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)

periwinklespider656

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)

taupefrog166

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)

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ACCT 1A Lecture Notes - Lecture 11: Book Value

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