In an article by Paul Smith entitled ‘Telstra takes $500m hit’ that appeared in The Australian Financial Review on 3 February 2018 (p. 25), it was reported that Telstra was writing down the value of its investment in a video-streaming firm (named Ooyala) it bought for more than $500 million to zero. The company provides a software platform that allows videos to be streamed on websites and smartphones. Telstra would recognise an impairment loss of $273 million against goodwill and other non-current assets. This follows a previous year write-down of $246 million.

REQUIRED

a. How would Telstra have originally calculated the carrying amount of goodwill?

b. How do you think investors might react to the large goodwill impairment loss?