Question

Company A is assigned $200,000 of goodwill arising from a recent business combination. The current carrying value of its net assets is $400,000 and the current fair value of its net assets, excluding goodwill, is $350,000. The fair value of the reporting unit is estimated to be $380,000. How much is the impairment loss?

$150,000

$170,000

$180,000

$200,000

Answer 1

Answer and Explanation:

The current fair value of its net assets of $350,000 is less than the current carrying value of its net assets of $400,000.

- Then we have to compute the implied value of goodwill by deducting the current fair value of its net assets from the fair value of the reporting unit

Implied value of goodwill = The fair value of the reporting unit - The current fair value of its net assets

= $380,000 - $350,000

= $30,000

- The Company A’s carrying value of goodwill is $200,000 which is greater than the implied value of goodwill of $30,000

Therefore, the Impairment loss will be the excess amount of goodwill over implied value

= $200,000 - $30,000

= $170,000

Therefore, The Impairment Loss will be $170,000