Question
At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and
At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:
Plant and equipment (depreciable assets) | $ 150 | million |
---|---|---|
Patent | 40 | million |
Goodwill | 100 | million |
The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a five-year useful life, no residual value, and is amortized using the straight-line method.
At the end of 2024, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined:
Plant and equipment: | ||
---|---|---|
Undiscounted sum of future cash flows | $ 80 | million |
Fair value | 60 | million |
Patent: | ||
Undiscounted sum of future cash flows | $ 20 | million |
Fair value | 13 | million |
Goodwill: | ||
Fair value of Ellison Technology Corporation | $ 450 | million |
Book value of Ellisons net assets (excluding goodwill) | 370 | million |
Book value of Ellisons net assets (including goodwill) | 470 | million*Footnote asterisk |
*Footnote asteriskAfter first recording any impairment losses on plant and equipment and the patent.
Required:
- Compute the book value of the plant and equipment and patent at the end of 2024.
- When should the plant and equipment and the patent be tested for impairment?
- When should goodwill be tested for impairment?
- Determine the amount of any impairment loss to be recorded, if any, for the three assets.
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