Estimating Goodwill Impairment On January 1 of the current year, Engel Company p

Question

Estimating Goodwill Impairment

On January 1 of the current year, Engel Company purchases 100% of Ball Company for $8.4 million. At the time of acquisition, the fair value of Ball’s tangible net assets (excluding goodwill) is $8.1 million. Engel ascribes the excess of $300,000 to goodwill. Assume the fair value of Ball declines to $6.25 million and the fair value of Ball’s tangible net assets is estimated at $6.15 million as of December 31.

a. Determine if the goodwill has become impaired and, if so, the amount of the impairment.

b. What impact does the impairment of goodwill have on Engel’s financial statements?

Explanation / Answer

(a) Orignal Goodwill value = 300,000 Cueent goodwill value = 625,000-615000 = $100,000

impairment of goodwill = 200,000

(b) The goodwill would be reduced in financial staement by 200,000 and would be charged to income statement

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