On May 1, 2011, Walker Company (a US company) paid US$4,500,000 to acquire all of the common stock of Hayden Corporation (an Australian company), which now became a division of Walker.
Question 1On May 1, 2011, Walker Company (a US company) paid
US$4,500,000 to acquire all of the common stock of Hayden Corporation (an Australian company), which now became a division of Walker. Hayden reported the following US$ balance sheet at the time of the acquisition:
Book Value $
Fair Value $
Current Assets
900,000
1,500,000
Noncurrent Assets
2,700,000
2,300,000
Current liabilities
(600,000)
(700,000)
Long-term liabilities
(500,000)
(400,000)
At December 31, 2011, Hayden reports the following US$ balance sheet information:
Book Value $
Fair Value $
Current Assets
700,000
800,000
Noncurrent Assets (excluding Goodwill)
1,200,000
1,300,000
Current liabilities
(600,000)
(700,000)
Long-term liabilities
(500,000)
(400,000)
During the annual impairment test conducted on December 31, 2011, it was determined that the fair value of the Hayden division as a whole was $2,800,000.
Required:
(a) Compute the amount of goodwill recognized, if any, on May 1, 2011.
(b) Determine the impairment loss, if any, to be recorded on December 31, 2011.
(c) Determine the implied fair value of goodwill on December 31, 2011.
(d) On the assumption that the fair value of Hayden on December 31, 2011 was $1,950,000 instead of $2,800,000, determine the impairment loss, if any, to be recorded.
Question 2
(a) In 2017, there was an Accounting Standards Update which aimed to simplify the test for Goodwill Impairment. Briefly summarize the main provision(s) of this update, and please include the effective date.
(b) How would your answer to Question 1, part (d) change if you were basing it on the 2017 Accounting Standards Update?
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