Our Skills RESEARCH CASE Jonas Tech Corporation recently acquired requests your

Question

Our Skills RESEARCH CASE Jonas Tech Corporation recently acquired requests your help with the following Innovation Plus Company. The combined firm consists of elted businesses that will serve as reporting units. In connection with the acquisition, Jonas asset valuation and allocation issues. Support your answers with references to FASB ASC as appropriate. nas recognizes several identifiable intangibles from its acquisition of Innovation Plus. It expresses the desire to have these intangible assets written down t o zero in the acquisition period. The price Jonas paid for Innovation Plus indicates that it paid a large amount for goodwill. However, Jonas worries that any future goodwill impairment may send the wrong signal to its investors about the wisdom of the Innovation Plus acquisition. Jonas thus wishes to allocate the combined goodwill of all of its reporting units to one account called Enterprise Goodwill. In this way, Jonas hopes to minimize the possibility of goodwill impairment because a decline in goodwill in one business unit could be offset by an increase in the value of goodwill in another business unit. Required 1. Advise Jonas on the acceptability of its suggested immediate write-off of its identifiable intangibles 2. Indicate the relevant factors to consider in allocat ting the value assigned to identifiable intangibles acquired in a business combination to expense over time. 3. Advise Jonas on the acceptability of its suggested treatment of goodwill. 4. Indicate the releva nt factors to consider in allocating goodwill across an enterprise's business units.

Explanation / Answer

1) An intangible asset should be amortized during its useful life.It is not advisable to immediate write off the intangible assets unless and until it becomes impaired.So jonas can amortize it during its useful life but not immediately. As per statement no.142,  intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives, but without the constraint of an arbitrary ceiling.

2)The recognized intangible accounting depends on its useful life. If it has finite life than it is amortized and if it has infinite life than it is not amortized.Now the useful life of intangible assets is the expected contribution which can be directly or indireclty to the future cash flow of the company. There are other factors also like legal, effect of obsolescence,regulatory,economic factors demamd, competition,contractual etc to obtain future cash flows from the intangible asset. (para. 11 SFAS 142)

3) Jonas suggested treatment of goodwill is not appropriate. Because the increase of goodwill in one reporting unit do not offset the decrease in goodwill of other reporting unit

4) Acquiring entities usually integrate acquired entities into their operations, and thus the acquirers' expectations of benefits from the resulting synergies usually are reflected in the premium that they pay to acquire those entities. However, the transaction-based approach to accounting for goodwill under Opinion 17 treated the acquired entity as if it remained a stand-alone entity rather than being integrated with the acquiring entity; as a result, the portion of the premium related to expected synergies (goodwill) was not accounted for appropriately. The Statement No, 142 adopts a more aggregate view of goodwill and bases the accounting for goodwill on the units of the combined entity into which an acquired entity is integrated (those units are referred to as reporting units). Goodwill is to be reported separately for every reporting unit. On January 26, 2017, the FASB issued ASU 2017-04, which simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.” Hence goodwill cannot be allocated across an enterprise's business units

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