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ACC E272 Lecture Notes - Lecture 15: Current Asset, Indirect Costs, Sales Tax

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rubyporpoise450
24 Dec 2020
School
HCC
Department
Accounting
Course
ACC E272
Professor
Dawson

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Document Summary

If there"s a possible impairment of a limited life intangible, use the rules that apply to impairments of pp&e. Recoverability test, fair value test, computing loss, no restoration of loss. If there"s a possible impairment of an indefinite life intangible other than goodwill, use the fair value test (asset"s carrying value compared to the asset"s fair value). They don"t use the recoverability test since cash flows may extend many years into the future, thus easily passing the test. If there"s a possible impairment on goodwill, use the fair value test on the reporting unit. If the fair value is less than the carrying value, do the fair value test on goodwill. Do fair value of assets- net asset (excluding goodwill) to find implied goodwill then compare the implied goodwill to the actual goodwill to see if there"s a loss. Presentation of intangible assets: the reporting of intangible assets is similar to the reporting of pp&e.

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Related Questions

Baker Inc. currently follows U.S. GAAP and is evaluating whetherto switch to IFRS. Baker’s Controller is concerned that severalintangible assets on the company’s books may be impaired.

The following information relates to a specific non-goodwillintangible asset with a finite life that the company is holding fordisposal in Year 1:

• Carrying value: $4,350
• Present value of future cash flows (fair value): $3,520
• Sum of undiscounted expected future cash flows: $3,975
•

Estimated costs to sell: $345

Baker is also concerned about goodwill on its books, which it isevaluating at both a reporting unit level (GAAP) and acash-generating unit level (IFRS). The following informationrelates to goodwill in Year 1:

• Reporting Unit level:
- Carrying value: $915,000
- Fair value: $820,000
- Fair value assigned to assets and liabilities: $760,000
- Goodwill: $75,000
• Cash-generating Unit level:
- Carrying value: $350,000
- Fair value: $325,000
- Costs to sell: $55,000
-

Present value of future cash flows (equal to fair value):$325,000

1.Calculate the impairment loss on the intangible asset underGAAP

2. If the fair value exceeds the carrying value in Year 2, willa reversal be allowed under GAAP?

3. If IFRS were used, calculate the impairment loss on theintangible asset

4. Calculate the impairment loss on goodwill under GAAP

5. Calculate the impairment loss on goodwill under IFRS

PUT THIS BELOW IN YOUR OWN WORDS NEED THIS ASAPTHANKS

1.Because Disney has developed its brand name itself instead ofpurchasing it from another company, no value is recognized in thefinancial statements. However, Disney does recognize the costs ofregistering and successfully defending its rights andtrademarks.

2.

The Company is required to testgoodwill and other indefinite-lived intangible assets forimpairment on an annual basis and between annual tests if currentevents or circumstances require an interim impairment assessment.Goodwill is allocated to various reporting units, which aregenerally an operating segment or one reporting level below theoperating segment. The Company compares the fair value of eachreporting unit to its carrying amount to determine if there ispotential goodwill impairment. If the fair value of a reportingunit is less than its carrying value, an impairment loss isrecorded to the extent that the fair value of the goodwill withinthe reporting unit is less than the carrying value of its goodwill.Amortizable intangible assets are generally amortized on astraight-line basis over periods of up to 40 years.

Information regarding the impairment of goodwill that specifically concerns Simon is related to the acquisition of Pizazz, Inc., (the leading manufacturer of hair color products in the U.S.) that occurred in 2016 and resulted Salon Solutions recording $125 million in goodwill related to this acquisition in 2016. After acquisition, Pizazz Inc. continues to operate as a separate company and is considered a reporting unit. At the end of 2017, events and circumstances indicated that it is “more likely than not” that the fair value of Pizazz is less than book value. Simon determined the following information pertaining to Pizazz: As of 12/31/17 the book value of Pizazz’s net assets is $560 million, including the $125 million in goodwill. Pizazz’s estimated fair value as of 12/31/17 is $445 million, and the fair value of all its identifiable tangible and intangible assets, excluding goodwill, is estimated to be $425 million. These estimates were based on prices of comparable businesses. Your firm has delegated to you the task of determining the treatment of goodwill impairment.works cited page)

1. What is the current standards that govern US GAAP treatment of goodwill?

2. What is the current standards that govern US GAAP treatment of goodwill impairment and how to determine the amount of the goodwill impairment loss using the data pertaining to Salon Solutions given above.

3. Prepare the journal entry to record the impairment loss and explain how this loss is reported on the income statement (ignore income tax effects). In addition, if an impairment loss is recorded, indicate the amount of goodwill to be reported on the statement of financial position as of 12/31/17.

4. Whether early adoption of the Financial Accounting Standards Board Accounting Standards Update (FASB ASU) 2017-04 is allowed, and if so, how to determine the amount of the goodwill impairment loss based on early adoption of FASB ASU 2017-04 using the goodwill data pertaining to Salon Solutions given above. Also, if applicable, prepare the journal entry to record the impairment loss per FASB ASU 2017-04 should Salon Solution’s owner elect to adopt FASB ASU 2017-04 early. In addition, if an impairment loss is recorded, indicate the amount of goodwill to be reported on the statement of financial position as of 12/31/17.

5. The required financial statement note disclosures regarding goodwill impairment assuming Salon Solution’s President elects to adopt FASB ASU 2017-04 early (ignore income tax effects).