During 2013, the company was unsuccessful in defending its patent as a plaintiff
ID: 2487777 • Letter: D
Question
During 2013, the company was unsuccessful in defending its patent as a plaintiff in a civil infringement case. The result prompted management to properly test for a potential impairment loss. This resulted in a revision of estimated future cash flows from the patent of $1,900 per annum for the next 3 years .Original estimates had a cash flow projection from the patent of $2,000 for the next 5 years. The fair value of the patent as of year-end (as measured by the present value of future cash flows assuming an 8 percent discount rate) is $4,896.calculate the Impairment Loss (if any) under IFRS .Prepare necessary journal entries to reflect a loss if applicable
Intangible Assets: December 31, 2013 From a partial Balance Sheet showing Intangible Assets.
Patent 6,000
(Net of $14,000 Accumulated Amortization)
Goodwill 10,900
Total intangible assets $16,900
Explanation / Answer
An impairment loss occurs when the carrying amount of an asset exceeds its recoverable amount.This section shall be applied in accounting for the impairment of all assets other than the following, for which other sections of this IFRS establish impairment requirements:
Journal Entries:
Impairment loss = Carrying amount – Recoverable amount
= 6000 – 4896
= $1104
Profit and loss account Dr 1104
To, Provision for impairment loss. 1104
Provision for impairment loss A/cDr1104
To, Patent account 1104
Note: For impairment of goodwill we check ‘Is fair value of UNIT less than carrying amount? If yes, then impairment has occurred. In the absence of UNIT info we can assume that there is no impairment in carrying amount of goodwill. Hence, only patent will be impaired.
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