Essay on Snowy Ridge Ski Resort

1059 Words Nov 24th, 2011 5 Pages
Brittney Brooker
MEMORANDUM

To: Manager of Snowy Ridge Ski Resort
From: Kate Smith, Chief Accountant for Recreational Properties, Inc.
Date: October 27, 2010
RE: Fair Value Assessment

The subsequent valuations are consistent with the Statement of Financial Accounting Standards no. 157, defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
Snowy Ridge Ski Resort was acquired on June, 30th, 20X0 by Recreational Properties for $46,050,000. The fair value of identifiable assets and liabilities acquired are reported as $42,500,000, resulting in a computed goodwill of $4,000,000.It should be noted that goodwill
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No impairment was recognized. The carrying value of real estate was $16,500,000 as of June 30.th and the current fair value was found to be $13,890,000. No adjustment was made because the undiscounted cash flows from the real estate division equaled $22,800,000 and was valued higher than the carrying value (for all adjustment entries refer to table 3).

To test for impairment to good will the fair value of $41,000,000 from the valuation given was compared with the purchase value of$ 46,050,000. The negative difference of $5,050 suggested some impairment and failed step 1. Therefore, it was necessary in step 2 to compare the new computed fair value of all assets equal to $38,329,826 to $41,000,000 (see table 1).
Please note that the difference of$ 2,670,174 represents the newly computed goodwill of Snowy Ridge Ski Resort.

Thank you,

Kate Smith

Table 3
Snowy Ridge Balance Sheet June 30th, 20X0

Description | Unadjusted | Adjusted | Level Categorization | Cash | 540,000 | 540,000 | | Investment in Marketable Securities | 4,500,000 | 4,565,000 | 1 | Land (Real Estate Division) | 16,800,000 | 16,800,000 | 2 | Special Use Permit | 5,000,000 | | | Lifts and Infrastructure | 7,360,000 | | | Mountain Division | | 9,625,000 | 2 | Lodge | 9,500,000 | 9,500,000 | 2 | Goodwill | 4,000,000 | 2,670,174 | | | | | | Total Assets |

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