Question

At the end of 2020, Riverbed Corporation owns a licence with a remaining life of 10 years and a carrying amount of $536,000. Riverbed expects undiscounted future cash flows from this licence to total $541,800. The licence’s fair value is $431,700 and disposal costs are estimated to be nil. The licence’s discounted cash flows (that is, value in use) are estimated to be $483,500. Riverbed prepares financial statements in accordance with IFRS. Determine if the licence is impaired at the end of 2020. The licence at the end of 2020. Prepare any related entry that is necessary. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Assume the recoverable amount is calculated to be $458,700 at the end of 2021. Determine if the licence is impaired at the end of 2021. The licence at the end of 2021. Prepare any related entry that is necessary. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit

Answer 1

An asset is said to be impaired if the book value of the asset is higher than undiscounted cash flows expected from the asset

2020

Book Value = $536,000

Undiscounted cash flows expected = $541,800

Book value is less than Undiscounted cash flows in 2020. Thus no impairment in 2020

No entry

2021

Book value at 2021 is more than its recoverable amount.

Impairment = Book value - Recoverable amount = $536,000 - $458,700 = $77,300

Journal

Impairment loss $77,300

To Accumulated impairment loss $77,300