On January 1, 2007 Hoffman Financial, Inc., purchased the assets of AMG Insuranc

Question

On January 1, 2007 Hoffman Financial, Inc., purchased the assets of AMG Insurance Co. for $100,000,000. a price reflecting a $25,000,000 goodwill premium. On December 31, 2010, Hoffman determined that the goodwill from the AMG acquistion was impared and had a value of only $6,000,000

a. Determine the book value of the goodwill on December 31, 2010, prior to making the impairment adjustment.
b. Illustrate the effects on the accounts and financial statements of the December 31, 2010, adjustment for the goodwill impairment.

Explanation / Answer

Good Will is no longer amortized under US GAAP. Hence , Book Value prior to impairment would remain 25,000,000. The following entry would be passed after impairment : GoodWill Impairment Loss   19,000,000 Accumulated Loss         19,000,000

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