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Dear Tutor,
I’ve got a question which we can not resolve in my company.
We acquired the intangible asset (licence) for 100 USD, partly this acquisition financed through the government grant (60 USD),
we are going to sell this asset for 15 USD in the 1-st year and for 15 USD in the 2-d year (total revenue of 30 USD). What will be Impairment Loss when we test for impairment?
Is it possible to include grant’s proceeds in calculation of recoverable amount (value in use or net proceeds from sale)?
We account for the grant as a deferred income, separately from the related intangible asset.
Please help me with this problem. Thank you in advance.Is the grant repayable when you sell? And what were you doing buying a $100 asset which you’re now selling for $15 immediately and $15 more in one year’s time?
Do you have any other assets that you’re trying to get rid of at a knock-down price? I could be interested.
Tell me about the repayability of the grant
Mike, thanks for the reply!
The intangible is a historical movie. Knowing that our costs are partly offset by the grant’s proceedings we
intended to recover all the cost with grant+revenues. But the situation has changed. And now we are at a loss.
We received grant before we start to produce the movie.
Grant is conditional but not repayable if we fulfil 2 main conditions:
1. we shall produce the movie until the end of the year
2. the movie has predetermined topic (historical).
If we do not fulfil the conditions we shall return money.And what if the buyer of the right fails to fulfill the grant pre-conditions? Does the liability for repayment come back to you?
You seem to have dug a hole for yourselves and now you’re about to jump into it. What’s more, the buyer and the government are queuing up to fill the hole back in
If you sell for 15 + 15 discounted, and you have to repay the grant, you’re looking at a substantial loss in excess of $70.
And if you have to complete the film before the end of the year, you have just 7 weeks to get it finished
Hmmmmmm!
If we assume that we have fulfiled the conditions at the end of the year and the grant is not repayable now. We completed the production of the asset costed us 100 USD. The forcasted sales (15+15USD) will be in 2014 and 2015 years respectively.
Is it possible to include grant in recoverable amount and then
Impairment=Discounted sales (appr.30)+ Grant (60) – Asset (100) = -10
or
Impairment = Discounted sales (appr.30)-Asset(100)=-70 ???And how should we account for the grant – we have to recognise grant over the useful life of the related asset.
So when the asset is impaired we have to credit PL (Grant) in proportion to the impaired asset?Thank you for your attention to my problem)
I’m not 100% sure on this but this is what I think.
If you had credited the asset with the grant in the first place and given that the grant is not ever going to have to be repaid, then the impairment should take the grant into account. The net carrying value of the asset is 40 and the recoverable amount is 15 discounted + 15 double-discounted.
But, as I said at the start, I’m not 100% sure.
And, please, in future, don’t ask for free advice when it’s not exam related
There are proper firms of accountants out there who have the experience and the authority to give such advice.
I thought it’s might be interesting for I think there is no answer for this question in IFRS.
But thank you anyway.
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