At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $590 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) $ 149 million Patent 39 million Goodwill 120 million The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a five-year useful life, no residual value, and is amortized using the straight-line method. At the end of 2024, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined: Plant and equipment: Undiscounted sum of future cash flows $ 79 million Fair value 59 million Patent: Undiscounted sum of future cash flows $ 20 million Fair value 13 million Goodwill: Fair value of Ellison Technology Corporation $ 439 million Book value of Ellison’s net assets (excluding goodwill) 380 million Book value of Ellison's net assets (including goodwill) 460 million* *After first recording any impairment losses on plant and equipment and the patent. Required: Compute the book value of the plant and equipment and patent at the end of 2024. When should the plant and equipment and the patent be tested for impairment? When should goodwill be tested for impairment? Determine the amount of any impairment loss to be recorded, if any, for the three assets.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.1.1MBA

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At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $590 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:

Plant and equipment (depreciable assets)	$ 149	million
Patent	39	million
Goodwill	120	million

The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a five-year useful life, no residual value, and is amortized using the straight-line method.

At the end of 2024, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined:

Plant and equipment:
Undiscounted sum of future cash flows	$ 79	million
Fair value	59	million
Patent:
Undiscounted sum of future cash flows	$ 20	million
Fair value	13	million
Goodwill:
Fair value of Ellison Technology Corporation	$ 439	million
Book value of Ellison’s net assets (excluding goodwill)	380	million
Book value of Ellison's net assets (including goodwill)	460	million*

^*After first recording any impairment losses on plant and equipment and the patent.

Required:

Compute the book value of the plant and equipment and patent at the end of 2024.
When should the plant and equipment and the patent be tested for impairment?
When should goodwill be tested for impairment?
Determine the amount of any impairment loss to be recorded, if any, for the three assets.

Plant and equipment
Patent
Goodwill
Impairment Loss
million
million
million

Plant and equipment
Patent
Book Value
million
million

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