Question

Company A has a patent with a book value of $500,000. At December 31, 2019, the fair value of the patent is determined to be $450,000. The expected future cash flows associated with the patent is $650,000. What amount of impairment should Company A record on this patent at 12/31/19?

Answer 1

$50,000

Step-by-step explanation:

A patent should be recorded at fair market value. When the book value of a patent is higher than its market value, then its book value should decrease. This decrease in the book value is called impairment.

In this case, the patent's book value is $500,000, but its market value is $450,000. The impairment loss = $500,000 - $450,000 = $50,000.