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In 2017 Lachie Ltd decided to develop a surfboard out of a new type of damage...

In 2017 Lachie Ltd decided to develop a surfboard out of a new type of damage resistant plastic. In 2017 $510,000 was spent on research and aimed at understanding the properties of this new product, which if utilised should lead to signigificant future economic benefits.

In 2018 Lachie Ltd developed a prototype of its surfboard, which it had tested by several local surfers. Costs involved were $780,000 and orders were received from several local retailers. In anticipating demand for the new sufboard, Lachie spent $25,000 on legal costs to register its patent for the new design.

In 2019 Lachie Ltd undertook an international advertising campaign at a cost of $1m. Within the next few months orders were received for $40m for the new surfboard. As a result their accountant calculated that the present value of the new surfboard was $200m, which Lachie Ltd wanted to reflect in the company's balance sheet. A major competitor made a legally binding offer of $150m to purchase the patent for the new surfboard.

Describe how to account for the above transaction and events in accordance with AASB138 Intangibles and AASB13 Fair value measurement:

1. How much is the carrying amount of the asset, if any in 2019?

2. Can the asset if any, be revalued upwards?

Expert Solution

As per AASB 138 the devopment cost only will be taken to the cost of the asset

Hence the research cost will be charged to profit and loss ac for the period 2017

i

In the year 2018 805000 will be charged capitalised

In 2019 the carrying value will be 805,000 which was capitalised earlier

In 2019 for the intagible assets the present value of the future cash flows can be taken as asset value

The income approach converts future amounts (eg cash flows or income and expenses) to a single current (ie discounted) amount.

When the income approach is used, the fair value measurement reflects current market expectations about those future amounts.

When this approach is uesd 200 million will be taken as capitalised value of the asset

However the computed value should not be more than the market value of the intangile asset

ii

So the intangible asset can be capitalised till USD 150 million

jeff jeffy answered 3 years ago

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