Reference no: EM132811251

Green X10 is an anxiety drug produced by Rhee Pharmaceutical. Rhee purchased the patent from Dixon in 20x1 for $45,000,000 as they believed that they could make significant profits by marketing and selling the drug through their existing distribution channels. On the date of purchase on January 2, 20x1, the patent had 10 years of useful life remaining.

• On November 30, 20x2, the Medical Journal of Ontario published an article that indicated Green X10 created a significant dependency on the part of its users and that the drug was also linked to causing depression. Although Rhee's researchers are fighting these claims, the sales of Green X10 have significantly dropped. The researchers believe they can contradict these claims with further testing, but this could take up to two years.

• Rhee has hired you, an independent consultant, to help them account for this issue for their December 31, 20x2 annual financial statements. Rhee determined the fair value for Green X10 would be $16,350,000 and costs to dispose of the line would be $175,000. Rhee also provided you with the following net cash flow forecasts at December 31, 20x2 with regards to Green X10.

Discounted cash flows from use of the patent                  $15,012,367
Undiscounted cash flows from the use of the patent             18,750,000

Rhee Pharmaceutical has a year-end of December 31.

Required -

Problem 1: Calculate the impairment loss, if any, under both:
(a) IFRS and,
(b) ASPE

Problem 2: Write the journal entry to record the impairment loss.