Hugo Corporation has acquired a number of other companies over the years. As a r

Question

Hugo Corporation has acquired a number of other companies over the years. As a result, one of its reporting units (its plastics division) has reported goodwill of $600,000. Hugo is currently making its annual test to determine if goodwill has possibly been impaired. The plastics division has a book value of $4 million but a fair value of only $4.1 million. At that date, that division has the following assets and no liabilities: land (book value of $1 million and fair value of $1.3 million), buildings (net book value of $2 million and fair value of $2.2 million), equipment (net book value of $400,000 and fair value of $500,000), and goodwill (book value of $600,000 but fair value is not known). What loss should be recognized in connection with the impaired value of the goodwill?

A) Zero

B) $100,000

C) $500,000

D) $600,000

Explanation / Answer

A) Zero

Note:- As fair market value( $4.1mn) is greater than book value( $4 mn) , In this case no impairment will exist. And the company will not be allowed to write up the goodwill. That's why zero loss should be considered in connection with the impaired value of goodwill.

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