For this assignment, I selected Textron Inc. which is an American-based industrial conglomerate with headquarters in the Providence region of Rhode Island. The $13.6 billion (2019) company shocked many when it recorded a goodwill impairment of $335 million back in 2005. Back then; this impairment was blamed on discontinued operations. The impairment charge was related to the fastening systems business. When Textron finally sold this business in 2006 an additional impairment charge of $120 Million was incurred. This has since improved greatly. In the second quarter of 2020, Textron only recorded an asset impairment loss of $32 million. And an additional impairment charge of $15 million. This was in connection with the restructuring plan initiated in response to economic challenges and further business uncertainties from the covid-19 pandemic in the TRU segment. Similar to the 2005 incident, there was also product discontinuation, that is, Textron ceased manufacturing operations at the TRU facility, along with workforce cuts, termination of contracts, and facility closures.
During the pandemic, the aviation industry has been the hardest hit, following the widespread ban on international as well as domestic travel. Decreased demand for Textron products has contributed mainly to this write-down of assets. Technological obsolescence is another looming threat. This risk is apparent for Textron Inc. given most of the shelved assets could be rendered obsolete sometime soon, when the pandemic is distant history. The permanent write-down will thus be the only option for the company and may lead to millions on losses during asset disposal or upgrade (if the plants will be restored).
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Response to Sammah Franklin’s Post
Your discussion on asset impairment and goodwill loss really resonated with me. The example you gave regarding how goodwill impairment occurs was expressed in a simplified fashion but easily drives the point home. I agree that the goodwill calculations are intricate especially when dealing with multinationals, but your perspective that was based on the Umpqua Corporation was a brilliant way to boil down the intricacies in a nutshell. The reasons for write-down that were listed in your post such as physical damage to the asset, microeconomic conditions, industry and market valuation, legal issues against the asset, early asset disposal are pretty concise. Perhaps also explaining how some of these affect the write-down value could be in order. For example early disposal of assets, how does it cause write down?
Discussion 2
A partnership is a formal and binding agreement between two or more parties to operate a business and share the incumbent profits and/or liabilities linked with the business. Partnership tax is intricate, and individuals wishing to form partnerships should have a nutshell idea about the taxation element in their business. In the area of the contribution, the following holds; [1] that contributions to a partnership are tax-free; [2] No profit or loss is recognized as a result of the contribution of property by a partner. However, a contribution of services for partnership interest is taxable depending on the circumstances. For example, the IRS will not treat receipt of services by a partnership from a person intending to become a partner as taxable; [3] Concerning loss recognition, partnerships must apply deductible loss limitation when computing tax items for any year, provided they are trade/business investment or casualty losses; [4] Partners can use the accrual method to compute income tax items. This method gives the partners an opportunity to deduct some expense on tax returns before paying for them and the ability to recognize depreciation of assets as a deduction. In other words, the accrual accounting method saves money on taxes.
Response to Jessica Condon’s Post
Good job explaining the tax basis for the partnership, for the debt and no debt scenarios. Readers should research further on how recourse and non-recourse debt affect the allocation of debt for each partner and how this will affect the tax element of the partnership. Concerning the accrual accounting method that you selected, do u feel that the method has way too many calculations, rules, and regulations governing it for the armature partners to comprehend? Is it not true that the cash method is a lot easier in managing business finances for start-ups?
