Question

In 2005, Anthara Inc. acquired Sathya Inc. for $1,200 million when the fair value of net assets (assets minus liabilities) of Sathya was $955 million. At the end of 2006, the net assets including goodwill, from Anthara’s acquisition of Sathya had a book value of $720 million. At this date the fair value of Sathya was assessed to be $700 million, while the fair value of Sathya excluding goodwill was assessed to be $550 million. Compute the amount of impairment loss that Anthara should record for goodwill at the end of 2006.

Answer 1

Answer:

$20 million

Explanation:

Data provided in the question:

Book value of assets in 2005 = $1,200 million

Fair value of assets in 2005 = $955 million

Book value of assets in 2006 = $720 million

Fair value of assets in 2006 = $700 million

Now,

Impairment Loss = Fair value - Carrying value of Net assets

or

Impairment Loss

= Fair value of assets in 2006 - book value of assets in 2006

= $700 million - $720 million

= - $20 million                [ Here, the negative sign means a loss]

Hence,

Impairment loss of $20 million