Windsor Golf Inc. was formed on July 1, 2016, when Matt Magilke purchased the Ol

Question

Windsor Golf Inc. was formed on July 1, 2016, when Matt Magilke purchased the Old Master Golf Company. Old Master provides video golf instruction at kiosks in shopping malls. Magilke plans to integrate the instructional business into his golf equipment and accessory stores. Magilke paid $780,000 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $640,000 and liabilities of $190,000 (thus owners’ equity was $450,000). The fair value of Old Master’s assets is estimated to be $820,000. Included in the assets is the Old Master trade name with a fair value of $7,000 and a copyright on some instructional books with a fair value of $57,600. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 40 years.

Account Titles and Explanation

Debit

Credit

Intangible Asset

Expected Cash Flows
(undiscounted)

Fair Values

Account Titles and Explanation

Debit

Credit

Windsor Golf Inc. was formed on July 1, 2016, when Matt Magilke purchased the Old Master Golf Company. Old Master provides video golf instruction at kiosks in shopping malls. Magilke plans to integrate the instructional business into his golf equipment and accessory stores. Magilke paid $780,000 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $640,000 and liabilities of $190,000 (thus owners’ equity was $450,000). The fair value of Old Master’s assets is estimated to be $820,000. Included in the assets is the Old Master trade name with a fair value of $7,000 and a copyright on some instructional books with a fair value of $57,600. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 40 years.

Explanation / Answer

Windsor Golf Inc. Intangible section- balance sheet as on Dec 31.2016 $ Trade name 7000 Copy right (Note:1) 56880 Good will (Note:2) 150000 Total 213880 Note: No amortization required for Trade mark and goodwill since they have indefinite life. Notes 1 Value of copy right 57600 Less: Amortisation for 6 months (57600/40)*6/12 720 Net value 56880 2 Purchase consideration 780000 Less: Fair value of Old master's assets 820000 Liabilities of old master -190000 630000 Goodwill 150000 Account titles and explanation Debit Credit Amortization expense 1440 Copy right (57600/40) 1440 Windsor Golf Inc. Intangible section- balance sheet as on Dec 31.2017 $ Trade name 7000 Copy right (56880-1440) 55440 Good will 150000 Total 212440 Impairment: Goodwill is considered as impaired since fair value of reporting unit ($400000) is less than its book value ($480000). Impairment=150000-70000=$ 80000 Tradename is considered as impaired since fair value ($6300) is less than its book value ($7000) Impairment=7000-6300=700 copyright is not considered as impaired since fair value ($58000) is more than its book value ($55440) Account titles and explanation Debit Credit Loss on impirment 80700 Good will 80000 Trade name 700

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