Goo Limited owns a brand 'gobblers', to which legal rights for a 25-year period were purchased on January 1, 2014 for P500,000, renewable at a further cost of P1,000,000. The 'gobblers' brand is reflected in the balance sheet at its carrying amount of P500 000.

• A review of past figures makes it clear that the profits from the brand 'gobblers' are diminishing dramatically. At the time of the purchase, it was estimated that this brand would render annual profits of P80 000 and at that time, it appeared so successful that its useful life appeared to be indefinite. The budgeted profit figures presented at the end of the 2015 financial period indicated a slight (immaterial) dip in future expected profits, but taken together with the latest budgeted profits presented at a directors meeting on December 29, 2016, makes it clear that these annual profits of P80 000 are on a downward spiral.

• These latest budgeted figures show a total estimated net cash inflow of P70 000 over the remaining legal life. Goo Limited has the option to dispose of this brand to a local businessman who has recently (December 2016) offered to purchase it for P220 000. The only selling costs that are expected will be P2 000 in legal fees. The current financial year ends on December 31, 2016.

Required: Determine the following:

1. Amortization expense for the year ended December 31, 2014. (1)

2. Carrying value of the intangible asset as of December 31, 2016 before impairment testing. (1)

3. Recoverable amount of the intangible asset as of December 31, 2016. (1)

Impairment loss during the current financial year. (1)

Answer rating: 100% (QA)

1 Amortization expense is Rs 20000 Explanation Total Cost of brand go... View the full answer