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) Patent Goodwill $ 155 million 45 million 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: $ 85 million 65 million Plant and equipment: Undiscounted sum of future cash flows Fair value Patent: Undiscounted sum of future cash flows Fair value Goodwill: Fair value of Ellison Technology Corporation Fair value of Ellison's net assets (excluding goodwill) Book value of Ellison's net assets (including goodwill) $ 20 million 14 million $ 505 million 440 million 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. Complete this question by entering your answers in the tabs below. Required 1 Required 4 Compute the book value of the plant and equipment and patent at the end of 2021. (Enter your answers in millions.) Plant and equipment Patent Book Value million million < Required 1 Required 4 >

Answer 1

a)
1)
Book Value of Plant and Equipment = $155 - $46.50*	$108.50	Million
Depreciation to date*
$155 million/10 years = $15.5 million per year x 3 years =	$46.50	Million
2)
Book Value of Patent = $45 - $27*	$18	Million
Amortization to date* = $45 Million / 5 years = $9 million per year x 3 years =	$27	Million
d)
Plant and equipment
Book value	$108.50	Million
Less:Fair Value	$65.00	Million
Impairment loss	$43.50	Million
An impairment loss is indicated because the book value of the assets, $108.50 million, is greater than the $85 undiscounted sum of future cash flows
Patent
Impairment loss	$0.00
There is no impairment loss because the undiscounted sum of future cash flows, $20 million, exceeds book value of $18 million
Goodwill
An impairment loss is indicated because the reporting book value of the Goodwill $520 million, is greater than the $505 fair value of the reporting goodwill.
Determination of implied goodwill
Fair value of Ellison Technology	$505.00	Million
Fair value of Ellison's net assets (excluding goodwill)	-$440.00	Million
Implied value of goodwill	$65.00	Million
Book value of goodwill	$120.00	Million
Implied value of goodwill	-$65.00	Million
Impairment loss	$55.00	Million