Question - At the beginning of 2016, Metatec Inc. acquired Ellison Technology Corporation for $670 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired:
Plant and equipment (depreciable assets) $157 million
Patent 47 million
Goodwill 110 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 5-year useful life, no residual value, and is amortized using the straight-one method.
At the end of 2018, a change in business climate Indicated to management that the assets of Ellison might be Impaired. The following amounts have been determined:
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Plant and equipment:
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Undiscounted sum of future cash flows
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$87 million
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Fair value
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67 million
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Patent:
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Undiscounted sum of future cash flows
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$21 million
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Fair value
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14 million
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Goodwill:
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Fair value of Ellison Technology Corporation
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$527 million
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Fair value of Ellison's net assets (excluding goodwill)
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460 million
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Book value of Ellison's net assets (including goodwill)
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540 million*
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* After first recording any impairment losses on plant and equipment and the patent.
Required:
1. Compute the book value of the plant and equipment and patent at the end of 2018.
2. Determine the amount of any impairment loss to be recorded, if any, for the three assets.