Question

At the beginning of 2019, Metatec Inc. acquired Ellison Technology Corporation for $650 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) $ 155 million Patent 45 million Goodwill 120 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 5-year useful life, no residual value, and is amortized using the straight-line method. At the end of 2021, 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 $ 85 million Fair value 65 million Patent: Undiscounted sum of future cash flows $ 20 million Fair value 14 million Goodwill: Fair value of Ellison Technology Corporation $ 505 million Fair value of Ellison's net assets (excluding goodwill) 440 million Book value of Ellison's net assets (including goodwill) 520 million* *After first recording any impairment losses on plant and equipment and the patent. Required: 1. Compute the book value of the plant and equipment and patent at the end of 2021. 4. Determine the amount of any impairment loss to be recorded, if any, for the three assets.

Answer 1

2 - $650 million $ 155 At the Begining of purchase consideration Plant & machinery patent Goodwill - $ 45 $ 120 11 11 = lours = sum method Life of plant & machinery Depreciation NO Residual valle. & patent Gife useful life residual value method & 5 years & Nill = slum

w Cacalaton after 3 of Recoverabled yeary Recoverable amount Recoverable amount - cash flows a Sum of undiscounted futwe of fute undiscounted (or fair value of asset which even is higher. plant & machinany : So, Coyh flay = 885 mill J con) fair value = $65 million = $85 million amount - Recoverable PATENT flory = $20 million. ↑ higter cash cor) 1 & $ 14 million fair value Recovera 2 = Amt $20 million MO0 Vivo Al camera Shot on Y12 2020.02.01 09:02

6 calculation of and patent Bookvale at the End of plante machines of 2021 Depreciation Life = Deprecia = using sum lours. Asset vabe - Life Salvage voke Dep 155-0 10 Dep Depreciation 3 yeary 15.5 for lyear for 2 = 15.5x3 = $46.5 million. Book value of psm = $155-46.5 = $108.5 million. for Patenty: Depreciation Depreciati Depreciation for 3 = $45-0 5 yeary = $ 9 million yeary $9x3 - $27 million Book value of Patents - - $45-27 milton $18 million - -

Impairment Loss plant & machinery Carrying amount – Recoverable amt 108.5 million – 85 million . Impairment Loss = $23.5 million. Patent AS Recoverable amount is more than the carrying amount after 3 years. There is no Impairment Loss for PATENTS. Recoverable amt carrying amt 20 million - 18 million