Question

The NGD Company has a trademark that it expects to have an indefinite life with a carrying value of $1,500,000. As part of its 2016 annual impairment testing, NGD decides not to use the qualitative assessment option under U.S. GAAP and moves forward to performing its quantitative assessment impairment testing for both U.S. GAAP and IFRS. In this process, it is determined that the fair value of the trademark is $1,200,000. The present value of the future cash flows is $1,260,000 and the undiscounted summation of the future cash flows is $1,400,000. The costs to sell the trademark would be insignificant. Required: a. Determine the impairment of the trademark using both U.S. GAAP and IFRS. (10 points) Extra credit: What journal entries would NGD prepare to record an impairment of the trademark using both U.S. GAAP and IFRS? (2 points) b. In the following year, NGD reviewed its trademark for impairment reversal indicators. Upon review of these indicators, NGD determined that reversal of the impairment was appropriate. The fair value of the trademark and the present value of future cash flows is both $1,600,000. The costs to sell the trademark continue to be insignificant. Determine whether there is any reversal of the impairment loss for the trademark under U.S. GAAP and IFRS (5 points) Extra credit: What journal entries would NGD prepare to record the reversal of the impairment loss for the trademark using both U.S. GAAP and IFRS? (2 points)

Answer 1

A	Determination of impairment Using US GAAP
	Step 1 if carrying value exceeds undiscounted future cash flow
	Carrying value of the patent	$1,500,000
	Undiscounted future cash flow	$1,400,000
	Step 2
	Impairment loss
	Carrying value of the patent	$1,500,000
	Less: Present value of expected cash flows	$1,260,000
	Impairment loss	$240,000
	Determination of impairment Using IFRS
	Carrying value of the patent	$1,500,000
	Press recoverable amount
	Higher of:
	Fair value - selling costs	$1,200,000
	Discounted future cash flow expected	$1,260,000
	Impairment loss (1500000-1260000)	$240,000
	Journal entry for impairment
	Loss on impairment	$240,000
	Patent		$240,000
B	Under US GAAP Impairment loss is not allowed to be reversed
	Under IFRS, impairment loss can be reversed later, if assets value recovers
	Patent	$240,000
	Revaluation Surplus		$240,000