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Chapter 12: Q12-7IFRS (page 656)

Use the information in IFRS12-6. Assume that at the end of the year following the impairment (after recording amortization expense), the estimated recoverable amount for the patent is \(130,000. Prepare Kenoly’s journal entry, if needed.

Kenoly Corporation owns a patent that has a carrying amount of \)300,000. Kenoly expects future net cash flows from this patent to total \(210,000 over its remaining life of 10 years. The recoverable amount of the patent is \)110,000. Prepare Kenoly’s journal entry, if necessary, to record the loss on impairment.

Short Answer

Expert verified

Recovery of Loss from Impairment = $31,000

Step by step solution

01

Meaning of Patents 

Patents are a company's most valuable intangible assets, granting specific legal rights to use a process or develop and sell a product. The value of patents rises or falls in accordance with the performance of the business

02

Preparing journal entries 

Date

Particulars

Debit ($)

Credit ($)

Patents
$130,000-$110,000-$11,000

31,000

Recovery of Loss from Impairment

31,000

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Most popular questions from this chapter

Hendricks Corporation purchased trading investment bonds for \(50,000 at par. On December 31, Hendricks received an annual interest of \)2,000, and the fair value of the bonds was $47,400. Prepare Hendricks’ journal entries for (a) the purchase of the investment, (b) the interest received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)

Question: On September 1, 2017, Winans Corporation acquired Aumont Enterprises for a cash payment of \(700,000. At the time of purchase, Aumont’s balance sheet showed assets of \)620,000, liabilities of \(200,000, and owners’ equity of \)420,000. The fair value of Aumont’s assets is estimated to be $800,000. Compute the amount of goodwill acquired by Winans.

King Company is contemplating the purchase of a smaller company, which is a distributor of King’s products. Top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. The financial management group (of which you are a part) has been asked to analyze the effects of the acquisition on the combined company’s financial statements. This is the first acquisition for King, and some of the senior staff insist that based on their recollection of goodwill accounting, any goodwill recorded on the acquisition will result in a “drag” on future earnings for goodwill amortization. Other younger members on the staff argue that goodwill accounting has changed. Your supervisor asks you to research this issue.

Instructions

Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.)

  1. Identify the accounting literature that addresses goodwill and other intangible assets.
  2. Define goodwill.
  3. Is goodwill subject to amortization? Explain.
  4. When goodwill is recognized by a subsidiary, should it be tested for impairment at the consolidated level or the subsidiary level? Discuss.

Fairbanks Corporation purchased 400 shares of Sherman Inc. common stock for \(13,200 (Fairbanks does not have significant influence). During the year, Sherman paid a cash dividend of \)3.25 per share. At year-end, Sherman stock was selling for $34.50 per share. Prepare Fairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustmentaccount.)

Research and development activities may include (a) personnel costs, (b) materials and equipment costs, and (c) indirect costs. What is the recommended accounting treatment for these three types of R&D costs?
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