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Assume that Arcon Radio purchased a broadcast license for $2,000,000. The license is renewable every 10 years if the company provides appropriate service and does

Assume that Arcon Radio purchased a broadcast license for $2,000,000.

  • The license is renewable every 10 years if the company provides appropriate service and does not violate Government Communications Commission (GCC) rules. Arcon Radio has renewed the license with the GCC twice, at a minimal cost.
  • Because it expects cash flows to last indefinitely, Arcon reports the license as an indefinite-life intangible asset. Recently, the GCC decided to issue significantly more of these licenses, which will reduce the value of Arcon's license.
  • Based on recent auctions of similar licenses, Arcon Radio estimates the fair value less costs to sell (the recoverable amount) of its license to be $1,500,000.

How is the loss on impairment calculated?

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