On January 1, 20X8, Line Corporation acquired all of the common stock of Staff C

Question

On January 1, 20X8, Line Corporation acquired all of the common stock of Staff Company for $300,000. On that date, Staff's identifiable net assets had a fair value of $250,000. The assets acquired in the purchase of Staff are considered to be a separate reporting unit of Line Corporation. The carrying value of Staff's investment at December 31, 20X8, is $310,000. The fair value of the net assets (excluding goodwill) at that date is $220,000 and the fair value of the reporting unit is determined to be 260,000.

Required:

a) Explain how goodwill is tested for impairment for a reporting unit.
b) Determine the amount, if any, of impairment loss to be recognized at December 31, 20X8.

Explanation / Answer

The goodwill is the difference between the value to acquire another company and the net asset value of that company.

Goodwill tested for impairment for a reporting unit = the difference between the carrying amount and fair value of reporting unit, the difference is known as impairment loss

b) the amount of impairment loss to be recognized at December 31, 20X8 = 310000 - 260000

= 50000

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