Question

In 2019, Alliant Corporation acquired Centerpoint Inc. for $352 million, of which $62 million was allocated to goodwill. At the end of 2021, management has provided the following information for a required goodwill impairment test:Fair value of Centerpoint Inc $220 millionFair value of Centerpoint's net assets(excluding good will) 200 millionBook value of Centerpoint's net assets(Including good will) 250 million1. Determine the amount of the impairment loss2. Repeat requirement 1 assuming that the fair value of centerpoint is $270 million

Answer 1

Solution:

The reporting unit's book value of $250 million meets the market value of $220 million.

Requirement 1:

Determination of implied fair value of goodwill:

Fair value of Center point, Inc.                                               $220 million

Fair value of Center point’s net assets (excluding goodwill) 200 million

Implied fair value of goodwill                                                 $ 20 million

Measurement of impairment loss:

Book value of goodwill                           $62 million

Implied fair value of goodwill                  20 million

Impairment loss                                       $42 million

Requirement 2: If the operating unit's market valuation of 270 million dollars surpasses 250 million dollars, there is no depreciation risk.