At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation f

Question

At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $570 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:

The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The 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 Ellison might be impaired. The following amounts have been determined:

*After first recording any impairment losses on plant and equipment and the patent.

Required:

1. Compute the book value of the plant and equipment and patent at the end of 2018.
4. Determine the amount of any impairment loss to be recorded, if any, for the three assets.

Plant and equipment (depreciable assets) $ 147 million Patent 37 million Goodwill 110 million

Explanation / Answer

Explanation (1) Plant & Equipment Depreciation till date [2016-2018] 3years =$147/10yrs*3yrs =44.10 million $ Book value at 2018 end =147-44.10 million =$102.9 million Patent Depreciation till date [2016-2018] 3years =$37/5yrs*3yrs = 22.20 million $ Book value at 2018 end = 37-22.20 million =$ 14.8 million Plant & Equipment Patent Bok Value at End of 2018 =$102.9 million =$ 14.8 million Fair Value 87 mil 13mil Impairment loss 15.9 million 1.8 million Goodwill An impairment loss is indicated because the BV of the asset of the rporting unit, $440 million is greater than $417 million fairvalue of reporting unit The amount of impairment loss is determined as under: Fair value of Ellison Technology 417 million $ Fair value of Ellison Technology (net asset) excluding goodwill 360 million $ Impied value of godwill 57 million $ Measurment of Impairment loss BV of Goodwill 110 million $ Less: Impied value of godwill 57 million $ Impairment Loss of Goodwill 53 million $

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