BRIEF EXERCISE 12-7
Because the fair value of the division exceeds the carrying amount of
the assets, goodwill is not considered to be impaired. No entry is
necessary.
BE12-6. This question helped us learn testing an intangible for
impairment. This test involves two steps Recoverability test and Fair
Value Test. In the Recoverability test we compare the Future Cash
Flows and the Carrying Amount of the intangible. Here in this
question the future cash flows of $210,000 are less than the carrying
value therefore there is an impairment. Now we apply the second
test to find the amount of impairment loss by comparing the fair
value ($110,000) with the carrying value (300,000). The impairment
loss here is $190,000 ( 300,000-110,000). Please note that the
intangible is now reported only at $110,000
BE12-12. Point to note in this question is that the Research and
Development cost of $96,000 is not added to the cost of intangible
but only the legal expenses of n$85,000 to defend the intangible is
added.