On January 1, 2021, Livingstyle Company purchased a patent for an immune system boosting drink called Infra for P800,000. The patent is determined to have an indefinite life. During 2022, a competitor introduced a new product that is in direct competition with Infra; hence; the patent was tested for possible impairment. Data gathered suggests that the patent still has an indefinite life, but the cash flows to be generated from the asset have been reduced to either P40,000 per year (with 50% probability) or to P80,000 per year (with 50% probability). The appropriate risk-free interest rate is 8% and the risk-adjusted interest rate is 10%. What is the impairment loss recognized in the accounts for the year ended December 31, 2022? P200,000 P400,000 P800,000 a. b. C. d. PO

On January 1, 2021, Livingstyle Company purchased a patent for an immune system boosting drink called Infra for P800,000. The patent is determined to have an indefinite life. During 2022, a competitor introduced a new product that is in direct competition with Infra; hence; the patent was tested for possible impairment. Data gathered suggests that the patent still has an indefinite life, but the cash flows to be generated from the asset have been reduced to either P40,000 per year (with 50% probability) or to P80,000 per year (with 50% probability). The appropriate risk-free interest rate is 8% and the risk-adjusted interest rate is 10%. What is the impairment loss recognized in the accounts for the year ended December 31, 2022? P200,000 P400,000 P800,000 a. b. C. d. PO

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

MC45 On January 1, 2021, Livingstyle Company purchased a patent for
an immune system boosting drink called Infra for P800,000. The
patent is determined to have an indefinite life.
During 2022, a competitor introduced a new product that is in
direct competition with Infra; hence; the patent was tested for
possible impairment. Data gathered suggests that the patent still
has an indefinite life, but the cash flows to be generated from the
asset have been reduced to either P40,000 per year (with 50%
probability) or to P80,000 per year (with 50% probability). The
appropriate risk-free interest rate is 8% and the risk-adjusted
interest rate is 10%.
What is the impairment loss recognized
year ended December 31, 2022?
the accounts for the
P200,000
P400,000
P800,000
a.
b.
C.
d.
PO

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