Question

Roi Inc. is a private corporation following ASPE (using the cost recovery approach). On Jan 2,...

Roi Inc. is a private corporation following ASPE (using the cost recovery approach). On Jan 2, 2020 they purchased a limited-life licence for $ 50,000. This licence has a ten-year life and is not renewable. Straight-line amortization will be used. At December 31, 2021, Roi estimates that the undiscounted net cash flows of this license is $ 38,000, and the fair value (discounted net future cash flows) of this licence is $ 32,000.

Required:

a)    Calculate the amount of impairment (if any) for this asset. (cost recovery method)

b)    Prepare the adjusting entry required to reflect any impairment.

c)     Ignore the information in the very last sentence above. In January, 2022, Roi sold the rights from the licence for $37,000 cash. Record the entry for this transaction.

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