Question

Intangible Assets and Goodwill: Amortization and Impairment

In early 2018, Bowen Company acquired a new business unit in a merger. Allocation of the acquisition cost resulted in fair values assigned as follows:

Intangible Asset	Fair Value	Estimated Value
Customer lists	$500,000	5 years
Developed technology	800,000	10 years
Internet domain name	1,300,000	Indefinite
Goodwill*	6,200,000	Indefinite

* The goodwill is assigned entirely to the acquired business unit.

Impairment reviews at the end of 2018 and 2019 did not identify any impairment losses. After the business suffered a downturn during 2020, the year-end impairment review yielded the following information:

1. Customer lists are estimated to have undiscounted future cash flows of $250,000 and discounted future cash flows of $180,000.
2. Developed technology is estimated to have undiscounted future cash flows of $500,000 and discounted future cash flows of $420,000.
3. The internet domain name is estimated to have undiscounted future cash flows of $1,000,000 and discounted future cash flows of $750,000. Qualitative assessment indicates that it is more likely than not that the internet domain name is impaired
4. Because of the economic downturn, Bowen bypassed qualitative assessment of the business unit. The acquired business unit has a fair value of $17,000,000, and a carrying amount of $18,500,000.

Required

Determine Bowen’s amortization expense and impairment write-offs for 2020, following U.S. GAAP.

Summary:
Amortization expense for 2020:
Customer lists	100,000
Developed technology	80000
Total	180000
Impairment write offs for 2020:
Developed technology	$Answer
Internet domain name	550000
Goodwill	1500000
Total	$Answer

Answer 1

Amortization expense for 2020:
Customers lists	100000	(500000/5)
Developed technology	80000	(800000/10)
Total	180000
Impairment write offs for 2020:
Developed technology	140000	(560000-420000)
Internet domain	550000	(1300000-750000)
Goodwill	1500000
Total	2190000
Impairment write offs for 2020:
Developed technology	800000
Less:
Amortization Expense (80,000*3 Years)	-240000
Discounted future cash flows	-420000
	140000