Final answer:
The test of recoverability for the impairment of intangible assets other than goodwill under U.S. GAAP is known as the recoverability test. It involves comparing the carrying amount of the intangible asset to its recoverable amount, which is determined based on future cash flows and an appropriate discount rate. If the carrying amount exceeds the recoverable amount, the intangible asset is considered impaired and must be written down.
Step-by-step explanation:
The test of recoverability for the impairment of intangible assets other than goodwill under U.S. GAAP is known as the recoverability test. This test is performed at least annually to determine if the carrying amount of an intangible asset exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs of disposal and value in use.
The recoverable amount is calculated by estimating the future cash flows expected to be generated by the intangible asset and applying an appropriate discount rate. If the carrying amount exceeds the recoverable amount, then the intangible asset is considered impaired and must be written down to its recoverable amount.
For example, let's say a company has an intangible asset related to a patent. The company determines that the carrying amount of the patent is $500,000, and after considering the expected future cash flows and discount rate, determines that the recoverable amount is $400,000. Since the carrying amount exceeds the recoverable amount, the company would need to write down the patent by $100,000.