Question 5
On May 1, 2011, Walker Company (a US company) paid US$3,700,000 to acquire all of the common
stock of Hayden Corporation (an Australian company), which now became a division of Walker.
Hayden reported the following US$ balance sheet at the time of the acquisition:
Book
Value $
Fair
900,000
Value $
1,500,00
0
Noncurrent Assets
2,700,000
2,300,00
0
Current liabilities
(600,000)
(700,00
0)
Long-term liabilities
(500,000)
(400,00
0)
Current Assets
At December 31, 2011, Hayden reports the following US$ balance sheet information:
Bo
ok Value $
Current Assets
800,000
Fair
Value $
800,00
0
(700,000)
1,300,00
0
(700,00
0)
(500,000)
Noncurrent Assets (excluding Goodwill)
(400,00
0)
1,500,000
Current liabilities
Long-term liabilities
During the annual impairment test conducted on December 31, 2011, it was determined that the fair
value of the Hayden division as a whole was $2,400,000.
Required:
(a) Compute the amount of goodwill recognized, if any, on May 1, 2011.
(b) Determine the impairment loss, if any, to be recorded on December 31, 2011.
(c) Determine the implied fair value of goodwill on December 31, 2011.
(d) On the assumption that the fair value of Hayden on December 31, 2010 was $1,650,000 instead
of $2,400,000, determine the impairment loss, if any, to be recorded.
3
