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Smooth Brew

In:

Submitted By elba5867
Words 915
Pages 4
Date: June 7, 2016
To: Claire Sanders
From: Chace Sauls
Subject: Smooth Brew

Body:

Background: Mrs. Sanders, Smooth Brew Company has recently acquired a brewery located in Georgia. The brewery is unique in that a sparkling stream runs through the plants facility giving the beer a unique flavor. The company’s president informed me that an excessive price was paid for the plant due to the flavor enhancing stream.

Problem: Our client stated that $1 million was paid in excess of fair value to acquire the plant. The president has requested that the $1 million be set up on the balance sheet in an account entitled water.

Relevant Guidance: FASB ASC paragraph 350-20-35-39 through 44. FASB ASC paragraph 350-20-35-1. FASB ASC paragraph 350-20-35-16. FASB ASC paragraph 350-20-45-1.

Application: Goodwill is considered an asset representing future economic profit stemming from the acquisition of other assets in a business combination. The amount of money given for acquiring a business over the fair value of the assigned assets and liabilities of a reporting unit is considered goodwill. Goodwill is not to be amortized but rather tested for impairment. To be able to test for impairment, the amount of goodwill should be assigned to a reporting unit. The amount assigned to the reporting units should depend on the degree to which it will benefit from the business combination. The number of reporting units used can vary depending on the method used. The method for allocating the goodwill should be reasonable, reportable and consistent. If an entity wishes to assign goodwill to a reporting unit not associated with the assets and assumed liabilities of the combination, a with-and-without method can be used. The with-and-without method operates by taking the difference of the fair value of the reporting unit before acquisition and the fair value after the

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