At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $590 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) Patent Goodwill The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a five-year useful life, no residual value, and is amortized using the straight-line method. At the end of 2024, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined: Plant and equipment: Undiscounted sum of future cash flows Fair value Patent: Undiscounted sum of future cash flows Fair value Goodwill: Fair value of Ellison Technology Corporation Book value of Ellison's net assets (excluding goodwill) Book value of Ellison's net assets (including goodwill) Required 1 $ 149 million 39 million 120 million Required 2 Required 3 After first recording any impairment losses on plant and equipment and the patent. Required: 1. Compute the book value of the plant and equipment and patent at the end of 2024. 2. When should the plant and equipment and the patent be tested for impairment? 3. When should goodwill be tested for impairment? 4. Determine the amount of any impairment loss to be recorded, if any, for the three assets. Complete this question by entering your answers in the tabs below. Plant and equipment Patent Book Value $ 79 million 59 million Required 4 million million $ 20 million 13 million $439 million 380 million 460 million* Compute the book value of the plant and equipment and patent at the end of 2024. Note: Enter your answers in millions rounded to 1 decimal place. For example, $5,500,000 should be entered as $5.5.
At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $590 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) Patent Goodwill The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The patent is estimated to have a five-year useful life, no residual value, and is amortized using the straight-line method. At the end of 2024, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined: Plant and equipment: Undiscounted sum of future cash flows Fair value Patent: Undiscounted sum of future cash flows Fair value Goodwill: Fair value of Ellison Technology Corporation Book value of Ellison's net assets (excluding goodwill) Book value of Ellison's net assets (including goodwill) Required 1 $ 149 million 39 million 120 million Required 2 Required 3 After first recording any impairment losses on plant and equipment and the patent. Required: 1. Compute the book value of the plant and equipment and patent at the end of 2024. 2. When should the plant and equipment and the patent be tested for impairment? 3. When should goodwill be tested for impairment? 4. Determine the amount of any impairment loss to be recorded, if any, for the three assets. Complete this question by entering your answers in the tabs below. Plant and equipment Patent Book Value $ 79 million 59 million Required 4 million million $ 20 million 13 million $439 million 380 million 460 million* Compute the book value of the plant and equipment and patent at the end of 2024. Note: Enter your answers in millions rounded to 1 decimal place. For example, $5,500,000 should be entered as $5.5.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $590 million. In addition to cash,
receivables, and inventory, the following assets and their fair values were also acquired:
Plant and equipment (depreciable assets)
Patent
Goodwill
The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The
patent is estimated to have a five-year useful life, no residual value, and is amortized using the straight-line method.
At the end of 2024, a change in business climate indicated to management that the assets of Ellison might be impaired. The following
amounts have been determined:
Plant and equipment:
Undiscounted sum of future cash flows
Fair value
Patent:
Undiscounted sum of future cash flows
Fair value
Goodwill:
Fair value of Ellison Technology Corporation
Book value of Ellison's net assets (excluding goodwill)
Book value of Ellison's net assets (including goodwill)
Required 1
$ 149 million
39 million
120 million
Required 2 Required 3
After first recording any impairment losses on plant and equipment and the patent.
Required:
1. Compute the book value of the plant and equipment and patent at the end of 2024.
2. When should the plant and equipment and the patent be tested for impairment?
3. When should goodwill be tested for impairment?
4. Determine the amount of any impairment loss to be recorded, if any, for the three assets.
Complete this question by entering your answers in the tabs below.
Plant and equipment
Patent
Book Value
$ 79 million
59 million
Required 4
million
million
$ 20 million
13 million
$ 439 million
380 million
460 million*
Compute the book value of the plant and equipment and patent at the end of 2024.
Note: Enter your answers in millions rounded to 1 decimal place. For example, $5,500,000 should be entered as $5.5.
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