On May 31, 2011, Talker Company (a US company) paid US$4,000,000 to acquire all
ID: 2453101 • Letter: O
Question
On May 31, 2011, Talker Company (a US company) paid US$4,000,000 to acquire all of the common stock of Shayden Corporation (an Australian company), which now became a division of Talker. Shayden reported the following US$ balance sheet at the time of the acquisition:
Book Value $
Fair Value $
Current Assets
900,000
1,500,000
Noncurrent Assets
2,700,000
2,300,000
Current liabilities
(600,000)
(700,000)
Long-term liabilities
(500,000)
(400,000)
At December 31, 2011, Shayden reports the following US$ balance sheet information:
Book Value $
Fair Value $
Current Assets
800,000
400,000
Noncurrent Assets (excluding Goodwill)
1,500,000
1,100,000
Current liabilities
(700,000)
(700,000)
Long-term liabilities
(500,000)
(400,000)
During the annual impairment test conducted on December 31, 2011, it was determined that the fair value of the Shayden division as a whole would be equal to the present value (using a discount rate of 10%) of the following estimated future cash follows:
December 31, 2012
December 31, 2013
December 31, 2014
December 31, 2015
December 31, 2016
$265,000
$265,000
$265,000
$265,000
$265,000
Required:
Compute the amount of goodwill recognized, if any, on 5/31/11.
Determine the implied fair value of goodwill on 12/31/11.
Determine the goodwill impairment loss, if any, to be recorded on 12/31/11.
On the assumption that the fair value of Shayden on December 31, 2010 was $1,800,000 (instead of using present values), determine the goodwill impairment loss, if any, to be recorded.
Book Value $
Fair Value $
Current Assets
900,000
1,500,000
Noncurrent Assets
2,700,000
2,300,000
Current liabilities
(600,000)
(700,000)
Long-term liabilities
(500,000)
(400,000)
At December 31, 2011, Shayden reports the following US$ balance sheet information:
Book Value $
Fair Value $
Current Assets
800,000
400,000
Noncurrent Assets (excluding Goodwill)
1,500,000
1,100,000
Current liabilities
(700,000)
(700,000)
Long-term liabilities
(500,000)
(400,000)
Explanation / Answer
Amount of good will recognized on 31-05-2011
Current assets - $1500000
Non Current Assets - $2300000
Current Liabilities - -$700000
Long term Liabilities - -$400000
Fair Value of Tangible Assets - $2700000
Purchase Price - $4000000
Value assigned to Good Will - $1300000
Calculation of Impaired fair Value of Goodwill
Fair Value of Shayden Division = $265000/1.101+$265000/1.102+ $265000/1.103+
$265000/1.104+$265000/1.105 = $1004558
Current Assets - $800000
Non Current Assets - $1500000
Current Liabilities - -$700000
Long Term Liabilities - -$500000
Carrying Value of Tangible Assets - $1100000
Fair Value of Shayden Division - $1004558
Less Net Identifiable Assets - $1100000
Implied Value of Good will - - $95442
Carrying Amount of Good will - $1300000
Less Implied Value of Good Will - $ 95442
Loss on Impairment - -$1204558
If the Fair value of Shayden Division as on 31-12-2011 was 1800000
Fair Value of Shayden Division - $1800000
Less Net Identifiable Assets - $1100000
Implied Value of Good will - $700000
Carrying Amount of Good will - $1300000
Less Implied Value of Good Will - $700000
Loss on Impairment - -$600000
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