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In: Accounting

On January 1, 2013, Porsche Company acquired the net assets of Saab Company for $449,590 cash....

On January 1, 2013, Porsche Company acquired the net assets of Saab Company for $449,590 cash. The fair value of Saab’s identifiable net assets was $375,500 on this date. Porsche Company decided to measure goodwill impairment using the present value of future cash flows to estimate the fair value of the reporting unit (Saab). The information for these subsequent years is as follows:
Year Present Value
of Future Cash Flows		 Carrying Value of
Saab’s Identifiable
Net Assets*		 Fair Value
Saab’s Identifiable
Net Assets
2014 $400,310 $329,448 $339,666
2015 $399,810 $320,151 $345,397
2016 $349,720 $299,920 $325,640

* Identifiable net assets do not include goodwill.

For each year determine the amount of goodwill impairment, if any.

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Expert Solution

Based on the information available, we can calculate the goodwill impairment, if any for each of the years as follows:-

Recorded value of goodwill = Acquisition price - Fair value of identifiable assets = $449,590 - $375,500 = $74,090

Recorded value of goodwill = $74,090

Particulars 2014 2015 2016
Step 1:-
Fair value of reporting unit 400,310 399,810 349,720
Carrying value of unit
Carrying value of identifiable net assets 329,448 320,151 299,920
Carrying value of goodwill 74,090 60,644 60,644
Total carrying value of unit 403,538 380,795 360,564
Excess of carrying value over fair value 3,228 -19,015 10,844
Step 2:-
Fair value of reporting unit(A) 400,310 349,720
Fair value of identifiable net assts(B) 339,666 325,640
Implied fair value of goodwill(A-B) = D 60,644 24,080
Carrying value of goodwill(C) 74,090 60,644
Impairment on Goodwill(D-C) -13,446 -36,564

Please note that for 2015 there is no impairment on goodwill because the fair value of the reporting unit is greater than carrying value of reporting unit and hence Step 2 is not performed.

ekkarill92 answered 2 years ago
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