Question

At the end of 2017, Ayayai Corporation owns a licence with a remaining life of 11 years and a carrying amount of $505,000. Ayayai expects undiscounted future cash flows from this licence to total $509,900. The licence's fair value is $400,600 and disposal costs are estimated to be nil. The licence's discounted cash flows (that is, value in use) are estimated to be $453,100. Ayayai prepares financial statements in accordance with ASPE. Determine if the licence is impaired at the end of 2017 The licence at the end of 2017. Prepare any related entry that is necessary. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS Assume the recoverable amount under ASPE (undiscounted future cash flows) is calculated to be $500,000 at the end of 2018. Determine if the licence is impaired at the end of 2018 The licence at the end of 2018. Prepare any related entry that is necessary. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit

Answer 1

1	Carrying value	505000
	Fair value	400600
	The fair value is less than the carrying amount. It implies that the goodwill is impaired.
	Impairment loss is excess of carrying value over recoverable amount
	Recoverable amount (Higher of fair value and value in use)	453100
	Impairment cost = 505000 - 453100 = 51900
	Entry
	Particulars	Debit ($)	Credit ($)
	Loss on impairment	51900
	Licence		51900
	To record loss in impairment of licence
2	Recoverable amount	500000
	Impairment loss = 505000 - 500000 = 5000
	Entry
	Particulars	Debit ($)	Credit ($)
	Loss on impairment	5000
	Licence		5000
	To record loss in impairment of licence