Refer to the situation described in BE 11–20. Assume that the fair value of SCC is $44 million instead of $40 million.

Refer to the situation described in BE 11–20. Assume that the fair value of SCC is $44 million instead of $40 million. What amount of impairment loss should WebHelper recognize?

Data From BE 11-20

WebHelper Inc. acquired 100% of the outstanding stock of Silicon Chips Corporation (SCC) for $45 million, of which $15 million was allocated to goodwill. At the end of the current fiscal year, an impairment test revealed the following: fair value of SCC, $40 million; book value of SCC’s net assets (including goodwill), $42 million. What amount of impairment loss should WebHelper recognize?

Expert Solution

Impairment for Goodwill:

Impairment loss for goodwill is indicated when book value of reporting unit is more than its fair value and it should be measured as the excess of the book value of the goodwill over its implied fair value.

Implied fair value of goodwill is a balance amount calculated by deducting the fair value of all identifiable net assets from the fair value of reporting unit.

Calculate amount of impairment loss to be recognized:

In the given case, fair value of reporting unit (SCC) is $44 million and its book value of net assets is $42 million.

Here, fair value of reporting unit (SCC) ($44 million) is more than its book value ($42 million). This indicates that there is no requirement to indicate impairment loss for goodwill.

If there is no indication of impairment loss for goodwill, impairment loss need not be measured and recognized by the company.

Hence, impairment loss to be recognized is nil.

Junaid answered 2 years ago

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