Question

12. a. Fast owns 100% of Slow and had recorded $700,000 of goodwill from acquiring Slow many years ago. It is now 3 years later and the fair value of Slow is $1,300,000 and the book value of Slow excluding of goodwill is $1,100,000.

b. Assume same facts as part a. except that the fair value of Slow is $900,000 instead of $1,300,000. What is the amount of goodwill impairment, if any (use 2020 rules).

Answer 1

12.a) Goodwill already recorded when acquired 100% slow is $ 700,000.

Now, 3 years later fair value of slow is $ 1,300,000 and the book value is $ 1,100,000 excluding goodwill.

So. goodwill to be computed as on now will be: $ 1,300,000- $ 1,100,000 = $ 200,000

Goodwill to be impaired is $ 700,000- $200,000 = $ 500,000

b) Goodwill as on today is: $ 900,000 - $ 1,100,000 = 0 ,as goodwill can not be negative.

Goodwill to be impaired is & 700,000 - 0 = $700,000