At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $700 million. In addition...


Plant and equipment (depreciable assets)	$	160	million
Patent		50	million
Goodwill		110	million

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:


Plant and equipment:
Undiscounted sum of future cash flows	$	90	million
Fair value		70	million
Patent:
Undiscounted sum of future cash flows	$	21	million
Fair value		14	million
Goodwill:
Fair value of Ellison Technology Corporation	$	560	million
Fair value of Ellison's net assets (excluding goodwill)		490	million
Book value of Ellison's net assets (including goodwill)		570	million*

^*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.

Solutions

Expert Solution

1) Calculation of book value of the plant & equipment & patent
particulars			fair value 1/16
plant & equipment (A)			160
life of plant & equipment			10
depreciation			16
depreciation to date(16*3) (B)			48
book value (A)-(B)			112

Patent			50
life of patent			5
annual depreciation (50/5)			10
depreciation to date(10*3)			30
book value (50-30)			20

4) Carrying value of plant & equipment
cost			160
less: accumulated dep			48
carrying value			112
fair value			70
impairment loss (112-70) = 42million

patent has no impairment loss as undiscounted value is greater than carrying value
implied value of goodwill
fair value of ellison tech cor			560
less: fair value of ellison net assets(excluding goodwill)			490
implied value of goodwill			70

impairment loss of goodwill
carrying value of goodwill			110
less: implied value of goodwill			70
impairment loss of goodwill			40

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $700 million. In addition...

At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $700 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) $ 160 million Patent 50 million Goodwill 110 million 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...

At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $540 million. In addition...

At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $540 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) $ 144 million Patent 34 million Goodwill 110 million 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...

At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $680 million. In addition...

At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $680 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) $ 158 million Patent 48 million Goodwill 120 million 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...

At the beginning of 2019, Metatec Inc. acquired Ellison Technology Corporation for $520 million. In addition...

At the beginning of 2019, Metatec Inc. acquired Ellison Technology Corporation for $520 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) $ 142 million Patent 32 million Goodwill 100 million 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...

At the beginning of 2019, Metatec Inc. acquired Ellison Technology Corporation for $690 million. In addition...

At the beginning of 2019, Metatec Inc. acquired Ellison Technology Corporation for $690 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) $ 159 million Patent 49 million Goodwill 100 million 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...

Problem 4 At the beginning of 2012, Ross Technology, Inc. acquired the Valpo Corporation. In addition...

Problem 4 At the beginning of 2012, Ross Technology, Inc. acquired the Valpo Corporation. In addition to cash, receivables, and inventory, the following assets were recorded: Plant and equipment (depreciable assets) $120 million Developed technology (intangible asset) 60 million The plant and equipment is depreciated over an 8-year useful life on a straight-line basis. There is no estimated residual value. The purchased technology is estimated to have a 6-year useful life, no residual value, and is amortized using the straight-line...

At the beginning of 2016, Robotics Inc. acquired a manufacturing facility for $12 million. $9 million...

At the beginning of 2016, Robotics Inc. acquired a manufacturing facility for $12 million. $9 million of the purchase price was allocated to the building. Depreciation for 2016 and 2017 was calculated using the straight-line method, a 25-year useful life, and a $1 million residual value. In 2018, the company switched to the double-declining-balance depreciation method. What is depreciation on the building for 2018?

At the beginning of 2019, Robotics Inc. acquired a manufacturing facility for $12.7 million. $9.7 million...

At the beginning of 2019, Robotics Inc. acquired a manufacturing facility for $12.7 million. $9.7 million of the purchase price was allocated to the building. Depreciation for 2019 and 2020 was calculated using the straight-line method, a 25-year useful life, and a $1.7 million residual value. In 2021, the estimates of useful life and residual value were changed to 20 total years and $570,000, respectively. What is depreciation on the building for 2021?

At the beginning of 2019, Robotics Inc. acquired a manufacturing facility for $13.0 million. $10.0 million...

At the beginning of 2019, Robotics Inc. acquired a manufacturing facility for $13.0 million. $10.0 million of the purchase price was allocated to the building. Depreciation for 2019 and 2020 was calculated using the straight-line method, a 20-year useful life, and a $2.0 million residual value. In 2021, the estimates of useful life and residual value were changed to 15 total years and $600,000, respectively. What is depreciation on the building for 2021?

At the beginning of 2014, Robotics Inc. acquired a manufacturing facility for $12.6 million. $9.6 million...

At the beginning of 2014, Robotics Inc. acquired a manufacturing facility for $12.6 million. $9.6 million of the purchase price was allocated to the building. Depreciation for 2014 and 2015 was calculated using the straight-line method, a 25-year useful life, and a $1.6 million residual value. In 2016 the company switched to the double-declining-balance depreciation method. What is depreciation on the building for 2016? (Do not round intermediate calculations. Enter your answer in whole dollars.)

Subjects