In late July 2020, Mona Ltd., a private company, paid $2 million to acquire all of the net assets of Lubello Corp., which then became a division of Mona. Lubello reported the following statement of financial position at the time of acquisition:

It was determined at the date of the purchase that the fair value of the identifiable net assets of Lubello was $1.7 million. Over the next six months of operations, the new division had operating losses.

In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2020, the fair value of the Lubello Division is $1,850,000, and the division reports the following statement of financial position information:

Current assets .......................................................................................................... $ 462,000Non-current assets (including goodwill recognized in purchase) ...................... 2,400,000Current liabilities ........................................................................................................ (703,500)Long-term liabilities ................................................................................................... (530,000)Net assets ................................................................................................................ $1,628,500

Assume that Mona Ltd. prepares financial statements in accordance with ASPE.

Instructions

a. Calculate the amount of goodwill, if any, that should be recognized in late July 2020.

b. Determine the loss on impairment, if any, to be recognized on December 31, 2020.

c. Assume that the fair value of the Lubello Division on December 31, 2020, is $1.5 million. Determine the loss on impairment, if any, that would be recognized.

d. Prepare the journal entry to record the loss on impairment, if any, in parts (b) and (c) and indicate where the loss would be reported in the income statement.

e. Explain how the accounting would differ under IFRS.

f. Shortly after Mona purchased Lubello, Lubello incurred losses and its future does not look promising. What advice can you provide to Mona?s management team for any future acquisitions the company may be considering?

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Current liabilities Long-term liabilities Shareholders' equity Current assets Non-current assets $ 300,000 265,000 1,335,000 1,185,000 $1,750,000 $1,750,000