Question

Presented below is information related to copyrights owned by Walter de la Mare Company at December 31, 2014. Cost $8,695,500 Carrying amount 4,367,100 Expected future net cash flows 3,917,000 Fair value 3,534,300 Assume that Walter de la Mare Company will continue to use this copyright in the future. As of December 31, 2014, the copyright is estimated to have a remaining useful life of 10 years.

The fair value of the copyright at December 31, 2015, is $3,534,300. Prepare the journal entry (if any) necessary to record the increase in fair value

Answer 1

Carrying value as on December 31,2014 is more than the Expected future net cash flows i.e., $3,917,000, So Copyright should be impaired.

Carrying Amount as on December 31, 2014 is $4,376100

Fair value at December 31, 2014 is 3,534,300

Impairment loss $ 832,800

So carrying amount at December 31,2014 is $3,534,300

Amortisation Expense (3,534,300/10 Years) $ 353,430

Carrying amount as on December 31,2015 is $3,180,870

Fair value at December 31 2015 is $3,534,300

Expected Future cash flows (3,917,000/10X 9) is $3,525,300

Carrying value at December 31 2015 is less than the expected future cash flows, No Impairment is required.

No journal entry necessary to record the increase in fair value.