final challengeThe customer is back: how much can be reversed, and what can’t?
WHAT YOU’LL PRACTISE
Preview
A look inside.
- p. 1Cover
- p. 3The Case
- p. 7The Solution
- p. 10Journal Entries
In this case
- Mike, CEOSees working machines, not numbers.
- Sarah, AuditorAsks what is recoverable.
- Leo, Junior AccountantPicks the lower measure “to be prudent”.
Get the Complete Case — $9.90
English PDF + Excel model · instant download
Keep learning