Knowledge Check 01 Corning Industries owns a patent for which it paid $77,000. A
ID: 2530155 • Letter: K
Question
Knowledge Check 01 Corning Industries owns a patent for which it paid $77,000. At the end of the current year, accumulated amortization on the patent totaled $14,000. Due to adverse economic conditions, Corning's management determined that it should assess whether an impairment loss should be recognized for the patent. The estimated undiscounted future cash flows to be provided by the patent total $45,000, and the patent's fair value is $30,000. (a) What is the amount of the impairment loss, if any, on the patent at the end of the current year? (b) What is the book value of the patent after any impairment loss is recorded? (a) Impairment loss (b) Book valueExplanation / Answer
a)
Cost price of patent = 77000
Accumulated amortization on the patent = 14000
Carrying amount of patent = 77000-14000 = 63000
Estimated undiscounted future cash flows to be provided by the patent = 45,000
Patent's fair value= 30000
Recoverable amount is higher of Estimated undiscounted future cash flows and Patent's fair value.
Recoverable amount = 45,000
Impairment loss is recognised when carrying amount of asset is higher than recoverable amount.
Impairment loss = Carrying amount - Recoverable amount = 63000 - 45000 = 18000
b)
Book value of asset = Carrying amount - Impairment loss = 63000 - 18000 = 45000
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