January 1, 2020, Caleb Co acquired the following intangible assets: A trademark for 2,000,000. The trademark has 8 years remaining in its legal life. It is anticipated that the trademark will be renewed in the future, indefinitely, without a problem. A patent for 4,000,000. Because of market conditions, it is expected that the patent will have an economic life of just 5 years, although the remaining life is 10 years. On December 31, 2020, the intangible assets are assessed for impairment. Because of a decline in the economy, the trademark is expected to generate cash flows of just 120,000 per year. The useful life of the trademark still extends beyond the foreseeable horizon. The cashflows expected to be generated by the patent are 500,000 annually for each of the next 4 years. The appropriate discount rate for all intangible assets is 8%. The present value of an ordinary annuity of 1 at 8% for four periods is 3.31. What total amount should be recognized as impairment loss in 2020? Question 34 options: 2,045,000 1,545,000 2,845,000 1,980,000
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
n January 1, 2020, Caleb Co acquired the following intangible assets:
A trademark for 2,000,000. The trademark has 8 years remaining in its legal life. It is anticipated that the trademark will be renewed in the future, indefinitely, without a problem.
A patent for 4,000,000. Because of market conditions, it is expected that the patent will have an economic life of just 5 years, although the remaining life is 10 years.
On December 31, 2020, the intangible assets are assessed for impairment. Because of a decline in the economy, the trademark is expected to generate cash flows of just 120,000 per year. The useful life of the trademark still extends beyond the foreseeable horizon. The cashflows expected to be generated by the patent are 500,000 annually for each of the next 4 years. The appropriate discount rate for all intangible assets is 8%. The present value of an ordinary annuity of 1 at 8% for four periods is 3.31. What total amount should be recognized as impairment loss in 2020?
Question 34 options:
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2,045,000 |
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1,545,000 |
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2,845,000 |
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1,980,000 |
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