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) $ 149 million Patent 39 million Goodwill 120 million 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 $ 79 million Fair value 59 million Patent: Undiscounted sum of future cash flows $ 20 million Fair value 13 million Goodwill: Fair value of Ellison Technology Corporation $ 439 million Book value of Ellison’s net assets (excluding goodwill) 380 million Book value of Ellison's net assets (including goodwill) 460 million* *After first recording any impairment losses on plant and equipment and the patent. Required: Determine the amount of any impairment loss to be recorded, if any, for the three assets. Plant and equiment in millions patent in millions goodwill in millions

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter14: Property Transactions: Capital Gains And Losses, § 1231, And Recapture Provisions

Section: Chapter Questions

Problem 75P

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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)	$ 149	million
Patent	39	million
Goodwill	120	million

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	$ 79	million
Fair value	59	million
Patent:
Undiscounted sum of future cash flows	$ 20	million
Fair value	13	million
Goodwill:
Fair value of Ellison Technology Corporation	$ 439	million
Book value of Ellison’s net assets (excluding goodwill)	380	million
Book value of Ellison's net assets (including goodwill)	460	million*

^*After first recording any impairment losses on plant and equipment and the patent.

Required:

Determine the amount of any impairment loss to be recorded, if any, for the three assets.

Plant and equiment in millions

patent in millions

goodwill in millions

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