Essay on Snowy Ridge Ski Resort
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 …show more content…
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.
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 |