Knowledge Check 01 Corning Industries owns a patent for which it paid $77,000. A

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 value

Explanation / 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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