Question Tag: Amortization

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FR – Nov 2024 – L2 – Q2c – Intangible Assets and Their Measurement

Determining the correct accounting treatment for various intangible assets in Dolo LTD's financial statements, including licensing, software, and book rights.

Question:

Dolo LTD, a market leader in the pharmaceutical industry, incurred the following expenditures during the financial year ended 31 December 2023:

Expenditure Item Amount (GH¢’000) Additional Information
Licence to operate in the pharmaceutical industry (10-year validity from January 2023) 200 Intangible asset
Costs incurred in setting up a website for a new product 20 The website will be developed in 2024
Purchase of 295 personal computers on 1 July 2023 (three-year useful life) 840 Excludes software costs
Windows operating system (for 295 PCs) 530 Perpetual software license
Microsoft Office software (for 295 PCs) 24 Three-year software license
Induction training for new staff 430 Staff training for new hires
Book rights purchased from another entity a few years ago 90 The rights have an indefinite useful life
Independent valuation of book rights as of 31 Dec 2023 240 Valued by an independent expert

Dolo LTD’s policy is to use the revaluation model for intangible assets where a market valuation is available.

Required:
Determine the carrying amount of intangible assets at 31 December 2023, in accordance with IAS 38 – Intangible Assets and IFRS.

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FR – May 2024 – L2 – SB – Q7 – Impairment of Assets (IAS 36)

Discuss the measurement models for intangible assets and calculate the carrying amount and revaluation surplus for Olumo-Taxi Limited.

a. IAS 38 – Intangible Assets allows a business to choose one of two measurement models as its accounting policy for intangible assets after acquisition. However, the same model should be applied to all assets in the same class.

Required:
Discuss the TWO measurement models for intangible assets. (3 Marks)

b. Olumo-Taxi Limited’s financial year ends on December 31. The company adopted the revaluation model for its intangible assets and revalues them on a regular three-year cycle.

However, for intangible assets with a finite life, Olumo-Taxi Limited transfers the relevant amount from revaluation reserve to retained earnings each year.

During the year 2019, Olumo-Taxi Limited incurred N700,000 on the process of preparing an application for licenses for 15 taxis to operate in a holiday resort very close to Abeokuta. In order to prevent congestion and excessive traffic pollution, the licensing authority only allowed a small number of taxis to operate.

The outcome of the company’s application was uncertain up to November 30, 2019, when the local government authority accepted its application. In December 2019, Olumo-Taxi Limited incurred a cost of N90,000 in registering its licenses. The licenses were for a period of 9 years from January 1, 2019.

The licenses are freely transferable, and an active market in them exists. The fair value at December 31, 2019, was N94,500 per taxi, and Olumo-Taxi Limited carried them at fair value in its statement of financial position at December 31, 2019.

At December 31, 2022, Olumo-Taxi Limited undertook its regular revaluation. On that date, the licensing authority announced that it would triple the number of licenses offered to taxi operators, and there were transactions in the active market for licenses with six years to run at N45,000.

Required:
Calculate, with explanations, the carrying amount and revaluation surplus of the intangible assets of Olumo-Taxi Limited according to IAS 38 as at:
i. December 31, 2019
ii. December 31, 2022 (before regular revaluation)
iii. December 31, 2022 (after regular revaluation)
(12 Marks)

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QTB – Nov 2014 – L1 – SA – Q19 – Mathematics of Business Finance

Determines the interest rate condition for a sinking fund to have a lower periodic cost than amortization

If the interest rate received on a sinking fund is ……………….., the periodic cost for the sinking fund is lower than that for amortization.
A. Lower than that charged on the debt
B. Equal to that charged on the debt
C. Higher than that charged on the debt
D. Equal to zero
E. Equal to one

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CR – Nov 2020 – L3 – Q2a – Intangible Assets

Prepare a note reconciling the carrying amount of Katamanso’s intangible assets, including website development costs and copyright extension fees.

Katamanso Ltd (Katamanso) is a company which is a subsidiary of a media company. Katamanso’s principal asset is the rights it owns to a classic film. Katamanso had the following intangible assets as at the year end 31 December 2017:

Intangible Asset Cost (GH¢’000) Accumulated Amortisation (GH¢’000) Carrying Amount (GH¢’000)
Classic Film 10,000 (6,000) 4,000
Website 150 (90) 60
Total 10,150 (6,090) 4,060

The following information includes all relevant events that occurred during the year ended 31 December 2018:

i) The film was originally published on 1 January 1970 and the rights were acquired by Katamanso on 1 January 2015 for GH¢10 million. Copyright was set at 50 years from the date the film was originally published. The film was amortized by Katamanso using the straight-line method over the remaining copyright period. However, recent legislative changes passed on 1 January 2018 have extended the copyright period from 50 years to 70 years, subject to payment of a registration fee prior to the original expiry date. This, together with associated legal costs, amounted to GH¢70,000 and was paid on 1 January 2018. As a result, the market value of the rights to the film was GH¢12.1 million at 31 December 2018, according to Katamanso’s professional valuers, who determined the valuation on 1 January 2018.

ii) During the year Katamanso developed a new interactive website to market the film and associated merchandise given its extended copyright period. The website includes its own e-commerce system for online DVD sales, direct streaming of the film, associated material, and merchandise sales. The costs incurred are as follows:

Website Development Costs Amount (GH¢’000)
Planning the new website 8
Registration of domain names 18
Internal design costs 85
External contractor design costs 112
New content development 38
Advertising of the new website 22

The new website went live on 1 July 2018 and the old website, which was being amortised using the straight-line method over five years, was taken offline on that date and will not be used for any other purpose.

Required:
Prepare a note reconciling the carrying amount of Katamanso’s intangible assets from the beginning to the year ended 31 December 2018 as required by IAS 38: Intangible Assets.
(Note: Comparative information is not required. All amounts are material.)

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FR – Dec 2022 – L2 – Q5a – Intangible Assets Treatment for Employee Training

Analyze the treatment of employee training costs as an intangible asset under IAS 38.

Damba Ltd spent GH¢400,000 on training courses for its employees, which has resulted in increased efficiency and cost savings. The Assistant Accountant has recognized the training costs as an intangible asset and charged six months’ amortization based on the average time within which the training courses were completed.

Required:
Comment on the Assistant Accountant’s treatment of the aforementioned transaction in Damba Ltd’s financial statements for the year ended March 31, 2022, and advise on how it should be handled under International Financial Reporting Standards.

 

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FR – May 2019 – L2 – Q4c – Property, Plant, and Equipment (IAS 16)

Preparation of extracts of the statement of profit or loss and statement of financial position for Chidinma Ventures Plc, accounting for leasehold property revaluation.

Chidinma Ventures Plc. acquired a 12-year lease on a property on 1 October, 2016 at a cost of N132 million. The company’s policy is to revalue its properties to their market value at the end of each year.

Accumulated amortization is eliminated, and the property is restated to the revalued amount. Annual amortization is calculated on the carrying values at the beginning of the year. The market values of the property on 30 September 2017 and 2018 were N127.05 million and N96.25 million, respectively. The existing balance on the revaluation surplus at 1 October, 2016 was N27.5 million. This is related to some non-depreciable land whose value had not changed significantly since 1 October 2016.

Required:
Prepare extracts of the statement of profit or loss and statement of financial position for the year ended 30 September 2017 and 2018 in respect of the leasehold property.

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FR – Nov 2018 – L2 – SC – Q6a and Q6b – Property, Plant, and Equipment (IAS 16)

Calculate costs of various intangible assets and their carrying amounts as at December 31, 2017.

Intangibles assets by their nature do not exist physically under IAS 38 Intangible assets. The
following information on initial cost of intangibles asset were extracted from the Notes to the
financial statements of Igbo-hood Limited, a film production company on January 1, 2017:

Additional Information:

(i)

(ii) Intangible assets are to be amortised on a straight line basis.

Required:
a. Calculate the costs of the following intangible assets:
i. Market based
ii. Customer related
i. Artistic related
iv. Contract based
v. Technology based

b. Calculate the carrying amounts of the following intangibles assets as at December 31, 2017
i. Quick books and SAGE
ii. Trade marks
iii. Plays
iv. Franchise

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FA – May 2017 – L1 – SA – Q18 – Bank Reconciliation

Identifies items involving movement in cash flows.

Which of the following items involves movement in cash flows?
A. Amortisation charges
B. Depreciation
C. Gain
D. Loss
E. Rent

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QT – Nov 2016 – L1 – Q4a – Mathematics of Business Finance

Explain the terms annuities, sinking fund, and amortization related to loan repayment.

One of the most important applications of annuities is the repayment of interest-bearing debts. These debts can be paid by making periodic deposits into a sinking fund, which is used at a future date to pay the principal of the debt, or by making periodic payments that cover the outstanding interest and the principal. This second method is called amortization.

Required:
i) Explain the term annuities as used in the statement above. (2 marks)
ii) What is a sinking fund? (2 marks)
iii) When is a loan with a fixed rate of interest said to be amortized? (1 mark)

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CR – Nov 2017 – L3 – Q2c – IAS 38: Intangible assets

Recommend the treatment of training, marketing, and customer list expenses in the financial statements.

Oyarefa Ltd acquired 80% ordinary shares in Abokobi Ltd on 1 January 2015. The intangible assets of Abokobi Ltd include GH¢9 million of training and marketing expenditure incurred during the year ended 31 December 2016. The Directors of Abokobi Ltd believe that these should be capitalised as they relate to the startup period of a new business venture in Oyibi, and they intend to amortise the balance over the five years commencing 1 January 2017.

On 1 July 2016, Oyarefa Ltd purchased a customer list from the liquidator of a competitor. The price paid was GH¢4 million and was based on the list having a useful life of two years. At 31 December 2016, the Finance Director of Oyarefa Ltd commissioned a report on the value of the customer list from a firm of independent valuers. The firm has valued the customer list at GH¢5 million and estimates a total useful life of five years. The customer list is currently included in intangible assets at a carrying value of GH¢4 million, but the Finance Director wants the list to be revalued to the higher amount.

Required:
Recommend the treatment of the above in the consolidated financial statements for Oyarefa Ltd Group for the year ended 31 December 2016 in accordance with IAS 38: Intangible Assets.

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FR – Nov 2024 – L2 – Q2c – Intangible Assets and Their Measurement

Determining the correct accounting treatment for various intangible assets in Dolo LTD's financial statements, including licensing, software, and book rights.

Question:

Dolo LTD, a market leader in the pharmaceutical industry, incurred the following expenditures during the financial year ended 31 December 2023:

Expenditure Item Amount (GH¢’000) Additional Information
Licence to operate in the pharmaceutical industry (10-year validity from January 2023) 200 Intangible asset
Costs incurred in setting up a website for a new product 20 The website will be developed in 2024
Purchase of 295 personal computers on 1 July 2023 (three-year useful life) 840 Excludes software costs
Windows operating system (for 295 PCs) 530 Perpetual software license
Microsoft Office software (for 295 PCs) 24 Three-year software license
Induction training for new staff 430 Staff training for new hires
Book rights purchased from another entity a few years ago 90 The rights have an indefinite useful life
Independent valuation of book rights as of 31 Dec 2023 240 Valued by an independent expert

Dolo LTD’s policy is to use the revaluation model for intangible assets where a market valuation is available.

Required:
Determine the carrying amount of intangible assets at 31 December 2023, in accordance with IAS 38 – Intangible Assets and IFRS.

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FR – May 2024 – L2 – SB – Q7 – Impairment of Assets (IAS 36)

Discuss the measurement models for intangible assets and calculate the carrying amount and revaluation surplus for Olumo-Taxi Limited.

a. IAS 38 – Intangible Assets allows a business to choose one of two measurement models as its accounting policy for intangible assets after acquisition. However, the same model should be applied to all assets in the same class.

Required:
Discuss the TWO measurement models for intangible assets. (3 Marks)

b. Olumo-Taxi Limited’s financial year ends on December 31. The company adopted the revaluation model for its intangible assets and revalues them on a regular three-year cycle.

However, for intangible assets with a finite life, Olumo-Taxi Limited transfers the relevant amount from revaluation reserve to retained earnings each year.

During the year 2019, Olumo-Taxi Limited incurred N700,000 on the process of preparing an application for licenses for 15 taxis to operate in a holiday resort very close to Abeokuta. In order to prevent congestion and excessive traffic pollution, the licensing authority only allowed a small number of taxis to operate.

The outcome of the company’s application was uncertain up to November 30, 2019, when the local government authority accepted its application. In December 2019, Olumo-Taxi Limited incurred a cost of N90,000 in registering its licenses. The licenses were for a period of 9 years from January 1, 2019.

The licenses are freely transferable, and an active market in them exists. The fair value at December 31, 2019, was N94,500 per taxi, and Olumo-Taxi Limited carried them at fair value in its statement of financial position at December 31, 2019.

At December 31, 2022, Olumo-Taxi Limited undertook its regular revaluation. On that date, the licensing authority announced that it would triple the number of licenses offered to taxi operators, and there were transactions in the active market for licenses with six years to run at N45,000.

Required:
Calculate, with explanations, the carrying amount and revaluation surplus of the intangible assets of Olumo-Taxi Limited according to IAS 38 as at:
i. December 31, 2019
ii. December 31, 2022 (before regular revaluation)
iii. December 31, 2022 (after regular revaluation)
(12 Marks)

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QTB – Nov 2014 – L1 – SA – Q19 – Mathematics of Business Finance

Determines the interest rate condition for a sinking fund to have a lower periodic cost than amortization

If the interest rate received on a sinking fund is ……………….., the periodic cost for the sinking fund is lower than that for amortization.
A. Lower than that charged on the debt
B. Equal to that charged on the debt
C. Higher than that charged on the debt
D. Equal to zero
E. Equal to one

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CR – Nov 2020 – L3 – Q2a – Intangible Assets

Prepare a note reconciling the carrying amount of Katamanso’s intangible assets, including website development costs and copyright extension fees.

Katamanso Ltd (Katamanso) is a company which is a subsidiary of a media company. Katamanso’s principal asset is the rights it owns to a classic film. Katamanso had the following intangible assets as at the year end 31 December 2017:

Intangible Asset Cost (GH¢’000) Accumulated Amortisation (GH¢’000) Carrying Amount (GH¢’000)
Classic Film 10,000 (6,000) 4,000
Website 150 (90) 60
Total 10,150 (6,090) 4,060

The following information includes all relevant events that occurred during the year ended 31 December 2018:

i) The film was originally published on 1 January 1970 and the rights were acquired by Katamanso on 1 January 2015 for GH¢10 million. Copyright was set at 50 years from the date the film was originally published. The film was amortized by Katamanso using the straight-line method over the remaining copyright period. However, recent legislative changes passed on 1 January 2018 have extended the copyright period from 50 years to 70 years, subject to payment of a registration fee prior to the original expiry date. This, together with associated legal costs, amounted to GH¢70,000 and was paid on 1 January 2018. As a result, the market value of the rights to the film was GH¢12.1 million at 31 December 2018, according to Katamanso’s professional valuers, who determined the valuation on 1 January 2018.

ii) During the year Katamanso developed a new interactive website to market the film and associated merchandise given its extended copyright period. The website includes its own e-commerce system for online DVD sales, direct streaming of the film, associated material, and merchandise sales. The costs incurred are as follows:

Website Development Costs Amount (GH¢’000)
Planning the new website 8
Registration of domain names 18
Internal design costs 85
External contractor design costs 112
New content development 38
Advertising of the new website 22

The new website went live on 1 July 2018 and the old website, which was being amortised using the straight-line method over five years, was taken offline on that date and will not be used for any other purpose.

Required:
Prepare a note reconciling the carrying amount of Katamanso’s intangible assets from the beginning to the year ended 31 December 2018 as required by IAS 38: Intangible Assets.
(Note: Comparative information is not required. All amounts are material.)

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FR – Dec 2022 – L2 – Q5a – Intangible Assets Treatment for Employee Training

Analyze the treatment of employee training costs as an intangible asset under IAS 38.

Damba Ltd spent GH¢400,000 on training courses for its employees, which has resulted in increased efficiency and cost savings. The Assistant Accountant has recognized the training costs as an intangible asset and charged six months’ amortization based on the average time within which the training courses were completed.

Required:
Comment on the Assistant Accountant’s treatment of the aforementioned transaction in Damba Ltd’s financial statements for the year ended March 31, 2022, and advise on how it should be handled under International Financial Reporting Standards.

 

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FR – May 2019 – L2 – Q4c – Property, Plant, and Equipment (IAS 16)

Preparation of extracts of the statement of profit or loss and statement of financial position for Chidinma Ventures Plc, accounting for leasehold property revaluation.

Chidinma Ventures Plc. acquired a 12-year lease on a property on 1 October, 2016 at a cost of N132 million. The company’s policy is to revalue its properties to their market value at the end of each year.

Accumulated amortization is eliminated, and the property is restated to the revalued amount. Annual amortization is calculated on the carrying values at the beginning of the year. The market values of the property on 30 September 2017 and 2018 were N127.05 million and N96.25 million, respectively. The existing balance on the revaluation surplus at 1 October, 2016 was N27.5 million. This is related to some non-depreciable land whose value had not changed significantly since 1 October 2016.

Required:
Prepare extracts of the statement of profit or loss and statement of financial position for the year ended 30 September 2017 and 2018 in respect of the leasehold property.

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FR – Nov 2018 – L2 – SC – Q6a and Q6b – Property, Plant, and Equipment (IAS 16)

Calculate costs of various intangible assets and their carrying amounts as at December 31, 2017.

Intangibles assets by their nature do not exist physically under IAS 38 Intangible assets. The
following information on initial cost of intangibles asset were extracted from the Notes to the
financial statements of Igbo-hood Limited, a film production company on January 1, 2017:

Additional Information:

(i)

(ii) Intangible assets are to be amortised on a straight line basis.

Required:
a. Calculate the costs of the following intangible assets:
i. Market based
ii. Customer related
i. Artistic related
iv. Contract based
v. Technology based

b. Calculate the carrying amounts of the following intangibles assets as at December 31, 2017
i. Quick books and SAGE
ii. Trade marks
iii. Plays
iv. Franchise

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FA – May 2017 – L1 – SA – Q18 – Bank Reconciliation

Identifies items involving movement in cash flows.

Which of the following items involves movement in cash flows?
A. Amortisation charges
B. Depreciation
C. Gain
D. Loss
E. Rent

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QT – Nov 2016 – L1 – Q4a – Mathematics of Business Finance

Explain the terms annuities, sinking fund, and amortization related to loan repayment.

One of the most important applications of annuities is the repayment of interest-bearing debts. These debts can be paid by making periodic deposits into a sinking fund, which is used at a future date to pay the principal of the debt, or by making periodic payments that cover the outstanding interest and the principal. This second method is called amortization.

Required:
i) Explain the term annuities as used in the statement above. (2 marks)
ii) What is a sinking fund? (2 marks)
iii) When is a loan with a fixed rate of interest said to be amortized? (1 mark)

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CR – Nov 2017 – L3 – Q2c – IAS 38: Intangible assets

Recommend the treatment of training, marketing, and customer list expenses in the financial statements.

Oyarefa Ltd acquired 80% ordinary shares in Abokobi Ltd on 1 January 2015. The intangible assets of Abokobi Ltd include GH¢9 million of training and marketing expenditure incurred during the year ended 31 December 2016. The Directors of Abokobi Ltd believe that these should be capitalised as they relate to the startup period of a new business venture in Oyibi, and they intend to amortise the balance over the five years commencing 1 January 2017.

On 1 July 2016, Oyarefa Ltd purchased a customer list from the liquidator of a competitor. The price paid was GH¢4 million and was based on the list having a useful life of two years. At 31 December 2016, the Finance Director of Oyarefa Ltd commissioned a report on the value of the customer list from a firm of independent valuers. The firm has valued the customer list at GH¢5 million and estimates a total useful life of five years. The customer list is currently included in intangible assets at a carrying value of GH¢4 million, but the Finance Director wants the list to be revalued to the higher amount.

Required:
Recommend the treatment of the above in the consolidated financial statements for Oyarefa Ltd Group for the year ended 31 December 2016 in accordance with IAS 38: Intangible Assets.

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