A loss on impairment of an intangible asset under IFRS is the asset’s:

(a) carrying amount less the expected future net cash flows.

(b) carrying amount less its recoverable amount.

(c) recoverable amount less the expected future net cash flows.

(d) book value less its fair value

Short Answer

Expert verified

Carrying amount less its recoverable amount.

Step by step solution

01

Meaning of Intangible asset

Intangible assets are assets that do not have a physical form. Organizations that have spent significant money to establish brands may find that the value of their intangible assets much outweighs the worth of their physical assets.

02

Explaining the correct option

When the carrying value of a resource exceeds its recoverable value, an impairment loss happens. Between the value in utilize and the reasonable value less expensive, the recoverable amount is bigger. The value of the expected cash flows over a given period is the value in utilize. The amount expected to be received by selling the resource less the cost of doing so is the reasonable value, which is decreased by the fetched included in making the sale.

So, option (b) carrying amount less its recoverable amount is the right option.

03

Explaining the incorrect option

Option a) When an asset's carrying value or the value of a cash-generating unit exceeds its recoverable value, an impairment loss results. The higher an asset's fair value,the fewer disposal costs; its value in use is the amount that can be recovered from it or its cash-generating unit.

Option c) When an asset's recoverable sum falls short of its carrying sum, it will be lowered to the asset's recoverable sum. This decrease is the impairment loss, which ought to be perceived immediately in profit or loss unless the resource is carried at a revalued sum.

Option d) Carrying cost minus recoverable amount equals impairment loss. This is the impairment that needs to be acknowledged.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

On January 2, 2017, Raconteur Corp. reported the following intangible assets: (1) copyright with a carrying value of \(15,000, and (2) a trade name with a carrying value of \)8,500. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 10 years.

At December 31, 2017, Raconteur assessed the intangible assets for possible impairment and developed the following information.

Estimated Undiscounted Expected Future Cash Flows

Estimated Fair Value

Copyright

\(20,000

\)16,000

Trade name

10,000

5,000

Accounting

Prepare any journal entries required for Raconteur’s intangible assets at December 31, 2017.

Analysis

Many stock analysts indicate a preference for less-volatile operating income measures. Such measures make it easier to predict future income and cash flows, using reported income measures. How does the accounting for impairments of intangible assets affect the volatility of operating income?

Principles

Many accounting issues involve a trade-off between the primary characteristics of relevant and representationally faithful information. How does the accounting for intangible asset impairments reflect this trade-off?

Briefly discuss how a transfer of securities from the available-for-sale category to the trading category affects stockholders’ equity and income.

What are the two main characteristics of intangible assets?

Hillsborough Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of \(70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to \)60,000. It is determined that this loss in value is uncollectible. Prepare the journal entry, if any, to record the reduction in value.

Question: 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.

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free