[ckimble22]

The response is that the correct answer is D. I answered B because I thought the only amount being

expensed

was the straight-line amortization. The difference in carrying value and NRV would be a

Loss

rather than an

expense

. To me, the explanation and the reference even imply Loss.

On January 1, year 1, a company capitalized $100,000 of costs for software that is to be sold. The company amortizes the software costs on a straight-line basis over five years. The carrying value of the software costs on January 1, year 3, was $60,000. As of December 31, year 3, the estimated future gross revenue to be generated from the sale of the software is $23,000, and the estimated future cost of disposing of the software is $8,000. What amount should the company expense related to the software costs for the year ended December 31, year 3?

A.
$18,400

B.
$20,000

C.
$37,000

D.
$45,000

[Substantive Testing]

It is not a loss because you have not sold it yet. You are just trying to lower the software to fair market value which is Sell price as of now (23,000) – Disposal cost (8,000) = 15,000. Another way to put it is that you have not depreciated enough, so you are depreciating it faster during year 3 to catchup with the real value.

[ckimble22]

Impairment Losses are to capital assets that remain capital assets (not sold) on your books.
Unrealized Losses are to securities that remain on your books – not sold.
Translation/Remeasurement Loss.

There are many ways to recognize a Loss that do not involve selling/removing item from books.

I understand the math involved and the total amount to be booked; however, I still maintain that only $20,000 is an Expense (Depreciation) and that $15,000 is a Loss (Impairment).

[Author]

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