Question

Instructions:

Individual Work

Each person of the group is required to do the problems on paper with a pencil.   You WILL NOT receive any points on the group take home score if you do not show that you did the work or do not submit the answer before your group meeting. You are required to take a picture of your work and submit your work in Blackboard BEFORE your group meets.

Group Work

Your group will meet in person or on Zoom and determine who has the right answer and what answer you will submit. Please note that often each student has a section of the problem correct but not the entire problem correct.

Your group will prepare your group answer in Excel with proper format. This is the answer that will be graded. All members of the group that have submitted Individual Work will receive the same group grade.

One member of each group will submit the Excel sheet as a PDF in Blackboard. Please review your PDF file for formatting before you submit it.

Your PDF file should be as follows:

Page One: Group Member names, Date, Time, and Location

Page Two: Depreciation, Goodwill, and Impairment Loss

Depreciation, Goodwill, and Impairment Loss

At the beginning of 2020, Brady Inc. acquired Lincoln Technology Corporation for $600 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:

Plant and equipment (depreciable assets)	$150 million
Patent	40 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 is amortized using the straight-line method.

At the end of 2022, a change in business climate indicated to management that the assets of Lincoln might be impaired. The following amounts have been determined:

Plant and equipment:
Undiscounted sum of future cash flows	$ 80 million
Fair value	60 million
Patent:
Undiscounted sum of future cash flows	$ 20 million
Fair value	13 million
Goodwill:
Fair value of Lincoln Technology Corporation	$450 million
Fair value of Lincoln’s net assets (excluding goodwill)	390 million
Book value of Lincoln’s net assets (including goodwill)	470 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 2022.
2. When should the plant and equipment and the patent be tested for impairment?
3. When should goodwill be tested for impairment?
4. Determine the amount of any impairment loss to be recorded, if any, for the three assets.

Answer 1

Solution