How is the cash acquisition of a software license for € 1,000 (used over a 4-year-period)...

How is the cash acquisition of a software license for € 1,000 (used over a 4-year-period) going to be reflected in the financial statements of the acquiring company at the time of the acquisition and in year 1 of the use of the license ?

Solutions

Expert Solution

IAS 38 — Intangible Assets

IAS-38 discusses the accounting requirements for intangible assets.
As per para 38.63 of IAS 38, computer software purchased should be recognized and capitalized at its cost of acquisition. Further, the cost of the intangible asset acquired should be amortized over the useful or licensed life of the asset.
As per para 38.74 of IAS 38, subsequent measurement or recognition of the intangible asset should be done at cost less its amortized value.
As per para 38.97 of IAS 38, amortization should reflect the pattern of benefits accrued to the organization.

At the time of acquisition of license:

As discussed above, as per para 38.63 of IAS 38, the license cost of the software should be reported in the balance sheet of the acquiring company at its cost of acquisition of € 1,000.

After 1 year of use of license:

As per IAS 38, the acquisition cost of the intangible asset should be amortized over its useful or agreed contracted life.
In the given case, the useful life of the asset is 4 years. The amortized cost of the asset for each year of utilization is € 250 (1000/4).
Therefore, € 250 should be expensed through reporting in the income statement in the 1st year of use and the unamortized value of € 750 should be reported in the balance sheet.

ekkarill92 answered 2 years ago

Next > < Previous

Related Solutions

Over a 4 year period the black corp purchased 100% of the outstanding voting shares of...

Over a 4 year period the black corp purchased 100% of the outstanding voting shares of White Co. The acquisition was made in a series of steps as follows: DATE: % Purchase Price Jan 1, Year 1 5% 5,000 Jan 1, Year 2 10% 12,000 Jan 1, Year 3 10% 15,000 Jan 1, Year 4 75% 200,000 Total 100% 232,000 Any excess of the purchase price over the net book value of the assets was attributed to goodwill. The acquisition...

Over a 4 year period the Yellow corporation purchased 100% of the outstanding voting shares of...

Over a 4 year period the Yellow corporation purchased 100% of the outstanding voting shares of Green Co. The acquisition was made in a series of steps as follows... Date % Purchase Price January, Year 1 5% 5,000 January, Year 2 10% 12,000 January, Year 3 10% 15,000 January, Year 4 75% 200,000 Total 100% 232,000 Any excess of the purchase price over the net book value of the assets was attributed to goodwill. The acquisition in Year 3 allowed...

Last year, your company purchased a site license to the accounting software suite FUN for $10,000....

Last year, your company purchased a site license to the accounting software suite FUN for $10,000. Yesterday, your IT department discovered that the software erroneously calculates 2+2=5 and suggested purchasing a replacement software for $15,000. How should your company assess or quantify the cost of the decision to replace its software? The replacement software includes a monthly fee of $100 per site license (i.e., the fee to the company is $100 per month regardless of the number of computers on...

4. A personal loan of $1,000 is made for a period of 18 months at an...

4. A personal loan of $1,000 is made for a period of 18 months at an interest rate of 1.50% per month on the unpaid balance. If the entire amount owed is repaid in a lump sum at the end of that time, determine: a) The effective annual interest rate b) The total amount of interest paid 5. What nominal interest, compounded quarterly, is required to provide a 6% annual effective interest rate? A 12 % annual effective interest rate?...

How much cash do I have at the end of period 2, 3, and 4? Please...

How much cash do I have at the end of period 2, 3, and 4? Please add calculations for each period. Period Debit or Credit Value Type Account 0 Credit(+) $1,500,000 Equity Startup Capital 0 Debit(+) $1,500,000 Asset Cash 0 Debit(+) $300,000 Asset Property, Plant & Equipment 1 Debit(+) $26,000 Expense Operating Costs 1 Credit(-) $26,000 Asset Cash 1 Credit(+) $126,114 Revenue Revenue 1 Debit(+) $126,114 Asset Cash 1 Debit(+) $240,000 Asset Inventory 1 Credit(+) $240,000 Asset Cash 1 Debit(+)...

Using a sample of data over a period of one year, explain how macroeconomic variables (use...

Using a sample of data over a period of one year, explain how macroeconomic variables (use two variables) and the Covid-19 virus (discovered in January) have affected the performance of the stock markets. So, my question is what tests should I perform on Eviews with panel data to answer the above questions? (tests should only be performed on Eviews)

The labor force participation and the employment-population ratio over the same ten-year period and how these...

The labor force participation and the employment-population ratio over the same ten-year period and how these measures may have influenced the unemployment rate

Using the financial statements of a company over a 3 year period how do I calculate...

Using the financial statements of a company over a 3 year period how do I calculate the intrinsic value of a stock using the discount cash free flow method? what figures in the financial statement do I use in the calculations

A. What is the payback period for the following set of cash flows? Year Cash...

A. What is the payback period for the following set of cash flows? Year Cash Flow 0 −$ 5,300 1 2,300 2 2,300 3 1,400 4 1,100 B. A project with an initial cost of $22,350 is expected to generate cash flows of $5,200, $7,300, $8,400, $7,300, and $6,000 over each of the next five years, respectively. What is the project's payback period? C. A new project has an initial cost of $133,000. The...

1)How many license plates are there if they start with three capital letters followed by 4...

1)How many license plates are there if they start with three capital letters followed by 4 digits from 0 to 9. (Note that letters and digits can be repeated? 2)In how many ways can 5 men and 5 women be arranged in a line if the line starts with a man, and the men and women alternate?

Subjects