Kingston Corporation has $95 million of goodwill on its books from the 2011 acqu
ID: 449386 • Letter: K
Question
Kingston Corporation has $95 million of goodwill on its books from the 2011 acquisition of Reliant Motors. At the end of its 2013 fiscal year, management has provided the following information for its required goodwill impairment test ($ in millions):
FV of Reliant 655
FV of reliant net asset 600
BV of reliant net asset 700
PV of est future cash flows 670
Assuming that Reliant is considered a reporting unit for U.S. GAAP and a cash-generating unit for IFRS, the amount of goodwill impairment loss that Kingston should recognize according to U.S. GAAP and IFRS, respectively, is:
GAAP IFRS
a. 45 m 45m
b. 55m 45m
c. 0 30
d. 40 30
Show your work please!
Explanation / Answer
Answer - d. 40 30
FV of Reliant =655
FV of reliant net asset =600
BV of reliant net asset =700
PV of est future cash flows= 670
Under US GAAP, goodwill imparement loss is the excess of the carrying amount of an asset group over its fair value.
Goodwill imparement loss =Goodwill in 2011-(FV of Reliant-FV of reliant net asset)= 95-(655-600)= 40
Under IFRS, The impairment loss is the excess of the carrying amount of the asset over its recoverable amount.
Goodwill imparement loss = BV of reliant net asset-PV of est future cash flows = 700-670= 30
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