Calculating Amortization and Impairment for Franchise Assets
School
University of Cape Coast,Ghana**We aren't endorsed by this school
Course
FINANCE 608
Subject
Accounting
Date
Dec 11, 2024
Pages
2
Uploaded by MagistrateBeaverMaster630
Base Company has a franchise intangible asset reported on the financial statements. The company obtained a franchise from Circuit Corp. to make and distribute a special item. It obtained the franchise on January 1, 2013 at a cash costof $19,200 for a 12 year period.1)Compute the amortize expense for the franchise asset for 2013 and 2014.$19,200 / 12 years = $1,600 per year2013Amortization Expense1,600Accumulated Amortization1,6002014Amortization Expense1,600Accumulated Amortization1,6002)Give the net book value of the franchise asset at the end of the 2013 and 2014.2013Acquisition Cost$19,200Accumulated Amortization(1,600)Net Book Value$17,6002014Acquisition Cost$19,200Accumulated Amortization(3,200)Net Book Value$16,0003)January 31, 2015 the franchise was impaired in its ability to continue to produce strong revenues. The franchise would be able to produce future cash flows of $13,500 and has a fair value of $12,000. Compute the amount of the impairment loss, if any.Step 1Net Book Value > Expected future cash flows16,000 > 13,500 The asset is impairedStep 2
Net Book Value – Fair Value16,000 – 12,000 = 4,000 Impairment LossLoss on Franchise4,000Franchise4,000