Chapter 11 Pre-Built Help Save & 13 At the beginning of 2016, Metatec Inc. acqui

Question

Chapter 11 Pre-Built Help Save & 13 At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $530 million. In inventory, the following assets and their fair values were also acquired: addition to cash, recelvables, and 10 points iable assets) $143 million 33 milliom 20 million Print The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The References patent is estimated to have a 5-year useful life, no residual value, and is amortized using the straight-line method. At the end of 2018, a change in business climate indicated to management that the assets of Elison might be impaired. The following amounts have been determined: Undiscounted sun of future cash flows Fair value s 73 million 53 nillion Patent Undiscounted sun of future cash flows Fair value s 19 million 12 million Goodwi12 $373 mi1lion 320 niliion Fair value of Ellison Technology Corporation Fair value of E11ison's net assets (excluding goodvi11) Book value of E1lison's net assets (including goodwi11)400million. 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

Solution:(1): Calculation of book value:

(a) Plant and Equipment:

Depreciation to date = (143/10)*3 = $42.9 million

Book value = 143-42.9 = $100.1 million

(b) Patent:

Amortization to date = (33/5)*3 = $19.8 million

Book value = 33-19.8 = $13.2 million

Solution:(4): Calculation of impairment loss:

(a) Plant and Equipment: An impairment loss is indicated because the book value of the assets $100.1 million is greater than the $73 million undiscounted sum of future cashflows. The amount of impairment loss is determined as follows:

(b) Patent: There is no impairment loss because the undiscounted sum of future cashflows $19 million is greater than the book value of $13.2 million.

(c) Goodwill: An impairment loss is indicated because the book value of the assets of the reporting unit, $400 million, is greater than the $373 million fair value of the reporting unit. The amount of impairment loss is determined as follows:

Determination of implied Goodwill:

Measurement of impairment loss:

Particulars Amount ($) in millions Book value 100.1 Less: Fair value 53 Impairment loss 47.1

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