Question

Brief Exercise 12-06Flint Corporation owns a patent that has a carrying amount of $290,000. Flint expects future net cash flows from this patent to total $240,000. The fair value of the patent is $133,000.Prepare Flint’s journal entry to record the loss on impairment.

Answer 1

Answer:

Debit Impairment loss account   $50,000

Credit Intangible asset account   $50,000

Being entries to recognize impairment loss on patent.

Explanation:

According to IAS 36, an asset is impaired when the carrying amount of the asset is more than the recoverable amount. The recoverable amount is the higher of the fair value and the future net cash flow from the assets.

Given;

Carrying amount = $290,000

Expected future net cash flows from this patent = $240,000

Fair value of the patent = $133,000

The recoverable amount = $240,000 (as this is higher than the fair value)

Impairment is the difference between the carrying amount and the recoverable amount.

Impairment = $290,000 - $240,000

= $50,000

Entries required

Debit Impairment loss account   $50,000

Credit Intangible asset account   $50,000

Being entries to recognize impairment loss on patent.