Mikkeli OY acquired a brand name with an indefinite life in 2015 for 41,200 mark
ID: 2544234 • Letter: M
Question
Mikkeli OY acquired a brand name with an indefinite life in 2015 for 41,200 markkas. At December 31,2017, the brand name could be sold for 35,100 markkas, with zero costs to sell. Expected cash flows from the continued use of the brand are 43,230 markkas, and the present value of this amount is 34,100 markkas.
Assume that a foreign company using IFRS is own by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes.
Required:
a. Prepare journal entries for this brand name for the year ending December 31, 2017, under (1) IFRS and (2) U.S. GAAP
(1) Record the entry for the loss on impairment of brand as per IFRS.
(2) Record the entry for the loss on impairment of brand as per U.S. GAAP
b. Prepare the entry(ies) that the U.S. parent would make on the December 31, 2017 and December 31, 2018 conversion worksheet to convert IFRS balances to U.S. GAAP
(1) Record the conversion entry needed for 12/31/17
(2) Record the conversion entry needed for 13/31/18
Explanation / Answer
The Journal entries under US GAAP and IFRS will be same ( Calculation are shown in working)
Impairment Loss Dr 6100
Brand Cr 6100
Working
Calculation of impairment loss under US GAAP.
Impairment loss is recognised under US GAAP when carrying amount of intangible asset exceeds its fair value
Carrying amount = 41200
Fair Value= 35100
(6100)
Impairment loss is recognised under IFRS when carrying amount exceeds recovarable amount. The recovarable amount is higher of a) Fair value less cost to sell b) Value in use(Ie present value of future cash flow
Carrying value = 41200
Revorable amount is Higher of
Fair Value= 35100 Or
PV of future cash flow= 34100
Thus recovarable amount is 35100.
Impairment loss under IFRS is
Carrying amount 41200
Less: Recovarable amount (35100)
Impairment Loss (6100)
2) There will be no conversion entry as impairment loss is same in both cases