Headland Corp. has a patent with a cost of $401,000 and accumulated amortization of $330,000, which...

Headland Corp. has a patent with a cost of $401,000 and accumulated amortization of $330,000, which was not used as frequently during the current year. Management has determined that undiscounted future cash flows are $69,200 while the discounted cash flows are $62,280. The fair value of the equipment is $74,300 and would cost management $4,200 to sell it.

Headland Corp. has asked you, to prepare any impairment loss journal entries required under (1) IFRS and (2) ASPE.

Expert Solution

The required journal entries are as follows
No	Account Titles and Explanations	Debit ($)	Credit ($)
-1	Loss on Impairment	900
	Accumulated Impairment Losses - Patents		900

-2	No Entry
	No Entry

Working Notes

Impairment Loss = Carrying Amount - Recoverable Amount

Carrying Amount = Cost - Accumulated Amortization

=401,000-330,000

= 71,000

Recoverable Amount is higher of (I) Value in use i.e discounted cash flows

and (ii) Fair Value - cost to sell

Here ( I ) 62,280

(ii) 74,300 - 4,200 = 70,100

Thus Recoverable amount = 70,100

Now Impairment Loss = 71,000 -70,100 = 900

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