- 15 Marks
FR – L2 – Q32 – Intangible Assets
Question
Tobi Plc entered into the following transactions during the year ended 31 December 20X4. The directors of Tobi Plc wish to capitalise all assets where possible.
(1) On 1 January Tobi Plc acquired the net assets of Gidi for GH¢105,000. The assets acquired had the following book and fair values:
| Book value | Fair value | |
|---|---|---|
| Goodwill | – | 5,000 |
| Patents | 5,000 | 5,000 |
| Non-current assets | 50,000 | 50,000 |
| Other sundry net assets | 40,000 | 40,000 |
The recoverable amount of the goodwill at 31 December 20X4 was estimated at GH¢2,000.
(2) On 1 April Tobi Plc purchased a patent for GH¢20,000. The patent has a remaining useful life of eight years.
(3) On 1 April Tobi Plc purchased a brand for GH¢50,000. The brand has a remaining useful life of five years.
(4) During the year Tobi Plc incurred expenditure of GH¢30,000 developing a new brand.
(5) During the year Tobi Plc incurred expenditure of GH¢40,000 developing customer lists.
Required
Show how the above transactions would appear in the financial statements (including notes to the financial statements) of Tobi Plc as of 31 December 20X4.
Answer
Intangible assets
| GH¢ | |
|---|---|
| Cost | |
| On 1 January 20X4 | – |
| Additions (W1) | 175,000 |
| On 31 December 20X4 | 175,000 |
| Accumulated amortisation/impairment | |
| On 1 January 20X4 | – |
| Written off/amortised during the year (W1 and W2) | 12,500 |
| On 31 December 20X4 | 12,500 |
| Carrying amount | |
| On 31 December Year 0 | – |
| On 31 December 20X4 | 162,500 |
Workings
(1) Goodwill on acquisition of Gidi
| GH¢ | |
|---|---|
| Cost of acquisition | 105,000 |
| Minus fair value of net assets acquired (100,000 – 5,000) | (95,000) |
| Goodwill | 10,000 |
| Recoverable value | (2,000) |
| Impairment write off | 8,000 |
(2) Amortisation of patent
20,000 ÷ 8 = GH¢2,500
(3) Amortisation of brand
50,000 ÷ 5 × 9/12 = GH¢7,500
Tutorial note
IAS 38 Intangible assets prohibits the recognition of internally generated brands (3) or internally-generated goodwill (4).
- Tags: Amortisation, Capitalisation, Financial Statements, Goodwill, IAS 38, Impairment, Intangible assets
- Level: Level 2
- Uploader: Samuel Duah