On September 1, 2015, Verstag Co. acquired the net identifiable assets of Ace Ltd. for a cash payment of $863,000. At the time of the purchase, Ace’s SFP/BS showed assets of $900,000, liabilities of $460,000, and shareholders’ equity of $440,000. The fair value of Ace’s assets is estimated at $1,160,000 and liabilities have a fair value equal to their carrying value.
Required:
a. Calculate the amount of goodwill and record the entry for the purchase.
b. Three years later, determine if there is an impairment, and calculate the impairment loss assuming that Verstag follows IFRS and that goodwill was allocated to one cash-generating unit (CGU). The carrying value of the unit was $3,925,000, the fair value was $3,500,000, the costs to sell were $100,000, and the value in use was$3,850,000.
c. How would the answer for part b) be different if Verstag follows ASPE? Fair value is $3,550,000.
