Question

Dutton Ranch purchased a trademark with an indefinite life for $850,000 and incurred additional legal fees...

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?

Homework Answers

Answer #1

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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