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The question is reproduced below, just the part that is relevant for my query, is as follows:
Scramble wished to diversify its operations and purchased a professional football club, Rashing. In Rashing’s financial statements for the year ended 30 November 2011, it was proposed to include significant intangible assets which related to acquired players’ registration rights comprising registration and agents’ fees. The agents’
fees were paid by the club to players’ agents either when a player is transferred to the club or when the contract of a player is extended. Scramble believes that the registration rights of the players are intangible assets but that the agents fees do not meet the criteria to be recognised as intangible assets as they are not directly attributable
to the costs of players’ contracts. Additionally, Rashing has purchased the rights to 25% of the revenue from ticket sales generated by another football club, Santash, in a different league. Rashing does not sell these tickets nor has any discretion over the pricing of the tickets. Rashing wishes to show these rights as intangible assets in its financial statements. (9 marks)An extract of the answer is here:
IAS 38 specifically mentions, as an example of directly attributable costs, ‘professional fees arising directly from bringing the asset to its working condition’. In this business, the players’ registration rights meet the definition of intangible assets. In addition, Scramble is incorrect in believing that the agents’ fees paid on extension of players’ contracts do not meet the criteria to be recognized as intangible assets. The fees are
incurred to service the player registration rights, and should therefore be treated as intangible assets.Please I don’t understand how these agent’s fees are supposed to be included in the cost of the asset (registration right). Could you explain to me what they mean by “fees are incurred to service the player registration rights…” So what connection does that have with the player registration rights and why should we include them as part of the cost of the intangible asset? Could you illustrate this to me. Please.
I’m not hot on football and agents’ fees (my team lies in League 2!) but the agents’ fees would not be payable except for the fact that they are related to the registration of the footballers. In that respect, surely they are a directly related cost of that registration and that’s why they are capitalisable.
It’s a strange expression “to service the player registration rights” but I can only interpret that as meaning that the agents’ involvement is a necessary and inseparable part of the process of registering a player.
Does that do it for you?
Yes if I think right, we can’t register the players until they come to our club (and they’ll only come to our club once we’ve paid the agents, right?) And also we can’t register them until we further extend their contract (when it expires) so we can only register them when the contract is extended (and this only happens when the agents are paid) so that’s why we say that agents costs are directly attributable to agents right?
And yes, the examiner does use strange language 🙂 Servicing is more to deal with machinery but that’s just him. 🙂
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