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Student’s Name
Professor’s Name
Institute Name
Date
The calculation for Goodwill Impairment for TL & DJ Company

Scenario Summary

AMMRC Inc. is a US manufacturer of greenhouse gas. On January 2016, AMMRC Inc.

has purchased 100 percent of TLTJ Company, and DJJS Company. AMMRC has recorded

$1,850,000 of goodwill on a consolidated balance sheet, with $ 1,300,000 and $550,000 related

to TL and DJ Company. Regarding the New Segment, TL manufactures polycarbonate panels

and sheets, and panels and sheets are used in the construction of AMMRC Inc. However, DJ

manufactures heavy-duty greenhouse shelves. AMMRC Inc. has established a new segment after

the purchase of TL and DJ. Regarding Goodwill, AMMRC has developed a policy, which

requires all reporting units to form the quantitative impairment test of goodwill, which is

supposed to begin for the fiscal year 2021. AMMRC Inc. has hired a consulting firm for the

calculation of goodwill impairment, and the appraised report is supposed to be highlighted on

December 31, 2021. The fair values for TL and DJ companies are $11,000,000 and $18, 00,000

respectively.

Requirement

The problem statement requires calculating the Goodwill or testing the Goodwill

impairment for TL and DJ Company based on the Goodwill impairment data on the balance

sheet of TJ Corporation, and DJ Corporation. The balance sheet also includes the Property, Plant,
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and Equipment information for TL and DJ Corporation along with the inventory information

(Marshall).

Calculation of Fixed Asset Impairment Test for TL Corporation

The goodwill amount recorded by AMMRC is $1,300,000 and $550,000 for TL and DJ

companies respectively. The value of fixed assets is given as $11,000,000 and $1,800,000 for TL

and DJ respectively. The value of impairment assets for TL is calculated as $950,000 as follows

from the financial statement of TL Company. The total value of impairment of assets is $950,000

(Silvia).

Fixed Asset Impairment Test FYE December 31, 2021

TL Corporation

Asset Book Value Fair Market Sum of UFCF Step 1 Step 2

Grouping Value

1 $ 3,580,000 $ 3,330,000 $ 3,840,000 No

2 840,000 730,000 680,000 Yes $110,000

3 2,700,000 2,900,000 3,100,000 No

4 3,800,000 3,930,000 4,180,000 No

5 2,080,000 2,150,000 2,460,000 No

6 900,000 700,000 760,000 Yes 200,000

7 1,100,000 960,000 880,000 Yes 140,000

Total $15,000,000 $14,700,000 $15,900,000 $450,000

Table 1 – Calculation of Fixed Assets Impairment

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The market value is calculated from the NRV and NPM values, while loss is calculated

by taking a difference between market and cost values. The market value and loss are $3,300,000

and $500,000 respectively.

TL corporation

Lower of Cost or Market Analysis FYE December 31, 2021

Cost RC NRV NRV-NPM Market Loss

$3,800,000 $3,300,000 $4,000,000 $2,800,000 $3,300,000 $500,000

Table 2 – Calculation of Market Value and Loss

It has been seen on the balance sheet that Goodwill is recorded as $1,300,000 and it is

not being impaired and tested for the impairment since the combination of assets. Now, there is a

need to calculate the net identifiable assets from the balance sheet. The value of net identifiable

asset is $ 11,050,000 and the value of total asset is $19,050,000 less $8,000,000 (total liabilities).

To find out about the impairment for TL Corporation, step 1 of the impairment test is completed,

and the value of the net asset amount is compared with the fair value of reporting units. The fair

value of TL assets is $11,000,000. However, for step 2, the goodwill impairment is conducted as

the carrying amount is greater than the fair value. The result indicates the recognition of

impairment loss. TL has $1,300,000 as goodwill impairment loss, which is recorded due to less

value of fair assets than the current value of an asset. Therefore, it is suggested that AMMRC

will no longer require goodwill for TL Corporation (CFI team).

Calculation of Fixed Asset Impairment Test for DJ Corporation

The goodwill amount recorded by AMMRC is $1,300,000 and $550,000 for TL and DJ

companies respectively. The value of fixed assets is given as $11,000,000 and $1,800,000 for TL
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and DJ respectively. The value of impairment assets for DJ is calculated as $240,000 as follows

from the financial statement of DJ Company. The total value of impairment of assets is

$240,000.

Fixed Asset Impairment Test FYE December 31, 2021

DJ Corporation

Asset Book Value Fair Market Sum of UFCF Step 1 Step 2

Grouping Value

1 $ 940,000 $ 7,00,000 $ 710,000 Yes

2 250,000 240,000 310,000 No $240,000

3 90,000 100,000 130,000 No

4 1,330,000 1,360,000 1,790,000 No

5 590,000 600,000 860,000 No

Total $3,200,000 $3,000,000 $3,800,000 $240,000

Table 1 – Calculation of Fixed Assets Impairment

The market value is calculated from the NRV and NPM values, while loss is calculated

by taking a difference between market and cost values. The market value and loss are $1,000,000

and $100,000 respectively.

DJ corporation

Lower of Cost or Market Analysis FYE December 31, 2021

Cost RC NRV NRV-NPM Market Loss

$3,800,000 $3,300,000 $4,000,000 $2,800,000 $1,000,000 $ 100,000

Table 2 – Calculation of Market Value and Loss

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It has been seen on the balance sheet that Goodwill is recorded as $550,000 and it is not

being impaired and tested for the impairment since the combination of assets. Now, there is a

need to calculate the net identifiable assets from the balance sheet. The value of net identifiable

asset is $ 1,660,000 and the value of total asset is $ 2,210,000. To find out about the impairment

for DJ Corporation, step 1 of the impairment test is completed, and the value of the net asset

amount is compared with the fair value of reporting units. The fair value of DJ assets is

$1,800,000. However, for step 2, the goodwill impairment is conducted as the carrying amount is

greater than the fair value. The result indicates the recognition of impairment loss. DJ has

$410,000 as goodwill impairment loss, which is recorded due to less value of fair assets from the

current value of the asset.

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References

Silvia. How to Test Goodwill for Impairment, CPD Box 2020

https://www.cpdbox.com/impairment-goodwill-ifrs-testing/

CFI Team Goodwill Impairment Accounting, Corporate Financial Institute, 2022.

https://corporatefinanceinstitute.com/resources/knowledge/accounting/goodwill-impairment-

accounting/

Marshall Hargrave. What Is Goodwill? Investopedia, 2022.

https://www.investopedia.com/terms/g/goodwill.asp