Question

In: Accounting

Identify whether each of the following would or would not be recorded as an intangible asset...

Identify whether each of the following would or would not be recorded as an intangible asset in the financial statement of Hummings as at the end of the reporting period of 30 June 2016 according to AASB 138 intangible assets.

1. Hummings has acquired copyrights for $240,000, The copyright (intangible)has a useful life of 50 years and over this time period is expected to generate future economic benefits well in excess of its cost of purchases.

2. Hummings spent $600,000 over the past 5 years on the design and promotion of its brad. It is expected that such expenditure will provide significant economic benefits well in excess of the costs of promoting the brand.

3. On 1 July 2015 Hummings acquired another company (XYZ Ltd). Goodwill of $35,000 has been recognized on the purchase.

Solutions

Expert Solution

1. Normally, the price an entity pays to acquire separately an intangible asset will reflect expectations about the probability that the expected future economic benefits embodied in the asset will flow to the entity. In other words, the entity expects there to be an inflow of economic benefits, even if there is uncertainty about the timing or the amount of the inflow. Therefore, the probability recognition criterion is always considered to be satisfied for separately acquired intangible assets hence the copyright of $240,000 will be recorded as intangible assets.

2. An intangible asset shall be recognised if, and only if: (a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and (b) the cost of the asset can be measured reliably.

Furtther if the spending is done during the development phase then only it can be recognised as the intangibe assets. If the amount is spent during the research phase then the amount of expenditure shall not be recognised as intangible assets. So in the above situation assuming that the amount of $600000 is incurred during the research phase the intangible assets shall be recorded at $600000

3.Goodwill acquired on business combination shall be recorded in books however if the value of assets(excluding goodwill) acquired in business combination is more than the value of liabilities then the amount of goodwill shall be reduced by such excess amount. In the present case the treatment of recognising goodwill of $35000 is fair as the question has not given further information on assets & liabilities.


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