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Determine the impairment loss as a result of the impairment review carries out at 31 December 2020 and prepare necessary journal entries for CAL of
Determine the impairment loss as a result of the impairment review carries out at 31 December 2020 and prepare necessary journal entries for CAL of this development cost for the year ended 31 December 2020.
CAL has an active research and development department on biotechnology and was completed a development project in December 2019 with a cost of $4.2 million which is intended to be amortised over 5 years on a straight-line basis from 1 January 2020. The result of such development project will be used internally and also sold to other companies. Unfortunately, a competitor's product reached the market first and external sales of the new technology were much lower than expected in 2020. Revised cash flow budgets prepared at 31 December 2020 show the following revised budgeted amounts over the life of the product: PVFt 5% 1 2 Net cash inflow t Year ending 31 December 2021 $800,000 0.95238 Year ending 31 December 2022 $600,000 0.90703 Year ending 31 December 2023 $500,000 3 0.86384 Year ending 31 December 2024 $300,000 40.82270 Net cash inflows can be assumed to occur at the end of each year. The annual interest rate CAL uses for discounting cash flows is 5%. The external market value would be lower than the value in use of the development cost as at 31 December 2020Step by Step Solution
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