Question

Curry Seasonings has a patented technology for finely grinding spices while maintaining flavor. This has allowed the company to make some of the world’s finest spices. However, recently a competitor patented a newer technology that results in the production of more potent spices than Curry’s spices. What would you recommend they do to revalue the intangible asset?

Answer 1

Answer:

Run a recoverability test and then a fair value test.

Explanation:

Business assets with a loss of value are subject to impairment tests to assess and identify the magnitude of the loss.

Measuring the magnitude of the loss requires two steps:

• Performing a recoverability check is to decide whether an impairment loss occurred by determining whether the future value of the undiscounted cash flows of the asset is less than the asset's book value. If the cash flow is less than the value of the book, the loss will be assessed.
• Measure the cost of damage by measuring the difference between the book value and the asset's market value.