Question

The following information relates to a patent owned by Gentry Company:

Carrying amount 1,700,000

Fair value 1,200,000

Instructions

(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2019.

(b) Using the same assumption as part (a) above, prepare the journal entry to record amortization expense for 2020 assuming the asset has a remaining useful life of 3 years at the beginning of 2020.

Answer 1

Please find below answer:

Date	Account title	Debit	Credit
31-Dec-19	Loss on Impairment	$        500,000
	Patent		$                    500,000
	(Being impairment loss recorded on patent on account of lower fair value.)
Year 2020 onwards	Amortization Expenses	$        400,000
	Patent		$                    400,000
	(Being amortization expenses recorded for the year)
Note 1	Impairment Loss	Amount
(a)	Carrying amount	$                                                          1,700,000
(b)	Fair value	$                                                          1,200,000
	Impairment Loss (b)-(a)	$                                                           (500,000)
Note 2	Patent Value	$                                                          1,200,000
	Remaining usefull life	3.00
	Amortisation per year	$                                                              400,000