ACCT 001 Lecture Notes - Lecture 5: Book Value
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Happy Travel Group (HTG) has a small hotel in Central which was acquired on 1 January 2016 for $18 million. The fair value of the hotelâs net assets on the acquisition date and their carrying amount at the financial year end date are detailed in Table 1:
| Fair value 1 January 2016 $million | Carrying amount 31 December 2016 $million | |
| Land and building | 11.0 | 13.0 |
| Equipment | 2.7 | 2.4 |
| Cash | 4.2 | 3.5 |
| Vehicles | 0.3 | 0.2 |
| Account receivables | 1.0 | 1.5 |
| Account payables | (1.7) | (2.2) |
| 17.5 | 18.4 |
The following facts were discovered before an impairment review on 31 December 2016:
In June 2016, a rival hotel opened another âboutiqueâ hotel 50 meters away from HTGâs hotel. The revenue of HTGâs hotel was seriously affected and on 31 December 2016, the value-in-use of HTGâs hotel was $16 million.
The owner of the rival hotel has offered to buy HTGâs hotel (including all of the above net assets) for $18 million.
An independent surveyor stated the fair value of the land and building should be $12 million.
In Table 1, the carrying amount of the vehicles included a hotel vehicle which had an accident on 31 December 2016. This vehicle was beyond repair after the accident. The carrying amount of that vehicle was $40,000 and the insurance company indicated that it was used by an uninsured purpose and the loss is not covered by insurance.
A corporate client of HTG hotel owing $120,000 went into liquidation on 31 December 2016. HTG estimated that they will receive only 50% of the amount outstanding.
Required:
a Determine the amount of goodwill for HTGâs hotel on 1 January 2016. (2 marks)
b Prepare accounting journal entries to record the impairment loss of the HTG hotel on 31 December 2016. Show your workings. (15 marks)
c Explain why the impairment test of HTGâs hotel requires the use of a cash generating unit, rather than being based on individual assets. (8 marks)
Happy Travel Group (HTG) has a small hotel in Central which was acquired on 1 January 2016 for $18 million. The fair value of the hotelâs net assets on the acquisition date and their carrying amount at the financial year end date are detailed in Table 1:
| Fair value 1 January 2016 $million | Carrying amount 31 December 2016 $million | |
| Land and building | 11.0 | 13.0 |
| Equipment | 2.7 | 2.4 |
| Cash | 4.2 | 3.5 |
| Vehicles | 0.3 | 0.2 |
| Account receivables | 1.0 | 1.5 |
| Account payables | (1.7) | (2.2) |
| 17.5 | 18.4 |
The following facts were discovered before an impairment review on 31 December 2016:
In June 2016, a rival hotel opened another âboutiqueâ hotel 50 meters away from HTGâs hotel. The revenue of HTGâs hotel was seriously affected and on 31 December 2016, the value-in-use of HTGâs hotel was $16 million.
The owner of the rival hotel has offered to buy HTGâs hotel (including all of the above net assets) for $18 million.
An independent surveyor stated the fair value of the land and building should be $12 million.
In Table 1, the carrying amount of the vehicles included a hotel vehicle which had an accident on 31 December 2016. This vehicle was beyond repair after the accident. The carrying amount of that vehicle was $40,000 and the insurance company indicated that it was used by an uninsured purpose and the loss is not covered by insurance.
A corporate client of HTG hotel owing $120,000 went into liquidation on 31 December 2016. HTG estimated that they will receive only 50% of the amount outstanding.
Required:
a Determine the amount of goodwill for HTGâs hotel on 1 January 2016. (2 marks)
b Prepare accounting journal entries to record the impairment loss of the HTG hotel on 31 December 2016. Show your workings. (15 marks)
c Explain why the impairment test of HTGâs hotel requires the use of a cash generating unit, rather than being based on individual assets. (8 marks)
Happy Travel Group (HTG) has a small hotel in Central which was acquired on 1 January 2016 for $18 million. The fair value of the hotelâs net assets on the acquisition date and their carrying amount at the financial year end date are detailed in Table 1:
| Fair value 1 January 2016 $million | Carrying amount 31 December 2016 $million | |
| Land and building | 11.0 | 13.0 |
| Equipment | 2.7 | 2.4 |
| Cash | 4.2 | 3.5 |
| Vehicles | 0.3 | 0.2 |
| Account receivables | 1.0 | 1.5 |
| Account payables | (1.7) | (2.2) |
| 17.5 | 18.4 |
The following facts were discovered before an impairment review on 31 December 2016:
In June 2016, a rival hotel opened another âboutiqueâ hotel 50 meters away from HTGâs hotel. The revenue of HTGâs hotel was seriously affected and on 31 December 2016, the value-in-use of HTGâs hotel was $16 million.
The owner of the rival hotel has offered to buy HTGâs hotel (including all of the above net assets) for $18 million.
An independent surveyor stated the fair value of the land and building should be $12 million.
In Table 1, the carrying amount of the vehicles included a hotel vehicle which had an accident on 31 December 2016. This vehicle was beyond repair after the accident. The carrying amount of that vehicle was $40,000 and the insurance company indicated that it was used by an uninsured purpose and the loss is not covered by insurance.
A corporate client of HTG hotel owing $120,000 went into liquidation on 31 December 2016. HTG estimated that they will receive only 50% of the amount outstanding.
Required:
a Determine the amount of goodwill for HTGâs hotel on 1 January 2016. (2 marks)
b Prepare accounting journal entries to record the impairment loss of the HTG hotel on 31 December 2016. Show your workings. (15 marks)
c Explain why the impairment test of HTGâs hotel requires the use of a cash generating unit, rather than being based on individual assets. (8 marks)
