Question $3(13$ marks$)$

Popeye Inc. acquired $400,000$ of the $500,000$ outstanding common shares of Sailor Limited on July $1,$

$2013,$ by issuing $510,000$ of its own common shares with an estimated market value of $$10$ per share

and paying cash of $$100,000.$

On July $1,2013,$ Sailor Limited's financial statements included common shares of $$3,000,000$ and

retained earnings of $$2,050,000.$ All the company's assets and liabilities were fairly valued except for

the following:

The inventories were sold by the end of $2013.$ The fixed assets and customer list had a remaining useful

life of five years and ten years respectively on the acquisition date. The long$-$term debt matures on June

$30,2019.$ Any goodwill arising from the acquisition was tested for impairment each year. Impairment of

$$120,000$ was determined to have occurred in $2015$ and a further impairment of $$140,000$ in $2016.$

Popeye accounts for its investment in Sailor using the equity method and values the non$-$controlling

interest in the subsidiary at fair value, proportionate to the price paid for the controlling interest.

Required:

$($a$)$ Calculate the amount of goodwill that will appear in the consolidated financial statements prepared

immediately after the acquisition by Popeye Inc. of its interest in Sailor Limited.

$($b$)$ Prepare an amortization and impairment schedule for the acquisition differential arising from this

business combination. Your schedule should cover the period from the acquisition date to the end

of $2016.$