Minco part b

Minco often sponsors professional tennis players in an attempt to improve its brand image. At the moment, It has a three-year agreement with a tennis player who is currently ranked in the world’s top ten players. The agreement is that the player receives a signing bonus of $20,000 and earns an annual amount of $50,000, paid at the end of each year for three years, provided that the player has competed in all the specified tournaments for each year.

If the player wins a major tournament, she receives a bonus of 20% of the prize money won at the tournament. In return, the player is required to wear advertising logos on tennis apparel, play a specified number of tournaments and attend photo/film sessions for advertising purposes. The different payments are not interrelated.

Answer to this question
The contract relates to advertising and promotional expenditure to improve Minco’s brand image by the tennis player. Therefore, in accordance with IAS 38 Intangible Assets, the costs must be expensed when the entity has received the service.

Any amounts paid in advance of the service being received are recognised as prepayments and expensed when that service is received. The signing bonus of $20,000 is paid to the player on commencement of the contract. In return, the player is obliged to advertise Minco and take part in photo/film sessions.

The signing bonus relates to the full contract term and a prepayment of $20,000 is recognised on commencement and is expensed on a straight line basis over the three-year contract period.

However, if, from the terms of the contract, separate services can be identified and measured reliably, Minco should allocate the costs and recognise expenses once the separate service is rendered. If the contract is terminated prior to the end of the contract period, any amount not recovered from the player would be expensed immediately.

The player receives the annual retainer at the end of each year, provided she has competed in all of the specified tournaments for that year. Minco has a contractual obligation to deliver cash to the player and, hence, recognises a financial liability during the period, which must be accounted for in accordance with IFRS 9 Financial Instruments.

The liability is recognised at the point where Minco has an obligation which arises on the date when the player has competed in all the specified tournaments. The financial liability is recognised at the present value of the expected cash flows.

The player also receives additional performance-related payments for success in the tournaments. As these payments relate to specific events, they are treated as executory contracts. They are accrued and expensed when the player has won a tournament.

I cannot understand here which is the intangible asset in the above scenario/ why signing bonus amount of 20000 is treated as prepayment and as it is prepayment so it should be treated as asset but it is treated as expense here. Also cannot understand treatment of financial liability and what are executory contracts i thought of performance bonus as contingent liability but here treated as executory contracts ? please explain