medium · Financial Accounting liabilities-bonds-payable
A firm has an unamortized non-compete agreement on its books with a carrying value of $150,000 and 3 years remaining.
If the former owner breaches the contract and the firm determines the agreement no longer has value, what is the accounting treatment?
- Continue amortizing 50,000 per year until the end of the term.
- Perform a two-step impairment test but keep the asset if it passes step one.
- Reverse all previous amortization and then write off the original cost.
- Write off the remaining $150,000 immediately as a loss.
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