In: Accounting
Goodwill Impairment
On January 1, 20Y3, The Simmons Group, Inc., purchased the assets of NWS Insurance Co. for $41,762,500, a price reflecting an $5,220,313 goodwill premium. On December 31, 20Y9, The Simmons Group determined that the goodwill from the NWS acquisition was impaired and had a value of only $2,740,664.
a. Determine the book value of the goodwill on
December 31, 20Y9, prior to making the impairment adjustment.
$
b. Illustrate the effects on the accounts and financial statements of the December 31, 20Y9, adjustment for the goodwill impairment.
For decreases in accounts or outflows of cash, enter your answers as negative numbers. If no account or activity is affected, select "No effect" from the dropdown and leave the corresponding number entry box blank.
|
As per the US GAAPs goodwill is measured in the balance sheet at fair value.
If impairment is determined in goodwill, the impairment loss is recoginsed in the statement of profit and loss and the goodwill is written down to fair value less impairment loss(if any).
a. In the given case, the goodwill was recognised at $5,220,313. It is important to note that goodwill is not amortized in the balance sheet.Therefore the book value as on 31.12.2019 before impairment loss will be same as the value at which the goodwill was first recognized (i.e. $5,220,313).
b. Effect on accounts and financial statements of impairment of goodwill:-
A. Balance sheet as on 31.12.2019
Assets | Liabilities | Shareholders' Equity |
(-) 2479649 | (-)2479649 | |
The difference between the book value and impaired value (i.e. $5220313-$2740664)=$2479649 is reduced from assets (Goodwill) and shareholders' equity.
B. Statement of cash flows:
------No effect------
C. Income Statement
Particulars | Amount($) |
Expenses | |
Impairment of intangible assets | 2479649 |