Question

Purchase Company recently acquired several businesses and recognized goodwill in each acquisition. Purchase has allocated the resulting goodwill to its three reporting units: RU-1, RU-2, and RU-3. Purchase opts to skip the qualitative assessment and therefore performs a quantitative goodwill impairment review annually.In its current-year assessment of goodwill, Purchase provides the following individual asset and liability carrying amounts for each of its reporting units:
Carrying Amounts
RU-1 RU-2 RU-3
Tangible assets $215,500 $261,000 $158,250
Trademark 257,000
Customer list 154,500
Unpatented technology 232,500
Licenses 100,000
Copyrights 65,500
Goodwill 190,250 187,550 136,500
Liabilities (35,000)

The total fair values for each reporting unit (including goodwill) are $773,950 for RU-1, $736,450 for RU-2, and $743,500 for RU-3. To date, Purchase has reported no goodwill impairments.

Required:
How much goodwill impairment should Purchase report this year for each of its reporting units?

Answer 1

Answer:

Purchase Company

                                                                  RU-1           RU-2          RU-3

Goodwill Impairment loss (gain)           $8,300      $44,600 ($383,250)

Explanation:

a) Data and Calculations:

Carrying Amounts

                                   RU-1           RU-2          RU-3

Tangible assets   $215,500   $261,000   $158,250

Trademark            257,000

Customer list        154,500

Unpatented technology        232,500

Licenses                                 100,000

Copyrights                                                  65,500

Goodwill               190,250       187,550     136,500

Liabilities              (35,000)

Book values      $782,250    $781,050  $360,250

Fair values        $773,950    $736,450  $743,500

Goodwill Impairment

 loss (gain)           $8,300      $44,600 ($383,250)

b) Purchase Company will recognize Goodwill impairment expense for RU-1 and RU-2.  It will recognize a Goodwill impairment gain for RU-3.  A goodwill impairment gain results when the fair value is higher than the book value of the net realizable assets.