At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation f

Question

At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $630 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired Plant and equipment (depreciable assets $153 million Patent Goodwil1 43 million 100 million The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a 5-year useful life, no residual value, and is amortized using the straight-line method At the end of 2018, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined: Plant and equipment: Undiscounted sum of future cash flows Fair value 83 million 63 million Patent: Undiscounted sum of future cash flows Fair value 20 million 13 million Goodwil1: Fair value of Ellison Technology Corporation Fair value of Ellison's net assets (excluding goodwill) 483 million 420 million

Explanation / Answer

a) 1) Book Value of Plant and Equipment = $153 - $45.90* $107.10 Million Depreciation to date* $153 million/10 years = $15.3 million per year x 3 years = $45.90 Million 2) Book Value of Patent = $43 - $25.80* $17.20 Million Amortization to date* = $43 Million / 5 years = $8.6 million per year x 3 years = $25.80 Million d) Plant and equipment Book value $107 Million Less:Fair Value $63.00 Million Impairment loss $44 Million An impairment loss is indicated because the book value of the assets, $107 million, is greater than the $83 undiscounted sum of future cash flows Patent Impairment loss $0.00 There is no impairment loss because the undiscounted sum of future cash flows, $20 million, exceeds book value of $17.20 million Goodwill An impairment loss is indicated because the reporting book value of the Goodwill $500 million, is greater than the $483 fair value of the reporting goodwill. Determination of implied goodwill Fair value of Ellison Technology $450.00 Million Fair value of Ellison's net assets (excluding goodwill) -$390.00 Million Implied value of goodwill $60.00 Million Book value of goodwill $100.00 Million Implied value of goodwill -$60.00 Million Impairment loss $40.00 Million

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