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31. The following information is available for Barkley Company's patents: Original cost1,720,000Carrying amount 860,000Expected net cash...

31. The following information is available for Barkley Company's patents: Original cost1,720,000Carrying amount 860,000Expected net cash flows (undiscounted) 800.000Fair value 650,000Barkley would record a loss on impairment of: A. 60,000.B. 210,000.C. 860,000.D. 920,000.

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Expert Solution

Impairment of Intangible Assets:

An Asset is said to be impaired if its carrying amount exceeds its recoverable amount.

Recoverable amount is the higher of an asset's fair value less costs of disposal and its value in use.

Value in use is the present value of the future cash flows expected to be derived from an asset.

Given information

Original cost of the Paternt = 1,720,000

Carrying amount of the Patent = 860,000

Expected net future cash flows of the Patent = 800,000

Fair value of the Patent = 650,000

Recoverable amount = Higher of Expected net future cash flows and Fair value of the Patent

= Higher of 800,000 and 650,000 = 800,000

Since the recoverable amount of the Patent exceeds its carrying amount, the asset is said to be impaired.

Imapirment loss = Carrying aamout - Recoverable amount

= 860,000 - 800,000 = 60,000

Therefore the impairment loss to be recorded is 60,000.

The correct answer is Option A 60,000.

ekkarill92 answered 2 years ago
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