Question

E12-7 (Accounting for Trade Name) In early January 2018, Reymont Corporation applied for a trading name, incurring legal costs of $18,000. In January 2019, Reymont incurred $7,800 of legal fees in a successful defense of its trade name.

Instructions:

(c) Ignoring the response for part (b), compute the 2020 amortization and the 12/31/20 book value, assuming that at the beginning of 2020, based on new market research, Reymomt determines that the recoverable amount of the trade name is $16000.

Answer 1

Trade name is an Intangible asset with an indefinite life. Tradenames are generally not amortized instead are tested for impairment.

Any cost incurred to successfully defend the Tradename shall be capitalized with the cost of the Tradename.

In the given question

Book value of Trade name as at the beginning of 2020 = Initial cost incurred to apply for trade name + cost incurred to successfully defend the case = $18,000 + $7,800 = $25,800.

Recoverable Amount at the beginning of 2020 = $16,000

Therefore impairment loss in 2020 = 25,800 - 16000 = $9,800

Book value of Tradename as at 12/31/20 = $16,000

For any clarification, please comment. Kindly up vote.