Question
In late July 2017, Bramble Ltd., a private company, paid $2.10 million to acquire all of...
In late July 2017, Bramble Ltd., a private company, paid $2.10
million to acquire all of the net assets of Sheffield Corp., which
then became a division of Bramble. Sheffield reported the following
statement of financial position at the time of
acquisition:
| Current assets | $415,000 | Current liabilities | $300,000 | |||
| Non-current assets | 1,335,000 | Long-term liabilities | 265,000 | |||
| Shareholders’ equity | 1,185,000 | |||||
| $1,750,000 | $1,750,000 |
It was determined at the date of the purchase that the fair value
of the identifiable net assets of Sheffield was $1.70 million. Over
the next six months of operations, the new division had operating
losses. In addition, it now appears that it will generate
substantial losses for the foreseeable future. At December 31,
2017, the fair value of the Sheffield Division is $1,900,000, and
the division reports the following statement of financial position
information:
| Current assets | $463,000 | ||
| Non-current assets (including goodwill recognized in purchase) | 2,600,000 | ||
| Current liabilities | (704,000 | ) | |
| Long-term liabilities | (525,000 | ) | |
| Net assets | $1,834,000 |
Assume that Bramble Ltd. prepares financial statements in
accordance with ASPE.
Determine the impairment loss, if any, to be recognized on
December 31, 2017.
| Impairment loss |
Homework Answers
Answer #1
Definition of goodwill : Understanding goodwill impairment is impossible without understanding goodwill. Goodwill is something that occurs when one business purchases another business for more than the fair market value of that business.
For example, assume company A has a fair amrket value of $1.701ion. Complany B decides to pay $2.10ion to buy company A.In doing so, Company B pays $1.701 ion more than the fair market value of Company A, and therefore, $1.7011ion in goodwill is created (purchase price of $2.101ion minus fair market value of $1.7011ion.
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