Question

On September 1, 2020, Piper Corporation acquired Darcy Enterprises for a cash payment of $850,000. At the time of purchase, Darcy’s statement of financial position showed assets of $890,000, liabilities of $450,000, and owner’s equity of $440,000. The fair value of Darcy’s assets is estimated to be $1,150,000. Assume that Piper is a public company and the goodwill was allocated entirely to one cash-generating unit (CGU). Two years later, the CGU’s carrying amount is $3,450,000; its value in use is $3,380,000; the fair value less costs to sell is $2,980,000.

(a) Calculate the value of goodwill acquired at September 1, 2020 and if it is a debit or a credit

(b) If the cash payment was $600,000, how would your answer to (a) change and if it is a debit or a credit

(c) Determine if goodwill is impaired in 2022, and calculate the goodwill impairment loss

Answer 1

Answer:

(1)
Darcy Enterprises is acquired by Piper Company amount for payment of cash, the following figure summarizes the goodwill acquired by Piper-

Particulars	Amount	Amount
Acquisition fee (purchase)		$850,000
Less: Fair Value of Net Asset
Market Price of Asset	$1,150,000
The market price of obligations	($450,000)	($700,000)
Goodwill		$150,000

Assets must be priced as market values. As a result, $890,000 in assets will not be included during its deduction.

(b)

Particulars	Amount	Amount
Acquisition fee (purchase)		$600,000
Less: Fair Value of Net Asset
Market Price of Asset	$1,150,000
The market price of obligations	($450,000)	($700,000)
Goodwill		($100,000)

(3)
Calculation of Impairment loss on Goodwill.

The impairment loss is the surplus of Carrying amount of assets above Carrying the recoverable value of assets

Step 1: Equal value less the expense of selling 2,980,000.

Step 2: Value of 3,380,000 in use

Step 3: The recoverable sum is greater than the fair value minus the expense to sale & the value to use.

The recoverable amount is then 3,380,000.

Step 4: Properties holding amount: 3,450,000

Step 5: Injury loss exceeds the amount calculated in Step 4 above the amount obtained in step 3

= 3,450,000 – 3,380,000 = 70,000

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