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Ivanhoe Corporation acquired End-of-the-World Products on January 1, 2017 for $6500000, and recorded goodwill of $1220000 as a result of that purchase. At December 31, 2018, the End-of-the-World Products Division had a fair value of $5540000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $4838000 at that time. What amount of loss on impairment of goodwill should Ivanhoe record in 2018

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anthougo

Answer:

Ivanhoe Corporation

The amount of loss on impairment of goodwill that Ivanhoe should record in 2018 is:

$518,000.

Explanation:

a) Data and Calculations:

Goodwill on acquisition = $1,220,000

December 31, 2018:

Fair value of Investee (End-of-the-World Products Division) = $5,540,000

The fair value of the net identifiable assets of the Division (excluding goodwill) = $4,838,000

Goodwill = $702,000 ($5,540,000 - $4,838,000)

Impairment loss = $518,000 ($1,220,000 - $702,000)

b) A Goodwill impairment loss is the recognized reduction in the carrying amount of this intangible asset that is triggered by a decline in its fair value.  When the fair value of acquired Goodwill declines below its carrying amount, Ivanhoe Corporation is expected to write off the difference (the impairment loss) in its income statement for 2018.

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