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 $$1\mathrm{}90,000$ 

 

Estimated Useful Life $10$ years

Salvage Value $ $0$

 

 Fresh Air Inc. is currently testing this asset for impairment. The licensing agreement could currently be sold for $$5\mathrm{}8,000$ less $$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 $$2\mathrm{}9,000$  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$)$:$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Answer rating: 100% (QA)

To determine if there is an impairment loss under the cost recovery impairment model we need to comp... View the full answer