In late July 2014, Mona Ltd., a private company, paid $2 million to acquire all of the net assets of Lubello Corp., which then became a division of Mona. Lubello reported the following statement of financial position at the time of acquisition:
Current assets ................ $415,000
Non-current assets .............. 1,335,000
$1,750,000
Current liabilities ............. $300,000
Long-term liabilities ............. 265,000
Shareholders' equity ............ 1,185,000
$1,750,000
It was determined at the date of the purchase that the fair value of the identifiable net assets of Lubello was $1.7 million. Over the next six months of operations, the new division had operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2014, the fair value of the Lubello Division is S1,850,000, aod the division reports the following statement of financial position information:
Current assets ......................... $462,000
Non-current assets (including goodwill recognized in purchase) ...... 2,400,000
Current liabilities ........................ (703,500)
Long-term liabilities ........................ (530,000)
Net assets ............................. $1,628,500
Assume that Mona Ltd. prepares financial statements in accordance with ASPE.
Instructions
(a) Calculate the amount of goodwill, if any, that should be recognized in late July 2014.
(b) Determine the in1pairment loss, if any, to be recognized on December 3!, 2014.
(c) Assume that the fair value of the Lubello Division on December 31,2014, is$1.5 million. Determine the impairment loss, if any, that would be recognized.
(d) Prepare the journal entry to record the impairment loss, if any, in (b) and (c) and indicate where the loss would be reported in the income statement.
(e) Explain how the accounting would differ under IFRS.