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Question 7 (6 marks) D10 is an anti-anxiety drug produced by Xero Pharmaceutical Ltd. (XP). XP purchased the D10 patent from Claricaid Corp. on January

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Question 7 (6 marks) D10 is an anti-anxiety drug produced by Xero Pharmaceutical Ltd. (XP). XP purchased the D10 patent from Claricaid Corp. on January 2, 2020, for $45,000,000. Management believed that XP could make significant profits by marketing and selling the drug through its existing distribution channels. On the date of purchase, the D10 patent had 10 years of life remaining. On October 5, 2021, the Medical Journal of America published an article indicating that D10 created a significant dependency on the part of its users. The article also linked the drug to depression. Although XP's researchers are fighting these claims, sales of D10 have declined significantly since the article was published. XP's researchers believe these claims can be refuted with further testing, but this could take up to two years. As at December 31, 2021, XP determined the fair value for the D10 patent would be $16,350,000, with commissions to sell the patent costing $175,000. XP has provided the following net cash flow forecasts with regard to sales of the D10 anxiety drug: Initial forecast at January 2, 2020 $53,100,000 Revised forecast (undiscounted) at December 31, 2021 $18,750,000 Discounted cash flow forecast (value in use) at December 31, 2021 $15,012,367 Amount XP reports under IFRS and has a year end of December 31. The D10 patent has been properly amortized since the acquisition. Required: a) Determine whether an impairment loss should be recorded at December 31, 2021, and support the amount of any required writedown. (5 marks) b) Prepare any journal entries that XP should record at December 31, 2021. (1 mark)

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