Intangible Assets and Goodwill: Amortization and Impairment In early 2015, Bowen

Question

Intangible Assets and Goodwill: Amortization and Impairment In early 2015, Bowen Company acquired a new business unit in a merger. Allocation of the acquisition cost resulted in fair values assigned as follows: Intangible Asset Fair Value Est Value Customer lists $500,000 5 years Developed technology 800,000 10 years Internet domain name 1,300,000 Indefinite Goodwill* 6,200,000 Indefinite * The goodwill is assigned entirely to the acquired business unit. Impairment reviews at the end of 2015 and 2016 did not identify any impairment losses. After the business suffered a downturn during 2017, the year-end impairment review yielded the following information: Customer lists are estimated to have undiscounted future cash flows of $250,000 and discounted future cash flows of $180,000. Developed technology is estimated to have undiscounted future cash flows of $500,000 and discounted future cash flows of $420,000. The internet domain name is estimated to have undiscounted future cash flows of $1,000,000 and discounted future cash flows of $750,000. Qualitative assessment indicates that it is more likely than not that the internet domain name is impaired. Because of the economic downturn, Bowen bypassed qualitative assessment of the business unit (Step 0). The acquired business unit has a fair value of $17,000,000, a carrying amount of $18,500,000, and the fair value of its identifiable net assets is $14,200,000. Required Determine Bowen's amortization expense and impairment write-offs for 2017.

Explanation / Answer

Impairment of Customer List (500,000-180,000) = 320000

Impairment of Developed tech (800,000-420,000) = 380000

Impairment of Internet Domain (1,300,000-750,000) = 550000

Impairment of Goodwill (18500000-17000000) = 1500000

(Only if goodwill is fully impaired , then the net identifiable assets will be impaired proportionately)

TOTAL IMPAIRMENT = $2,750,000

If this answer was helpful , Please leave a thumbs up! If you are unsatisfied with my answer , please leave a note in the comments section and I will try my best to clarify it for you. All the best! Thanks :) Feel free to comment for any clarifications.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.