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
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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