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Bpp text page 78, activity 3,
D Co. is developing a new production process.
Expenditure incurred was $100,000 of which $90,000 was incurred when the production process met the criteria for recognition as an intangible asset.
The recoverable amount of the know-how embodied in the process is estimated to be $50,000.The amount capitalised is $90,000 and the rest $10,000 is treated as an expense in SPL.
But, why is the recoverable amount not treated as an expense and also there is no mention of it’s treatment in financial statements.Could you please explain the treatment of it?
Hi,
There is no treatment as such for the $50,000 recoverable amount. It would be used as part of the impairment review, where if the carrying value of the asset is greater than the recoverable amount then the asset should be impaired. I’m not sure why they then haven’t impaired the asset given the carrying value of $90,000 is greater than the $50,000 recoverable amount.
Thanks
Isn’t the recoverable amount expenditure relating to the know-how of the production process? (as stated in question)
And is it not recorded in the financial statements since it is recoverable expenditure?Yes, it is what they expect from the best use of the asset, i.e. from selling or from continuing to use in the business.
What is recorded in the financial statements is the carrying value of the asset, and the recoverable amount is used to determine if this is the correct value of not.
Thanks
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