Question

At the beginning of 2019, Metatec Inc. acquired Ellison Technology Corporation for $700 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) $160 million Patent 50 million Goodwill 110 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: 90 million Undiscounted sum of future cash flows Fair value 70 million Patent 21 million 14 million 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) $560 million 490 million 570 million* After first recording any impairment losses on plant and equipment and the patent.

Answer 1

Required 1 Plant and equipment Patent 112 Required 4 Plant and equipment Patent Goodwill 40 Required 1 notes Plant and equipment ( 10 years useful life) A cost B Depreciation per year (142/10) C Depreciation for 3 years (B x 3) D Book value at the end of 2021 (A-C) Rounded to $ $ $ $ $ 160.00 16.00 48.00 112.00 112 Patent( 5 years useful life) A cost B Depreciation per year (142/5) C Depreciation for 3 years (B x 3) D Book value at the end of 2021 (A-C) Rounded to 50.0 10.0 30.0 20.0 20 $ goodwill As per GAAP good will never amortized. There for book value shall remain the same cost 100 Book value at the end of 2021 $ 100

Required 4 notes Plant and equipment Carrying value (calculated above) $ 112 Undiscounted future cash flows Carrying value is greater than Undiscounted future cash flows. Thus the asset is impaired A Carrying value B Fair value Impairment loss $ $ $ 112 70 42 Patent Carrying value (calculated above) $ 20 Undiscounted future cash flows 21 Carrying value is less than Undiscounted future cash flows. Thus the asset is not impaired goodwill A Fair value of Ellison technology $ 560.00 B Book value of net asset excluding good will $490.00 C Implied fair value of good will $ 70.00 Calculation of Impaired loss - goodwill A Book value at the end of 2021 B Implied fair value of good will C Impairment loss (A-B) $ $ $ 110.00 70.00 40.00