Question

Support Computing Impairment of Patent In January 2017, Idea Company purchased a patent for a new consumer product for $153,000. At the time of purchase, the remaining legal life of the patent was 17 years. However, because of the competitive nature of the market, the patent was estimated to have a useful life of 10 years. During 2021, it was determined that there was a potential health hazard present in the product As a result, the estimated future cash flows from the patent on December 31, 2021, are estimated to be $72,000 while the fair value of the patent is estimated to be $62,370. Total estimated useful life remains unchanged. Required a. Determine annual amortization expense for 2017-2021 b. Determine the carrying value of the patent on December 31, 2021, before assessing for impairment What amount should idea record as an impairment loss (if any in 2021? What is the adjusted carrying value of the patent on December 31, 2017 d. Assume that the potential health hazard was resolved in 2022. As a result, the future cash flows from the patent on December 31, 2022, are estimated to be $58.500 while the fair value of the patent is estimated to be $48.600. What amount should idea record as a loss for recovery on impairment of any in 20227 What is the adjusted carrying value of the patent on December 31, 20227 Anul amortization expense . Cory of patent Dec 31, 2021, for impament testing Impamentos record in 2001 Aded carrying value of potent, Dec 31, 2021 1 diamento recognized in 2002 1 Aded carrying value of patent, Dec. 3. 2002 1

Answer 1

As Patent Acquired as an Intangible Assets as per IAS 38, Intangible Assets Standard:
Hence,
Recognised at 01.01.2017	153000
Useful Life	10 Years
Amortisation	SLM Basis
Requirment
a.	Period	Amortisation Expenses	Carrying Value
	2017	15300	137700
	2018	15300	122400
	2019	15300	107100
	2020	15300	91800
	2021	15300	76500
b.	Carrying Value Before Impairement is 76500
	Refere working Note in requirement a.
c.	AS per IAS - 36 Impairment ,
	Higher of Value in Use or Fair Value
	Hence, 72000 OR 62370 = 72000
	Hence, Patent Shall be recorded at 72000
	AS per Books Carrying Value = 76500
	AS per IAS- 36 and IAS 38 value Should be = 72000
	Hence Impauremen Loss= 76500 -72000 = 4500
	Adjusted Carrying Value after Impairment = 72000
d.	Period	Amortisation Expenses	Carrying Value
	2022	14400	57600
	AS per IAS - 36 Impairment ,
	Higher of Value in Use or Fair Value
	Hence, 58500 OR 48600 = 58500
	Hence Patenet Shall be Recorde at 58500
	As per Books Carrying Value = 57600
	AS per IAS -36 and IAS 38 value should be 586500
	as reversal of Impairement.
	However Reveral shall be limited to the extent as no impairment has happende earlier.
	i.e. 15300.
	Secondly, here 900 shall be reversed from the Income Statement. Hence Carrying Vlaue as on 31 December 2022= 58500. Impairement Loss recognised is NIL. .
	JUST FOR UNDERSTANDING
	Above treatement Understand wth Journal Entry
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