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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Probst Company acquired a trademark several years ago at a cost of $60,000. Probst has never considered the trademark to be impaired. However, at the end of 2019, Probst has determined that the trademark is impaired because of a change in market conditions. It estimates that the trademark has a fair value of $40,000 at the end of 2019.

Required:

  1. 1. Prepare Probst’s journal entry (if any) to record the impairment of its trademark at the end of 2019.
  2. 2. Next Level Assume Probst uses IFRS. If Probst estimates that the cost of selling the trademark is zero but the value-in-use is $45,000, prepare Probst’s journal entry to record the impairment of its trademark at the end of 2019. Explain any differences between the impairment loss calculated under IFRS and the impairment loss calculated under U.S. GAAP.
  3. 3. Assume, instead, that Probst estimated that the trademark had a fair value of $70,000 at the end of 2019. How would Probst account for this if it were using (a) U.S. GAAP or (b) IFRS?

1.

To determine

Prepare journal entries to record the impairment loss on trademark of company P.

Explanation

Impairment loss of assets: Impairment loss of assets arises when the carrying value of the assets recorded on the balance sheet of the company exceeds its fair market value.

Prepare journal entry to record the impairment loss as follows:

DateAccounts Title and ExplanationDebit ($)Credit ($)
 Impairment Loss (1)20,000 
        Trademark 20,000
 (To record the impairment loss)  

Table (1)

  • Impairment loss is an expense account, and it decreases the value of equity...

2.

To determine

Prepare journal entries to record the impairment loss on trademark of company P, assume that the company uses IFRS. State the difference between impairment losses calculated under IFRS and under GAAP.

3.

To determine

State the manner in which the company would account this if it uses (a) U.S. GAAP or (b) IFRS.

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