It would be unusual for a company to have an asset impairment in Year 1, but for

Question

It would be unusual for a company to have an asset impairment in Year 1, but for the sake of this example, ABC realized that their intangible asset might be impaired on December 31, 2014. Record the impairment if any. The expected future net cash flows for this intangible asset totals $30,000, and the fair value of the asset is $27,500. Patent - $37,500.

I am confused about the expected future net cash flow and came up with the following:

37,500-27,500 = 10,000

Loss on Impairment        10,000

     Patent                                             10,000

Is this correct?

Explanation / Answer

Ans: No the Entry is not correct as per the Accounting principles prescribed under the GAAP

Impaired value of Asset = Higher of Fair Value or Expected future net cash flows

                                   = $ 30000

So, Loss on Impairment = $ 37500- 30000 = $7500

Journal Entry :

Loss on Impairment        7,500

     Patent                                             7,500

(being loss on impairment recognised)

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