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Ajax is reviewing its previous 100% acquisition of Baxter to determine if there is goodwill impairment....

Ajax is reviewing its previous 100% acquisition of Baxter to determine if there is goodwill impairment. At December 31, 2020 Ajax has recorded Goodwill of $330,000 on its books relating to this acquisition. At December 31, 2020, Baxter had a book value of net assets of $400,000 (excluding goodwill) and an estimated fair value for the company of $600,000. What is the amount (if any) of the goodwill write-off required to be booked by Ajax at December 31, 2020 under the FASB rules effective in 2020.

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Answer #1

Goodwill = 330000

Book Value excluding goodwill= 400000

Book value on Balance sheet including goodwill= 400000+330000= 730000

Value of the company on Dec 31, 2020= 600000+330000= 930000

Company would compare current fair market value of 300000 plus 330000 of goodwill (a total of 930000) to the 730000 it has recorded as Company's value on its books.

Reduction in goodwill= 930000-730000= 200000

Goodwill reduced by 200000 (Impairment).

The goodwill entry on its balance sheet goes from 330000 to 130000.

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