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Q- A CGU becomes impaired because the product it makes is overtaken by a technologically advance model by a competitor. The recoverable amount of CGU falls to 60, resulting in impairment of 80.
Carrying amount Carrying amount
before impairment after impairmentGoodwill 40 –
Patent (no market value) 20 –
TNCA (market value 60) 80 60After three years, entity makes technological breakthrough and recoverable amount of CGU increases to 90. The carrying amount of TNCA if impairment had not occured would have been 70.
Calculate impairment reversal?Total reversal should be of 30 i.e. (90-60), goodwill cannot be reversed, reversal on TNCA would be 10,so the remaining reversal should be on patent, but in book, only the impairment reversal of 10 is recognised on TNCA & it is written back to 70, the remaining 20 is not recognised. The explanation given is, that reversal of impairment on patent is not recognised because the external event that caused impairment is not reversed, i.e. original product is still overtaken by a more advanced model.
I’m confused that why the remaining reversal of 20 is not being recorded on patent? Can impairment loss be reversed on intangible assets(other than goodwill), if not, why? In this case the remaining impairment reversal of 20 is to be recognised somewhere, it cannot be done in goodwill neither in TNCA, then where it will be recognised?The procedure that is being protected by the patent is no longer of value so the patent has no value. The subsequent breakthrough may be (should be) patented but the original process has been overtaken.
We cannot reverse beyond bringing the TNCA back up to 70
As for your remaining 20 …… that’s gone too. Can’t be reversed.
Is it possible to reverse the impairment of an intangible? Hmm, interesting.
What about this? We wrote off our patent because the competition has made ours obsolete. Two years later the competition’s procedures have been shown to be dangerous and the market for our product has been restored. Yes, I suppose in that circumstance, we could reverse the impairment of the intangible
But I’m not sure!
If it comes up in exam and nothing is mentioned about competitors, can the impairment loss be reversed in that case, on any intangible asset?
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