In 2014, Quasar Ltd. acquired all of the common stock of Penlight Laser for $124

Question

In 2014, Quasar Ltd. acquired all of the common stock of Penlight Laser for $124 million. The fair value of Penlight's identifiable tangible and intangible assets totaled $205 million, and the fair value of liabilities assumed by Quasar was $95 million. Quasar performed a required goodwill impairment test at the end of its fiscal year ended December 31, 2016. Management has provided the following information:

Required:

1. Determine the amount of goodwill that resulted from the Penlight acquisition.
2. Determine the amount of goodwill impairment loss that Quasar should recognize at the end of 2016, if any.
3. If an impairment loss is required, prepare the journal entry to record the loss.

Fair value of Penlight $115 million Fair value of Penlight’s net assets (excluding goodwill) 107 million Book value of Penlight’s net assets (including goodwill) 125 million

Explanation / Answer

1. Amount of Goodwill at the time of acquisition = Acquisition value - (Value of assets - Value on liabilities)

= 124 - (205-95) = $ 14 Million

2. Fair value of Goodwill = $115 Million - $107 Million = $8 Million. But Book value is $125 Million and Total Fair value is $ 115 Million, hence value to be reduced by $ 10 million and recongnised as Goodwill impairment

3. Debit 'Goodwill Imparment Loss A/C' and Credit 'Investment A/C'

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