On December 31, 2020, Zari Company acquired the following intangible assets: • A trademark for P3,000,000. The trademark has 8 years remaining in its legal life. It is anticipated that the trademark will be renewed in the future, indefinitely, without problem. , • A patent for P2,000,000. Because of market conditions, it is expected that the patent will have economic life for just 5 years, although the remaining legal life is 10 years. Because of a decline in the economy, the trademark is now expected to generate cash flows of just P120,000 per year. The useful life of the trademark still extends beyond the foreseeable horizon. The cash flows expected to be generated by the patent are P500,000 in 2022, P600,000 in 2023, P400,000 in 2024 and P500,000 in 2025. The appropriate discount rate for all intangible assets is 6%. The present value of 1 at 6% for one period is 0.94, for two periods is 0.89, for three periods is 0.84, and for four periods Is 0.79. What is the total impairment loss in 2021?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On December 31, 2020, Zari Company acquired the following intangible assets:
• A trademark for P3,000,000. The trademark has 8 years remaining in its legal life.
It is anticipated that the trademark will be renewed in the future, indefinitely, without problem. ,
• A patent for P2,000,000. Because of market conditions, it is expected that the patent will have economic life for just 5 years, although the remaining legal life is 10 years.
Because of a decline in the economy, the trademark is now expected to generate cash flows of just P120,000 per year. The useful life of the trademark still extends beyond the foreseeable horizon. The cash flows expected to be generated by the patent are P500,000 in 2022, P600,000 in 2023, P400,000 in 2024 and P500,000 in 2025. The appropriate discount rate for all intangible assets is 6%. The present value of 1 at 6% for one period is 0.94, for two periods is 0.89, for three periods is 0.84, and for four periods Is 0.79.
What is the total impairment loss in 2021?
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