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Chapter 12: Q11FRS (page 656)

Question: Where can authoritative IFRS guidance related to intangible assets be found?

Short Answer

Expert verified

Answer

IAS 38 and IAS 36.

Step by step solution

01

Meaning of IFRS                                                                                                    

IFRS refers to a collection of globally agreed accounting and financial reporting rules for the preparation and presentation of financial statements. Ensures that accounting practices are consistent, resulting in comparable financial records among various reporting substances around the world.

02

Explaining the authoritative IFRS guidance related to intangible assets           

IAS 38, "Intangible Assets," contains IFRS guidance for intangible assets. IAS 36, "Impairment of Assets," is an IFRS that deals with impairments.

"International Financial Reporting Standard No: 16, IASB" is the authorized advice for accounting for leases under International Financial Reporting Standards (IFRS) in the 'leases' category.

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Most popular questions from this chapter

The following is a list of items that could be included in the intangible assets section of the balance sheet.

1. Investment in a subsidiary company.

2. Timberland.

3. Cost of engineering activity required to advance the design of a product to the manufacturing stage.

4. Lease prepayment (6 months’ rent paid in advance).

5. Cost of equipment obtained.

6. Cost of searching for applications of new research findings.

7. Costs incurred in the formation of a corporation.

8. Operating losses incurred in the start-up of a business.

9. Training costs incurred in start-up of new operation.

10. Purchase cost of a franchise.

11. Goodwill generated internally.

12. Cost of testing in search for product alternatives.

13. Goodwill acquired in the purchase of a business.

14. Cost of developing a patent.

15. Cost of purchasing a patent from an inventor.

16. Legal costs incurred in securing a patent.

17. Unrecovered costs of a successful legal suit to protect the patent.

18. Cost of conceptual formulation of possible product alternatives.

19. Cost of purchasing a copyright.

20. Research and development costs.

21. Long-term receivables.

22. Cost of developing a trademark.

23. Cost of purchasing a trademark.

Instructions:

(a) Indicate which items on the list above would generally be reported as intangible assets in the balance sheet.

(b) Indicate how, if at all, the items not reportable as intangible assets would be reported in the financial statements.

Where on the asset side of the balance sheet are debt investments classified as trading securities, available-for-sale securities, and held-to-maturity securities reported? Explain.

Question: (Accounting for Franchise, Patents, and Trademark) Information concerning Sandro Corporation’s intangible assets is as follows.

  1. On January 1, 2017, Sandro signed an agreement to operate as a franchisee of Hsian Copy Service, Inc. for an initial franchise fee of \(75,000. Of this amount, \)15,000 was paid when the agreement was signed, and the balance is payable in 4 annual payments of \(15,000 each, beginning January 1, 2018. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. The present value at January 1, 2017, of the 4 annual payments discounted at 14% (the implicit rate for a loan of this type) is \)43,700. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Sandro’s revenue from the franchise for 2017 was \(900,000. Sandro estimates the useful life of the franchise to be 10 years. (Hint: You may want to refer to Chapter 18 to determine the proper accounting treatment for the franchise fee and payments.)
  2. Sandro incurred \)65,000 of experimental and development costs in its laboratory to develop a patent that was granted on January 2, 2017. Legal fees and other costs associated with registration of the patent totaled \(17,600. Sandro estimates that the useful life of the patent will be 8 years.
  3. A trademark was purchased from Shanghai Company for \)36,000 on July 1, 2014. Expenditures for successful litigation in defense of the trademark totaling $10,200 were paid on July 1, 2017. Sandro estimates that the useful life of the trademark will be 20 years from the date of acquisition.

Instructions

  1. Prepare a schedule showing the intangible assets section of Sandro’s balance sheet at December 31, 2017. Show supporting computations in good form.

Prepare a schedule showing all expenses resulting from the transactions that would appear on Sandro’s income statement for the year ended December 31, 2017. Show supporting computations in good form.

Question: As the recently appointed auditor for Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2017, are prepared. The controller for Bryan Corporation mentions that only one account is kept for intangible assets. The account is shown below.

Intangible assets

Debit

Credit

Balance

Jan. 4

Research and development costs

940,000

940,000

Jan. 5

Legal costs to obtain patent

75,000

1,015,000

Jan. 31

Payment of 7 months’ rent on property leased by Bryan

91,000

1,106,000

Feb. 11

Premium on common stock

250,000

856,000

March 31

Unamortized bond discount on bonds due March 31, 2037

84,000

940,000

April 30

Promotional expenses related to start-up of business

207,000

1,147,000

June 30

Operating losses for first 6 months

241,000

1,388,000

Instructions

Prepare the entry or entries necessary to correct this account. Assume that the patent has a useful life of 10 years.

Use the information provided in BE12-1. Assume that at January 1, 2019, the carrying amount of the patent on Taylor Swift’s books is \(43,200. In January, Taylor Swift spends \)24,000 successfully defending a patent suit. Taylor Swift still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $24,000 expenditure and 2019 amortization.
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