At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $630 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 sun of future cash flows Fair value Patent: $153 million 43 million 100 million Undiscounted sun 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) Compl $ 83 million 63 million $ 20 million 13 million $ 483 million 420 million 500 millione 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.
At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $630 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 sun of future cash flows Fair value Patent: $153 million 43 million 100 million Undiscounted sun 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) Compl $ 83 million 63 million $ 20 million 13 million $ 483 million 420 million 500 millione 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.
Chapter1: Financial Statements And Business Decisions
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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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