On July 31, 2019, Mexico Company paid $3,000,000 to acquire all of the ordinary shares of Conchita
Question:
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,750,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2019, Conchita reports the following statement of financial position information.
Current assets.....................................................................$ 450,000
Non-current assets (including goodwill recognized in purchase)...........2,400,000
Current liabilities..................................................................(700,000)
Non-current liabilities............................................................(500,000)
Net assets........................................................................$1,650,000
It is determined that the recoverable amount of the Conchita Division is $1,850,000.
Instructions
a. Compute the amount of goodwill recognized, if any, on July 31, 2019.
b. Determine the impairment loss, if any, to be recorded on December 31, 2019.
c. Assume that the recoverable amount of the Conchita Division is $1,600,000 instead of $1,850,000. Determine the impairment loss, if any, to be recorded on December 31, 2019.
d. Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement.
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...
Step by Step Answer:
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield