Soups Limited file. Gumbo is planning on going public in the next year and so your firm has

been hired to examine their financial statements and ensure that they were prepared accurately

under IFRS.

Your Manager, Suzy Lemon, calls you into her office for a meeting:

Suzy Lemon (SL): Thanks for coming to my office. We have a lot of work to do on the Gumbo

file.

You (Y): Where should I get started?

SL: Id like you to look at the goodwill on Gumbos books. Gumbo purchased Sallys Soups on

October 1, 2019. The owner of Gumbo has indicated that theyre not sure if the goodwill was

correctly computed when the acquisition was made, so Id like you to start looking into that.

Here is a list of the information I think you need to do the determination (included in Appendix

1).

Y: Sure, is that all?

SL: Id also like to check if the goodwill is impaired as of the December 31, 2022 balance sheet

date. Sallys Soups suffered some reputational issues earlier this year when it was found that they

were using full-fat cream in their fat-free line of soups. The company has apologized and has

recalled all the products, but there is still a chance that the goodwill is impaired.

Y: Do you know what the goodwill might be worth now?

SL: I have a report from a business valuator indicating the relevant values, so please take a look

at that (see Appendix 2).

Y: Anything else?

SL: No, that should be it. The folks at Gumbo are counting on their initial public offering going

smoothly so they dont want any problems with the statements. Normally, clients in this situation

want to pump up the values on their books to present a favourable picture to potential investors.

In this case, management has told me that they want things to be as accurate as possible to avoid

any issues in the future.

Required:

Prepare a memo addressing your managers concerns about the accounting at Gumbo Soups

Limited.

Appendix 1

On October 1, 2019, Gumbo Soups Limited purchased Sallys Soups. The details of the acquisition

are below:

Acquisition of Sallys Soups

Purchase price: $4,000,000

Assets acquired:

Carrying value Fair Value

Cash $150,000 $150,000

Accounts receivable $250,000 $220,000

Inventory $650,000 $820,000

Land $700,000 $2,000,000

Liabilities assumed:

Carrying value Fair Value

Accounts payable $120,000 $120,000

Bank loan $900,00 $900,000

Intangible assets acquired, not identified on the financial statements of Sallys Soups:

Carrying value Fair Value

Trademark $0 $1,000,000

Customer list $0 $300,000

Other records from the original purchase of Sallys Soups were destroyed in a fire so the firm

cannot confirm what the original goodwill was recorded for.

Appendix 2

Your firm has hired a Certified Business Valuator to evaluate the value of Sallys Soups as at the

balance sheet date. Their report is shown below.

Report from Business Valuator

I, Perry Wilkins, as a Certified Business Valuator, have extensively reviewed the financial

records of Sallys Soups, acquired by Gumbo Soups Limited on October 1, 2019. The purpose of

my evaluation is to assess the value of Sallys Soups as of December 31, 2022, for the

preparation of the financial statements of Gumbo Limited as of December 31, 2022.

Based on my analysis, I have concluded the following:

Sallys Soups

Values as at December 31, 2022

Carrying value of reporting unit, including goodwill $4,300,000

Fair value $4,200,000

Estimated costs to sell $200,000

Value in use $4,100,000

To the best of my professional judgment, I certify the above values to be accurate.

Signed,

Perry Wilkins, CBV