Fresh Air Inc. purchased a non-renewable licensing agreement for access to proprietary technology that allows it...

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Fresh Air Inc. purchased a non-renewable licensing agreement for access to proprietary technology that allows it to produce Product X from organic waste. When the 10-year licensing agreement was purchased 6 years ago there were no other companies operating in the space. However, numerous competitors have emerged in the industry as direct competitors to Fresh Air Inc. As a result of recent market entrants, the market demand for Product X has been steadily declining. The company has the following information available related to the licensing agreement: Licensing agreement at Cost ... Estimated Useful Life Salvage Value $150,000 10 years $ 0 Fresh Air Inc. is currently testing this asset for impairment. The licensing agreement could currently be sold for $50,000 less $500 for selling costs. If Fresh Air Inc. keeps producing the Product X for two more years, it expects net cash flows from production to be $28,000 at the end of each of the two years and that the value of the licensing agreement is zero at the end of year two. The current interest rate is 5%. Instructions a) Assume that Fresh Air Inc. follows ASPE and uses the cost recovery impairment model, Determine if there is an impairment loss and if so, what is the amount of the loss? Round to the nearest dollar. (3 marks) Impairment Loss (if any): b) Assume that Fresh Air Inc. follows IFRS and uses the rational entity impairment model, determine if there is an impairment loss and if so, what is the amount of the loss? Round to the nearest dollar. (3 marks) Impairment Loss(if any): Fresh Air Inc. purchased a non-renewable licensing agreement for access to proprietary technology that allows it to produce Product X from organic waste. When the 10-year licensing agreement was purchased 6 years ago there were no other companies operating in the space. However, numerous competitors have emerged in the industry as direct competitors to Fresh Air Inc. As a result of recent market entrants, the market demand for Product X has been steadily declining. The company has the following information available related to the licensing agreement: Licensing agreement at Cost ... Estimated Useful Life Salvage Value $150,000 10 years $ 0 Fresh Air Inc. is currently testing this asset for impairment. The licensing agreement could currently be sold for $50,000 less $500 for selling costs. If Fresh Air Inc. keeps producing the Product X for two more years, it expects net cash flows from production to be $28,000 at the end of each of the two years and that the value of the licensing agreement is zero at the end of year two. The current interest rate is 5%. Instructions a) Assume that Fresh Air Inc. follows ASPE and uses the cost recovery impairment model, Determine if there is an impairment loss and if so, what is the amount of the loss? Round to the nearest dollar. (3 marks) Impairment Loss (if any): b) Assume that Fresh Air Inc. follows IFRS and uses the rational entity impairment model, determine if there is an impairment loss and if so, what is the amount of the loss? Round to the nearest dollar. (3 marks) Impairment Loss(if any):

Answer rating: 100% (QA)

a Using the ASPE cost recovery impairment model we need to compare the carrying amount of the licens... View the full answer