Question

Chicklet Corp owns a copyright with a carrying value (i.e. book value) of $63,000.   The copyright's...

Chicklet Corp owns a copyright with a carrying value (i.e. book value) of $63,000.   The copyright's fair value is $55,000. Chicklet estimates future undiscounted future cash flows from the copyright are $65,000, and future discounted future cash flows are $56,000.   Is the copyright impaired and if so, by how much?

Select one:

Yes, impaired by $7,000

Yes, impaired by $8,000

No, the copyright is NOT impaired

Yes, impaired by $2,000

Business   Accounting   
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Answer #1

Correct Answer Yes, impaired by $7,000

If the Recoverable amount of the Intangible asset (Copyright) is less than the Carrying Value, the difference is recognised as impairment loss.

The Recoverable amount shall be higher of :

- Fair Value or

- Value in Use

Fair Value = $55,000

Value in Use = Discounted Future Cash Flows = $56,000

Recoverable Amount (Higher of them) = $56,000

Carrying Value = $63,000

Impairment Loss = 63,000 - 56,000 = $7,000

*as per IAS 36 - Impaiement of Assets.

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