Question

1. At the end of its reporting year (December 31, 2017), Acme Inc. reports a $60,000 patent with estimated remaining useful life of 10 years. Before closing its books, the company identifies a $20,000 impairment in the patent. For IFRS, Acme Inc. does not revalue its intangible assets.

a.   How will the impairment loss be recorded using US GAAP and for IFRS?

b.   Assume that at the end of 2018, Acme Inc. determines the company has recovered $12,000 of the patent impairment. How will this be recorded using US GAAP and IFRS?

c.   Assume instead that at the end of 2018, Acme Inc. determines the company has recovered $18,000 of the patent impairment. How will this be recorded using US GAAP and IFRS?

d.   Assume instead that at the end of 2018, Acme Inc. determines the company has recovered $20,000 of the patent impairment. How will this be recorded using US GAAP and IFRS?

Answer 1

1 a How will the impairment loss be recorded using US GAAP and for IFRS? 2 Ans. Under US GAAP:- For recording of impairment loss this need 2 step test method for confirming whether there is any impairment or not In this step recoverability of the book value of asset is tested.Book value of the asset is not recovarable, when its book 1st step value is more than the undiscounted value of the future cash flow. 2nd step The second step is defined as the measurement of impairment loss. If the asset's value is proven to be unrecoverable in the first step, then the impairment loss is calculated. Impairment loss = asset's book value-asset's fair value (or the present value of the future cash flows expected). In US GAAP no reversal of loss is allowed. Under IFRS:- Limpairment losses need to be recognized when the asset's Book Value > asset's Recoverable amount. Where Asset's Recoverable Amount = higher of (Fair value-Selling costs) OR value in use. The value in use is calculated by discounting future cash flows expected from the continued use of the asset. The impairment loss is allowed to be reversed if the asset's value recovers later. Effects of impairment Book value/carrying amount of the asset is reduced on the balance sheet. Net income is reduced from the income statement. US GAAP 20,000 IFRS 20,000 Value of impairment

21 b presentation of recovery of impairment loss of $12000 under US GAAP and IFRS In US GAAP once impairment made to a asset can,t be reversed back, although there is any recovery from the impairment Under US GAAP:- value. Under IFRS:- The recovery of impairment loss of $12000 can be reversed and adjusted with the carrying amoutn of asset, but subject to the adjusted carrying amount of the asset may not exceed the carrying amount of the asset that would have been determined had no impairment loss been previously recognized. the assets remaining useful life, the depreciation method or the residual value needs to be reviewed and adjusted if there is an indication that impairment no longer may exist, even if no impairment loss is reversed. US GAAP Not allowed IFRS 12000 Reversal of impairment (added to the carrying value of assets) presentation of recovery of impairment loss of $18000 under US GAAP and IFRS US GAAP Not allowed Reversal of impairment (added to the carrying value of assets) subject to 16000 (impairment-depreciation) IFRS 16000 (20000-4000) 36 d. presentation of recovery of impairment loss of $20000 under US GAAP and IFRS 38 39 US GAAP Not allowed IFRS 16000 (20000-4000) Reversal of impairment (added to the carrying value of assets) subject to 16000 (impairment-depreciation) Chesta chest 40 I n chest