On January 1, 2020 (the first day of its fiscal year) WildhorseLtd. acquired a...

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Accounting

On January 1, 2020 (the first day of its fiscal year) WildhorseLtd. acquired a patent which gave the company the right to use aproduction process. The process met the six criteria forcapitalization as an intangible asset. Below is a listing of theevents relating to the patent over the five fiscal years from 2020through 2024:
2020:
? on January 1, acquired the patent for the production processfrom its inventory for a cash payment of $17,400,000, anddetermined that the process had an indefinite useful life.
? on December 31, tested the patent for impairment and determinedthat its fair value was $18,400,000.
2021:
? on December 31, tested the patent for impairment and determinedthat its fair value was $15,400,000.
2022:
? on December 31, tested the patent for impairment and determinedthat its fair value was $16,300,000.
2023:
? on January 1, determined that the useful life of the patent wasno longer indefinite, its carrying amount was recoverable, itsestimated remaining useful life was 7 years, its estimated residualvalue was $0 and the pattern of economic benefits to be obtainedfrom the patent during those 7 years was evenly spread over those 7years.
? on December 31, tested the process for impairment andrecoverability and determined that its fair value was $1,000,000and its carrying amount was recoverable.
2024:
? on December 31, tested the patent for impairment andrecoverability and determined that its fair value was $0 and itscarrying amount was not recoverable.
record entry for
Jan 1, 2020
Dec 31,2020
Dece 31,2021
Dec 31, 2022
Dec 31, 2023
Dec 31, 2024 (to record amortization expense)
Dec 31, 2024 (to record loss on impairment)

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3.7 Ratings (305 Votes)

Wildhorse Ltd.
Date	Account Titles	Debit	Credit
01.01.2020	Patents A/c	17,400,000.00
	Bank A/c		17,400,000.00
	To record acquisition of Patent

31.12.2021	Impairment A/c	2,000,000.00
	Patents A/c		2,000,000.00
	To record impairment loss
	( 17400000 - 15400000)
31.12.2022	No Entry required	-
	In impairment testing fair value gains are ignored		-

31.12.2023	Amortization A/c	2,200,000.00
	Patents A/c		2,200,000.00
	To record amortization of Patent
	(15400000/7)
31.12.2023	Impairment A/c	12,200,000.00
	Patents A/c		12,200,000.00
	To record impairment loss
	(13200000-1000000)
31.12.2024	Impairment A/c	1,000,000.00
	Patents A/c		1,000,000.00
	To record impairment loss

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In: AccountingOn January 1, 2020 (the first day of its fiscal year) WildhorseLtd. acquired a patent...On January 1, 2020 (the first day of its fiscal year) WildhorseLtd. acquired a patent which gave the company the right to use aproduction process. The process met the six criteria forcapitalization as an intangible asset. Below is a listing of theevents relating to the patent over the five fiscal years from 2020through 2024:2020:?on January 1, acquired the patent for the production processfrom its inventory for a cash payment of $17,400,000, anddetermined that the process had an indefinite useful life.?on December 31, tested the patent for impairment and determinedthat its fair value was $18,400,000.2021:?on December 31, tested the patent for impairment and determinedthat its fair value was $15,400,000.2022:?on December 31, tested the patent for impairment and determinedthat its fair value was $16,300,000.2023:?on January 1, determined that the useful life of the patent wasno longer indefinite, its carrying amount was recoverable, itsestimated remaining useful life was 7 years, its estimated residualvalue was $0 and the pattern of economic benefits to be obtainedfrom the patent during those 7 years was evenly spread over those 7years.?on December 31, tested the process for impairment andrecoverability and determined that its fair value was $1,000,000and its carrying amount was recoverable.2024:?on December 31, tested the patent for impairment andrecoverability and determined that its fair value was $0 and itscarrying amount was not recoverable.record entry forJan 1, 2020Dec 31,2020Dece 31,2021Dec 31, 2022Dec 31, 2023Dec 31, 2024 (to record amortization expense)Dec 31, 2024 (to record loss on impairment)

2020:
?		on January 1, acquired the patent for the production processfrom its inventory for a cash payment of $17,400,000, anddetermined that the process had an indefinite useful life.
?		on December 31, tested the patent for impairment and determinedthat its fair value was $18,400,000.
2021:
?		on December 31, tested the patent for impairment and determinedthat its fair value was $15,400,000.
2022:
?		on December 31, tested the patent for impairment and determinedthat its fair value was $16,300,000.
2023:
?		on January 1, determined that the useful life of the patent wasno longer indefinite, its carrying amount was recoverable, itsestimated remaining useful life was 7 years, its estimated residualvalue was $0 and the pattern of economic benefits to be obtainedfrom the patent during those 7 years was evenly spread over those 7years.
?		on December 31, tested the process for impairment andrecoverability and determined that its fair value was $1,000,000and its carrying amount was recoverable.
2024:
?		on December 31, tested the patent for impairment andrecoverability and determined that its fair value was $0 and itscarrying amount was not recoverable.