MicroAlgo Inc. Goodwill & Intangibles Disclosure
Note 11 — Goodwill
Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiaries at the date of acquisition. Goodwill is not amortized and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. The following table summarizes the components of acquired goodwill balances as of:
| December 31, | December 31, | |||||||
| 2021 | 2022 | |||||||
| Goodwill from Shenzhen Yitian acquisition(a) | $ | 14,585,105 | $ | 13,351,845 | ||||
| Goodwill from Fe-da Electronics acquisition(b) | 5,276,951 | |||||||
| Goodwill from Shanghai Guoyu acquisition(c) | 2,083,497 | 1,907,324 | ||||||
| Goodwill | $ | 21,945,553 | $ | 15,259,169 | ||||
| (a) | Goodwill represents the excess fair value of consideration over the identifiable assets of Shenzhen Yitian acquired by Beijing WiMi in 2015 for the central processing algorithm services segment. |
| (b) | VIYI acquired Fe-da Electronics in 2020 to acquire 100% of the capital stock of Fe-da Electronics for a net consideration of approximately $22.6 million. The excess fair value of consideration over the identifiable assets acquired of approximately $5.3 million was allocated to goodwill for the intelligent chips and services segment. Impairment loss of $5.3 million was recognized for the year ended December 31, 2022 because of market change that affect the demand of products. Its customers are mainly in consumer electronics and communication which has faced slowdown in consumer demand for electronic gadget. |
| (c) | Weidong and YY Online acquired Shanghai Guoyu in 2021 to acquire 100% of the capital stock of Shanghai Guoyu for a net consideration of $2.1 million. The excess fair value of consideration over the identifiable assets acquired of $16.7 million was allocated to goodwill for the central processing algorithm services segment. |
The changes in the carrying amount of goodwill allocated to reportable segments As of December 31, 2021 and 2022 are as follows:
| Central processing algorithm services |
Intelligent chips and services |
Total | ||||||||||
| As of December 31, 2020 | $ | 14,394,554 | $ | 8,137,951 | $ | 22,532,505 | ||||||
| Add: acquisition of Shanghai Guoyu | 2,083,497 | 2,083,497 | ||||||||||
| Less: goodwill impairment of Fe-da Electronics | (2,861,000 | ) | (2,861,000 | ) | ||||||||
| Translation difference | 190,551 | 190,551 | ||||||||||
| As of December 31, 2021 | 16,668,602 | 5,267,951 | 21,945,553 | |||||||||
| Less: goodwill impairment of Fe-da Electronics | (5,267,951 | ) | (5,267,951 | ) | ||||||||
| Translation difference | (1,409,433 | ) | ||||||||||
| As of December 31, 2022 | $ | 15,259,169 | $ | $ | 15,259,169 | |||||||
About Goodwill & Intangibles Disclosures
Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.
Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.