Choice "B" is correct. Under IFRS, an impairment loss is recorded for the excess of the carrying value of an intangible asset over its recoverable amount. The recoverable amount is the greater of the asset's fair value less costs to sell and the asset's value in use. In this problem, the value in use of $475,000 exceeds the fair value less costs to sell of $465,000 ($480,000 - $15,000) and an impairment loss of $25,000 must be reported on the income statement:
Impairment loss$475,000 recoverable amount - $500,000 carrying value$(25,000) |
Choice "a" is incorrect. An impairment loss must be recorded under IFRS because the carrying value of the patent exceeds the patent's recoverable amount.
Choice "d" is incorrect. Under IFRS, the impairment loss is the difference between the carrying value and the recoverable amount. In this problem, the recoverable amount is the patent's $475,000 value in use, which exceeds the patent's fair value less estimated costs to sell of $465,000 ($480,000 - $15,000). The fair value of $480,000 is not used to calculate the impairment loss.
Choice "c" is incorrect. Under IFRS, the impairment loss is the difference between the carrying value and the recoverable amount. In this problem, the recoverable amount is the patent's $475,000 value in use because it exceeds the $465,000 fair value less costs to sell.
