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How do we get to know if the brand has indefinite useful life or finite useful life. What are the indicator to the know the useful life of brand. And also the brand with indefinite useful life undergo for impairment review are fully written down
You can’t know for certain. I’ve written something about brands here https://opentuition.com/topic/revaluation-gain-relating-to-brand
It’s for management to provide the evidence to support their estimates e.g. an indefinite life would have to be backed up with advertising expenditure on the brand.
I’ll get back to you after the weekend when I have the questions to hand.
Am confused because two different question on risk for brand that is indefinite or finite useful life how did they identify.
QN )ADAMS GROUP (june 2014) kaplan qn 14
Scenerio
The Group has a policy of non-amortisation of the Adams brand name. The brand name was
acquired many years ago and is recognised at its original cost. The previous audit firm
accepted the policy due to the strength of the brand name and the fact that the Group spends
a significant amount each year on product development and marketing aimed at supporting
the brand.During the year, the Group attracted negative publicity when an investigation by a wellknown journalist alleged that child-labour was being used by several suppliers of raw
materials to Lynott Co.Answer
The brand of $8 million is material. It is recognised in the statement of financial
position as an intangible asset which is appropriate given that the brand is a purchased
intangible asset. However, the asset is recognised at its original cost and there is risk
attached to the policy of non-amortisation of the brand.IAS 38 Intangible Assets states that an intangible asset with a finite useful life is
amortised, and an intangible asset with an indefinite useful life is not. The risk is that
the assumption that the brand has an indefinite life is not correct, and that the asset
is overstated and operating expenses understated through the lack of an annual
amortisation charge against the asset.so my question is how did they identify that there is brand doesnot have indefinite useful life?
QN 2 LAURLEY GROUP (MJ 2017 ) KAPLAN QN 10
The Group produces cosmetics and beauty products which are sold under various brand
names in more than 100 countries. Most of the brand names have been acquired with
subsidiary companiesIn April 20X5, allegations were made in the press and by customers that some ingredients
used in the Chico perfume range can cause skin irritations and more serious health problems.
As a result, the Chico products have been withdrawn from sale and a $30 million impairment
charge has been recognised in respect of the Chico brand name. Despite this issue, Group
revenues have increased by 13% and Group management is confident that no other brands
are affected.
Acquired brand names are held at cost with no amortisation being charged on the
grounds that the assets have an indefinite life. An annual impairment review is
conducted on all brand names. A $30 million impairment has been recognised in
respect of the Chico brand name as discussed above.ANSWER
The audit team will need to verify whether the $30 million impairment recognised in
relation to the Chico brand name is a full impairment of the amount recognised in
relation to that specific brand within intangible assets. Given that the branded
products have been withdrawn from sale, it should be fully written off. If any amount
remains recognised, then intangible assets and operating profit will be overstated.
The impairment charge of $30 million is highly material by reference to the threshold
and may warrant separate disclosure. There is a risk that the necessary disclosures are
not made in relation to the discontinuance and/or the impairment of assets.They didnot mention about the risk that the brand is not indefinte while they agreed as indefinite ..why ? how is this brand an indefinite useful life and not the previous adams question ?
In Adams, the negative publicity damages the brand name, which casts doubt on the indefinite useful life assumption.
An intangible that is not amortised is tested annually for impairment. If the impairment of Chico writes it down to $0 or a very small amount, its useful life is irrelevant since there is nothing/next to nothing to amortise/impair in future.
Did you check the question on brands for adams group and laurel group so why in laurel group they recognised as indefinite useful life
I don’t know what it is you don’t understand. If useful life is indefinite it’s tested annually and any loss in value is expense. If definite, expense is annual depreciation.
If indefinite and impaired, useful life could be an issue because management may cut back on expense that would otherwise maintain its value.
But this is a “non-issue” if carrying amount is nil/immaterial.
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