Question

Lowell Company recently acquired 100% of Boston, which has three businesses units, recognizing goodwill in each acquisition. Boston has allocated its acquired goodwill to its three reporting units: Lexington, Acton, and Chelmsford. Boston provides the following information in performing the 2018 annual review for impairment:

		Carrying Value	Fair Value	Fair value of the Unit
Lexington	Assets other than goodwill	500,000	420,000	525,000
	Liabilities	(30,000)	(20,000)
	Goodwill	130,000	?
Acton	Assets other than goodwill	500,000	560,000	600,000
	Liabilities	(10,000)	(20,000)
	Goodwill	80,000	?
Chelmsford	Assets other than goodwill	350,000	320,000	200,000
	Liabilities	(150,000)	(100,000)
	Goodwill	20,000	?

How much goodwill impairment should Lowell report for 2018?

Answer 1

Step 1 - Goodwill Impairment Test

	Total fair Value (without Goodwill)	Total Carrying Value (with Goodwill)	Potential goodwill impairment?
Lexington	$400,000	$600,000	Yes
Acton	$540,000	$570,000	Yes
Chelmsford	$220,000	$220,000	No

Step 2 - Goodwill Impairment loss (Lexington)

Lexington - total fair value		$525,000
Fair Values of identifiable net assets
Assets other than goodwill	$420,000
Liabilities	(20,000)	$400,000
Implied Value of goodwill		$125,000
Carrying Value of Goodwill		$130,000
Impairment Loss		$5,000	$5,000

Goodwill Impairment loss (Acton)

Acton - total fair value		$600,000
Fair Values of identifiable net assets
Assets other than goodwill	$560,000
Liabilities	(20,000)	$540,000
Implied Value of goodwill		$60,000
Carrying Value of Goodwill		$80,000
Impairment Loss		$20,000	$20,000

Total Impairment Loss = $5,000 + $20,000 = $25,000

Lowell will report goodwill impairment loss of $25,000 for 2018.