Question

P12.8 Meridan Golf and Sports was formed on July 1, 2020, when Steve Powerdriver purchased Old Master Golf Corporation. Old Master provides video golf instruction at kiosks in shopping malls. Powerdriver's plan is to make the instruction business part of his golf equipment and accessory stores. Powerdriver paid $650,000 cash for Old Master. At the time of purchase, Old Master's statement of financial position reported assets of $550,000 and liabilities of $100,000 (shareholders' equity was $450,000). The fair value of Old Master's identifiable assets was estimated to be $700,000. Included in the identifiable assets was the Old Master trade name with a fair value of $15,000 and a copyright on some instructional books with a fair value of $25,000. The trade name had a remaining legal life of five years and can be renewed indefinitely at nominal cost. The copyright had a remaining life of 40 years.

Instructions

Assume that Meridan Golf and Sports is a private company reporting under ASPE.

a. Prepare the intangible assets and goodwill section of Meridan Golf and Sports at December 31, 2020. How much amortization expense is included in Meridan's income for the year ended December 31, 2020? Show all supporting calculations.

b. Prepare the journal entry to record the amortization expense for 2021. Prepare the intangible assets and goodwill section of Meridan Golf and Sports at December 31, 2021. (No impairment needs to be recorded in 2021.)

c. At the end of 2022, Powerdriver is evaluating the results of the instructional business. Due to fierce competition from Internet sites and television, the Old Master reporting unit has been losing money and has a carrying amount (including goodwill) of $450,000 and fair value (including goodwill) of $430,000. Powerdriver has collected the following information about the company's intangible assets:

Intangible Asset		Expected Cash Flows (Undiscounted)		Fair Value
Trade name		$11,000		$ 8,000
Copyright		30,000		25,000

Prepare the required journal entries, if any, to record impairment on Meridan's intangible assets and goodwill. (Assume that amortization for 2022 has been recorded.) Show supporting calculations.

P12.9 Use the data provided in P12.8. Assume instead that Meridan Golf and Sports is a public company. The relevant information for the impairment test on December 31, 2022, is as follows:

		Carrying Amount		Future Net Cash Flows (Undiscounted)		Value in Use		FV–Selling Costs
Trade name		$ 15,000		$ 11,000		$  7,000		$  7,500
Copyright		23,438		30,000		27,000		24,000
Cash-generating unit  to which goodwill  was allocated		450,000		470,000		440,000		420,000

Instructions

Provide the calculations for the impairment test and any associated journal entry.

Answer 1

P: 12.8

a.	Meridan Golf and Sports
INTANGIBLES and GOODWILL SECTION OF STATEMENT OF FINANCIAL POSITION
December 31, 2020
Trade name	$ 15,000
Copyright (net of accumulated amortization of $313) (Schedule 1)	24,687
	39,687
Goodwill (Schedule 2)	50,000
Schedule 1 Calculation of Copyright
Cost of copyright at date of purchase	$25,000
Amortization of Copyright for 2020
[($25,000 ÷ 40) X 1/2 year]	(313)
Book value of copyright at December 31	$24,687
Schedule 2 Goodwill Measurement
Fair value of consideration transferred		$650,000
Fair value of identifiable assets	$700,000
Fair value of identifiable liabilities	(100,000)
Fair value of net identifiable assets		600,000
Value assigned to goodwill		$50,000

Amortization expense for 2020 is $313 (see Schedule 1). There is no amortization for the goodwill or the trade name, which are considered to have indefinite lives.

b.

Amortization Expense.........................	625
AccumulatedAmortization - Copyright ($25,000 ÷ 40)...........		625

There is a full year of amortization on the copyright. There is no amortization for the goodwill or the trade name, which are considered to have indefinite lives.

	Meridan Golf and Sports
INTANGIBLES and GOODWILL SECTION OF STATEMENT OF FINANCIAL POSITION
December 31, 2021
Trade name	$ 15,000
Copyright (net of accumulated amortization of $938) (Schedule 1)	24,062 39,062
Goodwill	50,000
Schedule 1 Calculation of Copyright
Cost of Copyright at date of purchase	$25,000
Amortization of Copyright for 2020, 2021 [($25,000 ÷ 40) X 1.5 years]	(938)
Book value of copyright at December 31	$24,062

c.

Loss on Impairment............................................	20,000
Accumulated Impairment Losses –Goodwill ..............................................		13,000
Accumulated Impairment Losses–Trade Name....................................................		7,000
Calculations follow in Schedule 2

Schedule 2

Indefinite-life intangibles and goodwill:

	Carrying amount	Recoverable Amount (higher of VIU or FV-SC)	Impairment
Trade Name	$15,000	$8,000	$7,000
Reporting Unit:	450,000
Trade Name Impairment	7,000
	443,000	430,000	13,000
Limited-life intangibles:
	Carrying amount	Undiscounted cash flows	Impairment
Copyright	$23,4381	$30,000	0
1[$25,000 - ($25,000 ÷40 years x 2.5 years)]

p: 12.9

	Carrying amount	Recoverable Amount (higher of VIU or FV-SC)	Impairment
Trade Name	$15,000	$ 7,500	$7,500
Copyright	23,438	27,000	0
Cash generating unit to which Goodwill was allocated	450,000 (7,500) 442,500	440,000	2,500

The impairment test for the identifiable assets would be performed first, and then the carrying amount of the CGU would be compared to its recoverable amount. The result, if the carrying amount > the recoverable amount, would be the loss on impairment – first assigned to goodwill with any remainder then allocated among the other assets on a relative book value basis.

Loss on Impairment .............................................	10,000
Accumulated Impairment Losses-Goodwill ...............................................		2,500
AccumulatedImpairment Losses-Trade Names....................................................		7,500