Problem 5-9

Goodwill is considered impaired when the implied fair value of goodwill in a reporting unit of a company is less than its carrying amount, or book value, including any deferred income taxes. By qualitative factors, if the fair value is less than its book value (likelihood more than 50%), two step of the goodwill impairment test is necessary. According to ASC 350-20-35-2 and 3(A&B&D), if the company determines that it is not more likely than not that fair value is less than the book value, it does

8) What would BV's 1988 earnings per share be after all of the above adjustments?

2. What would be the impact on Blockbuster's 1988 earnings per share if 5 amortization were applied to this goodwill?

constant over time. (Hint: You must consider likely changes in revenues and costs due to

$8 mill needed to be deducted from net income on the income statement. They should have followed (Following) with disclosure notes to describe why this error occurred and how it impacted the statement and accounts that it touched. For instance, the notes would describe the presence of the correction on the current period of beginning inventory, and retainED earnings.

2. What is the effect of the depreciation accounting method change on the reported income in 1984? How will this change affect profits in future years?

Goodwill Impairment is the Goodwill that has become or is considered to be of lower value than at the time or purchase. From an accounting perspective, when the carrying value of the goodwill exceeds the fair value, then it is considered to be impaired. Negative publicity about a firm can create goodwill impairment, as can the reduction of brand-name recognition. Since the Financial Accounting Standards Board (FASB) first introduced its standards update on testing for goodwill impairment (ASU 2011-08), entities with goodwill on their balance sheet have had the option when testing goodwill for impairment to first assess qualitative factors as a basis for determining whether it is necessary to perform the traditional two-step approach described in ASC Topic 350. The optional qualitative assessment is commonly referred to as “step zero.”

inventory using the cost method and did not change the method used during the current

f) To evaluate the material misstatement in the accounts, I think both of the consolidated income statement and the three financial statements are useful. We need to use the information properly from all the financial statements. However the consolidated income statement is the most useful one. If there is a significant change in an account balance comparing with preceding two years, the auditor will examine whether there a material misstatement exists. For instance, the bad debt expense as a percent of net sales in 2011, 2010 and 2009 are 0.56%, 0.70% and 0.69%, respectively. There should

(cost of goods manufactured in 2008/ sales value for units produced in 2008) * ending inventory 2008

Net book value at end of year 1 is $8,793. Less what you received on the sale $7,500. Gives you a disposal loss of $1,293 using the straight-line method of depreciation. You then add the disposal loss from the previous years depreciation $1,880, which results in a total income statement impact of $3,173.

3) Based on the data in Exhibit 7 and the definition of operating income gains given

Besides that, CSI also offer the stock options to all the employees in the first year they joined the company but the value of stock option component varied depending on tenure and position in the company. Employees will be given four years from the offered date to buy or not to buy the stock and it is limit to 25% per year. It will be expired 10 years after granting or within 30 days of leaving the company. However, CSI has not yet implement the formal plan for annual stock option grants. Hence, the grants would be awarded based on an ad hoc basis to ensure that employees’ stock holdings were in line with their current position and contribution to the company. Stock option actually is an effective motivational tool but not for CSI, this is because their employees do not understand the options and does not know how to value them. Moreover, the options were become worthless since the company is not a public company. In another word, CSI were lack of formalization to control stock options and does not give very clear direction to employees about the targeted areas and results through compensation system (stock option). Apart from that, stock option

This case has two educational objectives. First, it serves as an introductory case on option valuation in which students can use market data to place a dollar value on an option they are likely to encounter in their business careers. As such, the case encourages a discussion of the application of option pricing models, such as Black-Scholes, and exposes students to popular misconceptions of how options should be valued. Second, the case permits a discussion of the wisdom and efficacy of incentive stock compensation plans using options.

100 and earned a profit of (Market price – rs. 100 – Rs. 2) . If price is less than Rs. 100 then Mahesh will not exercise the option and don’t purchase the share and will be in a loss of Rs. 2 per share.