In: Accounting
Lucy’s LTD was established in 2013 to sell Mexican food in three
restaurants .innovative advertising
coupled with high quality food quickly established the name of
Lucy’s at the forefront of restaurant
chains in southafrica.in 2015, it was decided to name the franchise
Lucy’s and to register the name as a
trademark .the franchises are sold and fees of 5%of revenue are
paid to Lucy’s LTD.
Which of the following statements are correct when Lucy’s Ltd
determines whether the trademark
‘Lucy’s ‘can be recognized as an intangible asset in accordance
with IAS 38?
-the trade mark should be controlled by Lucy’s Ltd.
– The trademark should be a result of a past event.
-Probable future economic benefits –i.e., the franchise fees-will
flow to Lucy’s Ltd.
– The trademark has a cost, being the amount paid for
registration.
At First, you must know, What is IAS 38..??
IAS 38 : Intangible Assets deals with the accounting requirements for intangible assets, which are non-monetary assets which are without physical substance and identifiable (either being separable or arising from contractual or other legal rights). Intangible assets meeting the relevant recognition criteria are initially measured at cost, subsequently measured at cost or using the revaluation model, and amortised on a systematic basis over their useful lives (unless the asset has an indefinite useful life, in which case it is not amortised).
Now coming to the Term "Intangible Asset" :
Intangible asset are the assets those are identifiable non-monetary asset without physical substance. Examples of Intangible Assets are patented technology, computer software, trademarks, internet domains, licensing, royalty, franchise agreements, marketing rights etc. As we know, An asset is a resource that is controlled by the entity as a result of past events (for example, purchase or self-creation) and from which future economic benefits (inflows of cash or other assets) are expected. Thus, the three critical attributes of an intangible asset are :
Identifiability: an intangible asset is identifiable when it :
Now coming to the Recognition :
Recognition criteria. IAS 38 requires an entity to recognise an intangible asset, whether purchased or self-created (at cost) if, and only if :
This requirement applies whether an intangible asset is acquired externally or generated internally. IAS 38 includes additional recognition criteria for internally generated intangible assets. The probability of future economic benefits must be based on reasonable and supportable assumptions about conditions that will exist over the life of the asset. The probability recognition criterion is always considered to be satisfied for intangible assets that are acquired separately or in a business combination.
Now checking all the statements given above in the problem as recognition of the respective Trademark :
- The trade mark should be controlled by Lucy’s Ltd.-
Correct.
- The trademark should be a result of a past event.-
Correct.
- Probable future economic benefits –i.e., the franchise fees-will
flow to Lucy’s Ltd.- Correct.
- The trademark has a cost, being the amount paid for
registration.- Correct.
Hence we can say that all the statements given above are found Correct in recognizing the trademark Lucy's as an Intangible asset in accordance with IAS 38.