Jonas Tech Corporation recently acquired Innovation PlusCompany. The combined firm consist of three related businesses that will serveas reporting units. In connection with the acquisition, Jonas requests yourhelp with the following asset valuation and allocation issues.
Jones recognizes several identifiable intangibles from its acquisitionof Innovation Plus. It expresses the desire to have these intangible assetswritten down to zero in the acquisition period.
The price Jonas paid for Innovation Plus indicates that itpaid a large amount for goodwill. However, Jonas worries that any futuregoodwill impairment may send the wrong signal to its investors about the wisdomof the Innovation Plus acquisition. Jonas thus wishes to allocate the combined goodwillof all of its reporting units to one account called Enterprise Goodwill. Inthis way, Jonas hopes to minimize the possibility of goodwill impairmentbecause a decline in goodwill in one business unit could be offset by anincrease in the value of goodwill in another business unit.
Support your answers with reference to FASB ASC as appropriate.
1. Advise Jonas on the acceptability of its suggestedimmediate write-off of its identifiable intangibles.
2. Indicate the relevant factors to consider in allocatingthe value assigned to identifiable intangibles acquired in a businesscombination to expense over time.
3. Advise Jonas on the acceptability of its suggestedtreatment of goodwill.
4. Indicate the relevant factors to consider in allocatinggoodwill across an enterprises business units.