Dutton Ranch purchased a trademark with an indefinite life for $850,000 and incurred additional legal fees of $100,000 related to the purchase on January 1, 2020. On January 1, 2030 an impairment analysis found the fair value was $825,000. What amount should be recorded as impairment loss in 2030?
Solution:
Impairment loss occurs when it's carrying amount is greater than it's recoverable amount.
In the given case,
Carrying Amount = $850,000 + $100,000
= $950, 000
Recoverable amount is higher of fair value less cost to dispose or value in use.
Here, fair value is given hence recoverable amount is $825, 000
Therefore impairment loss = carrying amount - recoverable amount
= $950, 000 - $825, 000
= $125, 000
Impairment loss = $125, 000 which should be recorded in 2030.
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