(Solution) - Repeat El2 13 but now assume that the licence was granted -(2025 Original AI-Free Solution)

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Academic Level: Undergrad. (yrs 3-4)

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Pages: 5 Words: 1375

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Repeat El2-13, but now assume that the licence was granted in perpetuity and has an indefinite life, and that Dayton prepares financial statements in accordance with ASPE.
In exercise
At the end of 2014, Dayton Corporation owns a licence with a remaining life of 10 years and a carrying amount of $530,000. Dayton expects undiscounted future cash flows from this licence to total $535,000. The licence's fair value is $425,000 and disposal costs are estimated to be nil. The licence's discounted cash flows (that is, value in use) are estimated to be $475,000. Dayton prepares financial statements in accordance with IFRS.
Instructions
(a) Determine if the licence is impaired at the end of 2014 and prepare any related entries that are necessary.
(b) Assume the recoverable amount is calculated to be $450,000 at the end of 2015. Determine if the licence is impaired at the end of2015 and prepare any related entries that are necessary.
(c) Explain how the answer to part (b) would change if the licence's fair value is $500,000 at the end of 2015.