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On January 1, 2011, Bingham Inc.purchased a patent with a cost €1,160,000, a useful life of 5 years.The company uses straight-line depreciation.At December 31, 2012, the company determines that impairment indicators are present.The fair value less cost to sell the patent is estimated to be €540,000.The patent's value-in-use is estimated to be €565,000.The asset's remaining useful life is estimated to be 2 years.
-Bingham's 2012 income statement will report Loss on Impairment of

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The loss on impairment is calculated as the carrying value of the patent (original cost minus accumulated depreciation) minus the fair value less cost to sell. As of December 31, 2012, the carrying value of the patent would be €928,000, and the fair value less cost to sell is €540,000. Therefore, the loss on impairment would be €388,000. However, since the patent only has 2 years of remaining useful life, the loss on impairment is limited to the amount that reduces the carrying value to the asset's recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell (€540,000) and its value-in-use (€565,000). Since the patent's carrying value cannot be reduced below its recoverable amount, the loss on impairment is limited to €131,000 (€928,000 - €565,000).

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