At the beginning of 2014, Ross Technology, Inc. acquired the Valpo Corporation f

Question

At the beginning of 2014, Ross Technology, Inc. acquired the Valpo Corporation for $350 million. In addition to cash, receivables, and inventory, the following allocations were made:

            Plant and equipment (depreciable assets)         $120            million

            Developed technology                                            60 million

            Goodwill                                                                 80 million

The plant and equipment is depreciated over an 8-year useful life on a straight-line basis. There is no estimated residual value. The purchased technology is estimated to have a 6-year useful life, no residual value, and is amortized using the straight-line method.

At the end of 2016, a change in business climate indicated to management that the property, plant, and equipment and intangible assets of Valpo might be impaired. The following amounts have been determined:

      Plant and equipment:

         Undiscounted sum of future cash flows                       $65 million

         Fair value                                                                         50 million

      Developed technology:

         Undiscounted sum of future cash flows                       $15 million

         Fair value                                                                         10 million

      Goodwill:

         Fair value of Valpo                                                     $300 million

         Fair value of Valpo’s net assets (excluding goodwill)     250 million

         Book value of Valpo’s net assets (including goodwill)    310 million *

*After first recording any impairment losses on plant and equipment and the patent.

Required:

Compute the book value of the plant and equipment and developed technology at the end of 2016.

When should the plant and equipment and the purchased technology be tested for impairment?

When should goodwill be tested for impairment?

Determine the amount of any impairment loss to be recorded, if any, for the three assets

Explanation / Answer

Computation of book value of the plant and equipment and the purchased technoly at the end of 2016. Plant and Equipment will be reported at its fair value or value since this is the lower than carrying value Book value of plant and equipment will be recorded after recognising its impairment losses So book value of plant and equipment will be 50 Million and, Book value of developed technology will be 10 Million Plant and equipment and purchased technology should be tested for impairment when 1 Asset market valued has decreased 2 There is adverse impact on the enterprise, due to change in market conditions, legal regulations and technoloy. 3 Interest rate of general expection of return on investment has increased. 4 obsolence or physical damge to asset Goodwill should be tested for impairment losses, 1 strong competitor has emerged 2 General decline in the market share of the products Amount of impairment losses to be recorded for these three asset Plant & equipment 40 Million =Book value less impairment loss Developed technoloy 30 Million =Book value less impairment loss Goodwill 30 Million =Book value less impairment loss

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