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Impairment of intengible assets

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A toffee company discovers that its competitor is producing and selling what appears to be its patented toffee-coated popcorn for a cheaper price. The company sues its competitor for patent infringement, but its defense is unsuccessful and it loses the lawsuit. The company's chief financial officer adds the cost for the defense of the patent to the patent account. The company's controller argues that the legal costs must be expensed, and that the remaining balance in the patent account must be removed.

With whom do you agree and disagree? Why? Explain.

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Solution Summary

This solution is comprised of an explanation of impairment test requirements and where the cost of the legal defense of a patent are to go; either added to the company's patent account or expensed. Additionally, what is to be done with the remaining patent after losing the legal case is discussed.

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I don't agree with the CFO. Adding the cost for defense to the patent value is not appropriate because it does not qualify ...

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