Question

In 2021, John Bonham Inc. acquired Zeppi Company and recorded $245 million of goodwill as a result of this acquisition. At the end of 2022, Bonham decided to test for impairment of goodwill associated with its acquisition of Zeppi Company. At the end of2022, the book value of Zeppi Company’s net assets (including goodwill) in Bonham’s Company’s accounting records was $580 million. Also at the end of 2022, Bonhamassessed the fair value of Zeppi to be $700 million, while the fair value of Zeppi’s net assets was $550 million. The amount of the goodwill impairment loss that Bonham would record at the end of 2022 is:

A)$150 million.

B) $95 million.

C) $0

D)$120 million.

Answer 1

Impairment loss= Carrying amount- recoverable amount

700-550= $150 million

Recoverable amount= Higher of FAIR VALUE less cost to disposal

or

Value in use

Here, Fair value less cost to disposal= $245

Value in use = $550

Hence, Recoverable amount is $550