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Q 245- acca kaplan exam kit
the question is as follows:
darby acquired a patent with a 10 year life on 1 january 20×5. on 30 december 20×5, management believed that the patent was less fully utilized than expected and determined the following information as part of their impairment review:potential sale procees 400,000
estimated disposal costs 20,000
value in use of the asset 480.000what is the value of the impairment loss in the year ended 31/dec/20×5?
please someone explain this to me
Hi,
Firstly you need to calculate the carrying value of the patent at 31 December 20X5. It is depreciated over its 10 year life but it has only been used for one year (1 January 20X5 to 31 December 20X5)
Once you’ve calculated the carrying value, this then needs to be compared to the recoverable amount. The recoverable amount is the higher of the value in use (480,000) and the fair value less costs to sell (400,000 – 20,000).
If the carrying value is higher than the recoverable amount then the patent is impaired by the difference.
Try the question again using the information that I’ve give you above and see how you get on and let me know how you get on. Hopefully, you’ll get the right answer.
Thanks
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