Question

Sunland Corporation owns a patent that has a carrying amount of $347,000. Sunland expects future net cash flows from this patent to total $208,000 over its remaining life of 10 years. The recoverable amount of the patent is $113,000. Assume that at the end of the year following the impairment (after recording amortization expense), the estimated recoverable amount for the patent is $137,000. Prepare Sunland’s journal entry, if needed.

Answer 1

IFRS provides that impairment is excess of carrying value over the fair value, which is higher of value in use and expected sales value.

In the given case, carrying value is 347,000. Fair value given is 137,000 . Impairment charge is 347,000-137,000= 200,000.

Following is journal entry-

Date	General Ledger	Debit	Credit
	Impairment expenses A/c----Dr	200,000
	To Patent A/c		200,000
	(Being impairment charge recorded)

Assuming, 208,000 is value in use at the end of the year then the Company can write back impairment loss written off earlier of 208,000-137,000 = 71,000

Following is journal entry-

Date	General Ledger	Debit	Credit
	Patent A/c----Dr	71,000
	To Impairment charge A/c		71,000
	(Being impairment charge reversed)