ExpertHard2 marksShort Answer
ACCA · Question 32 · Recording Transactions: Intangible Assets
Section A
BioGenetics acquired a patent on 1 January 20X3 for $100,000. The patent has a legal life of 15 years, but BioGenetics expects the product it protects to be obsolete in 10 years. On 31 December 20X4, an impairment review determined the recoverable amount of the patent was $75,000.
What is the carrying amount of the patent in the statement of financial position as at 31 December 20X4? (Enter the number only)
Section A
BioGenetics acquired a patent on 1 January 20X3 for $100,000. The patent has a legal life of 15 years, but BioGenetics expects the product it protects to be obsolete in 10 years. On 31 December 20X4, an impairment review determined the recoverable amount of the patent was $75,000.
What is the carrying amount of the patent in the statement of financial position as at 31 December 20X4? (Enter the number only)
How to approach this question
1. Calculate amortization over the shorter of legal or useful life. 2. Find carrying amount before impairment. 3. Compare with recoverable amount. The carrying amount is the lower of the two.
Full Answer
Amortization period = 10 years (shorter of legal and useful life).
Annual amortization = $100,000 / 10 = $10,000.
Accumulated amortization for 2 years (20X3, 20X4) = $20,000.
Carrying amount before impairment = $100,000 - $20,000 = $80,000.
Recoverable amount = $75,000.
Since carrying amount ($80k) > recoverable amount ($75k), the asset is impaired. It must be written down to its recoverable amount of $75,000.
Common mistakes
Amortizing over 15 years, or ignoring the impairment review.
Practice the full ACCA FA — Financial Accounting Practice Exam 5
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