BE12-2 makes us learn that if any legal cost is incurred to defend an intangible assets  it should be added to the book value of intangible asset and depreciated over its remaining useful life.  Book Value is determined by subtracting amortization till the date of incurring legal cost from the purchase price.



BE12-3 provides us repeated practice to record amortization on intangible asset


The take away from BE12-7 is how to test goodwill for impairment. We test goodwill for impairment by comparing the Fair Value (FV) with the Carrying Value(CV) of the reporting unit.  If FV is less than CV then we proceed further to test goodwill for impairment. 





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.  





December 31, 2010


Loss on Impairment…………………………








The fair value of the reporting unit ($335 million) is below its carrying value ($350 million). Therefore, an impairment has occurred. To determine the impair-ment amount, we first find the implied goodwill. We then compare this implied fair value to the carrying value of the goodwill to determine the amount of the impairment to record.

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