Lesson 9

Question 1

Impairment

Answer 1

Occurs when the carrying amount of a long lived asset (PPE) is not recoverable.

Question 2

What are the two test of impairment for limited life intangibles?

Answer 2

Recoverability Test
Fair Value Test

Question 3

What does the fair value test measure?

Answer 3

The impairment loss by comparing the asset’s fair value with its carrying amount.

Question 4

Carrying amount

Answer 4

is the value of the asset minus depreciation

Question 5

What is the test for impairment in indefinite life intangibles?

Answer 5

Fair value test

Question 6

Why don’t companies use the recoverability test for indefinite life intangibles?

Answer 6

because many indefinite life intangibles would easily meet the recoverability test (cash flows may extend many years into the future).

Question 7

What is the qualitative assessment?

Answer 7

an assessment to determine whether it is more likely than not that an indefinite life intangible asset is impaired. if it determines that the asset is not impaired the company doesn’t need to do the fair value test.

Question 8

Which intangible asset should be shown as a separate item on the Balance Sheet?

Answer 8

Goodwill

Question 9

The notes to the financial statements should include information about the acquired intangible assets, and aggregate amortization expense for how many succeeding years?

Answer 9

5

Question 10

How is the total amount of patent cost amortized to date usually reported on the balance sheet?

Answer 10

It is shown as credits in the Patents account and not in a contra account.
Accumulated amortization for intangible assets are recorded directly in the asset’s account as a credit (reducing the book value of the asset).