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.

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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

ekkarill92 answered 8 months ago

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