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Goodwill Clarification Memo

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Memorandum To: The Controller of Railtrax Corporation From: Carmen Khouri, from Independent CPA firm Date: November 17, 2017 Subject: Clarification of Goodwill In this memo we will clarify what is goodwill and how it is measured. We will also answer why corporations purchase goodwill during a business combination and look at the two criteria that are used by FASB to recognize identifiable intangible assets which are reported separately from goodwill. Finally, we will test the goodwill impairment of both subsidiaries “A” and “B” and see whether the goodwill has been impaired. Goodwill Clarification It is imperative to have a thorough understanding of goodwill and goodwill impairment, which is acquired during a business combination. …show more content…

The other criteria for identifiable assets that are separate from goodwill can be found in both ASC 805-20-25-10 and ASC 805-20-55-2 where it specifies that if an identifiable intangible asset meet either two criteria, the separability criterion and the contractual-legal criterion. As an example, if it meets the separability criterion then asset can either be sold or exchanged for a value monetary or otherwise and is inherently separable from the acquired business. If it meets the contractual-legal criterion then it is based on a legal contract such as a license or …show more content…

Based on the information given from Railtrax three of the unrecognized intangibles fall under the ASC 805-20-55-2 criteria of identifiable intangible net assets and are not categorized as goodwill. Based on ASC 805-20-55-42 databases can be sold or traded and meet the separability criterion therefore it is not included in our goodwill calculation. The same follows for use rights, per the ASC 805-20-55-37 they are typically based on contracts and are not factored into goodwill. Lastly trade secrets are also excluded from our goodwill calculations per ASC 805-20-55-44 since they meet the contractual-legal criterion. The only two values that are subsumed into the goodwill calculation are the in-process research and development ASC 805-10-55-5C and the assembled workforce ASC 805-20-55-6, since they are considered assets that aid in the maintaining continued

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Non-current assets are items owned by an entity that cannot be converted into cash within one year. Goodwill is the value of the company’s reputation, location, and brand. Goodwill is an intangible asset. It appears on the balance sheet when a company buys another and pays more for the company’s intangible assets than tangible assets. There are three sources of goodwill of Dollarama Inc.

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Background: “In 2001, FASB Statement No. 142 Goodwill and Other Intangible Assets replaced APB Opinion No. 17 Intangible Assets (issued in 1970)” (Hillenmeyer & McMillen, 2013). The new statement eliminated goodwill amortization which was previously amortized over its useful life at a maximum of 40 years. Statement No. 142 required that goodwill be tested for impairment annually using a two-step process. Step one compares all of an entity’s reporting units fair value to their carrying value including goodwill.

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During the year, Lee Corporation sold an asset to Ruiz Company. Lee recognized a gain of $19,000 on the transaction meaning the cash received for the asset must have been greater than the book value. The book value of an asset is the asset’s original cost less any accumulated

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Here we will focus on the days’ sales in receivables, days’ sales in inventory, and total asset turnover to contribute to our understanding of the company’s health. Days’ sales in receivables is the length of time it takes the company to pay for an item in this case General Motors sells their automobiles almost three times Ford Motor Company. Next, days’ sales in inventory show that the Ford Motor Company keeps an automobile in inventory about twenty days prior to selling it whereas General Motors maintains the vehicle longer. Finally, the total asset turnover provides how efficient a company uses its assets to generate sales. This is calculated by dividing the sales by the total assets.

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The purpose of this memo is to summarize the budget-to-actual variance report for Wood’s Furniture Inc. as of December 31, 2017. While Wood’s Furniture expected to generate $70,000 in net profit by the end of the year, the organization actually reports $53,800 as net profit which entails to 23% below expected. Based on monthly reports, the net profit was expected to go down, but 23% decline seems to be a concern. Mentioned below is my high level analysis of some of the items from the report and I would like each of you to review and respond back with your detailed analysis related to your department. Year-to-date Revenues:

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Circumstances including declining cash flows and sustained decreases in the Sprint’s share price are indicative that it is necessary to carry out the test. . ASC requirements indicate that Sprint shall conduct the assessment on an annual basis. The fair value of the reporting unit, Nextel, is compared to the carrying amount, including the goodwill. In the instance of Nextel’s fair value exceeding zero and its carrying amount, impairment is nonexistent.

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There are some assets that do not generate cash flows independently from those of other assets. For instance, milking machines in the milk production sector which perform tasks such as separating the cream from milk generally do not generate their independent cash flows. The cash flows ultimately come from the sale of the milk products such as custard and yoghurt. The problem lies here as AASB 136 paragraph 67 mentions that an asset’s recoverable amount cannot be determined if the asset’s value cannot be estimated to be close to its fair value less costs to sell and the asset does not create cash flows that are largely independent of those from other assets (Leo et al., 2014). Hence, the recoverable amount can only be determined for the asset’s cash generating unit and impairment tests are conducted in cash generating units.

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(a) Recipes from an international chef According to MFRS 138, identifiable, control and provide future economic to the company is the three qualities that can be recognized as an intangible asset. Diva Bhd can be receive expected future economic benefits from the vegetarian organic sausages recipes because the recipes can be recognized as an identified separately from goodwill. However, the recipes cannot be recognized as an intangible asset because Diva Bhd does not have control over the recipes because the recipes is from an international chef not their company own recipes, because of this reason so the company cannot receive any economic benefit from using the recipes. Since the company does not have legal rights to control over the chef action by give the recipes to the public.

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In these sorts of cases the property isn't being sold yet rented. If these properties were named stock, at that point all upkeep and repairs would expense as brought about, and no deterioration would be perceived (Wen Peng & Newell, 2012, p. 77). Be that as it may, as property, plant, and gear, support and repairs would be promoted, and devaluation would be perceived over the life of the advantage. This dramatically affects the asset report, and the main issue. Another issue is the reasonable portrayal of the budgetary circumstance of the organization (Coumarianos, 2017).

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1786 Words | 8 Pages

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