Chapter 11 Pre-Built Problems 13 At the beginning of 2016, Metatec Inc. acquired
ID: 2541255 • Letter: C
Question
Chapter 11 Pre-Built Problems 13 At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $530 million. In addition to cash, recelvables, and inventory, the following assets and their fair values were also acquired: 10 points 33 million Print over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is At the end of 2018, a change in business climate indicated to management that the assets of Ellison might be amounts have been determined: impaired. The folowing Undiscounted eum of future canh flovs Fair value 53 nillion Patent: $ 19million 12 million Tair value Goodwi11: 373 mi11ion Fair value of Ellison Technology Corporation Fair value of E1liaon's net assets (excluding goodwill) Book value of E11iaon'net assets ( 320 million 400 million* ng goodwill) After first recording any impairment losses on plant and equipment and the patent. 1. Compute the book value of the plant and equipment and patent at the end of 2018.Explanation / Answer
1. ANSWER
(i). BOOK VALUE OF PLANT & MACHINERY AS ON 2016 = $143 million
DEPRECIATION FOR 2 YEARS = ($143 million/10 years)*2 years = $28.6 million
BOOK VALUE OF PLANT & MACHINERY AS ON 2018= ($143 million-$28.6 million)=$114.4 million
(II) BOOK VALUE OF PATENT AS ON 2016 = $33 million
DEPRECIATION FOR 2 YEAR AS ON SLM BASIS
($33 MILLION/5 years)*2 years=$13.2 million
BOOK VALUE AS ON 2018= ($33 million-$13.2 million)=$19.8 million
2. ANSWER
(i) IMPAIRMENT LOSS OF P& M = (book value - fair value)
($114.4 million-$53 million)= $61.4 million
(ii) IMPAIRMENT LOSS OF PATENT =(book value - fair value)
($19.8 million-$12 million)= $7.8 million
(iii) IMPAIRMENT LOSS OF GOODWILL = NIL (because goodwill is amortised over a period of time)
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