Question

Write a Memo to clarify where and how each of these items should be accounted for in the financial statements.

Items

Advertising

Computer Equipment used by Accounting & Finance department

Copyright

Customer list that was acquired from a competitor that went out of business

Design charges for new product prototype

Development charges from last year for Product “J” which began selling in the current year

Equipment used for development of new products

Focus groups ran this year to try out products that are set to launch next year

Goodwill from a recent acquisition

Patent that was purchased two months ago

Rent paid for six months in advance

Research of environmentally friendly "green" materials

Start-up costs to incorporate

Trademark

Answer 1

Advertising: It will be classified as expenses over the period. If the duration of advertising agreement fall in two year then it can be accounted as prepaid expenses as a praportionate amount

Computer Equipment used by Accounting & Finance department : computer equipment utilised by any department will be capital asset and hence has to be capitalised as fixed assets

Copyright: it is an intangible assets and has to be amortised over a period for whhich copy right exsist

Customer list that was acquired from a competitor that went out of business: it can be classified as marketing expenses.

Design charges for new product prototype: it should be tretead as priliminary expenses or product development expenses and has to be written off over a period

Development charges from last year for Product “J” which began selling in the current year : it has to be written of over a period. it has to be categorised in preliminary expenses

Equipment used for development of new products: it has to be written of over a period. it has to be categorised in preliminary expenses

Focus groups ran this year to try out products that are set to launch next year: it has to be written of over a period. it has to be categorised in preliminary expenses

Goodwill from a recent acquisition: it is also n intangible assets and has to be amortised over a period

Patent that was purchased two months ago :it is also n intangible assets and has to be amortised over a period

Rent paid for six months in advanceIt has to be classified as prepaid expenses

Research of environmentally friendly "green" materials: It can be treated as expenses relating CSR (Corporate Social Responcibility)

Start-up costs to incorporate: Preincorporation Expenses hence to be written of over a period

Trademark: Intangible assets