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Business Combinations & Intangible assets.

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Business Combinations & Intangible assets.

  • This topic has 5 replies, 3 voices, and was last updated 4 years ago by P2-D2.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • August 30, 2020 at 5:06 pm #582759
    kushinduja
    Member
    • Topics: 8
    • Replies: 2
    • ☆

    Dear Tutor,
    I have a doubt in 2 questions and the reason I am asking them in the same post is because both questions share the same concept.

    Question 1:
    Crash Co acquired 70% of Bank Co’s 100,000 $1 ordinary shares for $800,000 when retained earnings of Bang Co were $570000.
    Bang Co also has an internally developed customer list which has been independently valued at $90,000. The non controlling interest in Bang Co has a fair value of $220,000 at the acquisition date.
    What was the goodwill arising on acquisition?

    Solution 1 (according to the book):Goodwill = $350,000 (here, the solution has not included the internally developed customer list of $90,000.)

    My question here is, why is the $90,000 not included? What we have studied is that even internally developed intangible assets are recognized at a group level. Is there a chance that the solution is wrong?

    Question 2: Sybil has acquired a subsidiary Basil in the current year. Basil has a brand which has been reliably valued by Sybil at $500,000, and a customer list which Sybil has been unable to value
    Which of these describes how Sybil should treat these intangible assets consolidated Financial Statements?
    A. They should be included in goodwill
    B. The brand should be capitalized as a separate intangible asset, whereas the customer list should be included within goodwill.
    C. Both the brand and the customer list should be capitalized separate intangible
    D. The customer list should be capitalized as a separate intangible asset, whereas the brand should be included within goodwill.

    Answer 2 (according to the book): Option B

    Now, in this question, the answer given is clearly opposite of what has been done in Question 1. Please solve this doubt and tell me what is the right thing to be done!

    Thanks in advance. I also apologize for such a long post.

    August 31, 2020 at 8:41 pm #582912
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7171
    • ☆☆☆☆☆

    Hi,

    I’d need to double check but I’d have thought that the customer list should be included as part of the net assets acquired at fair value. Internally developed research and brands can be included at fair value under IFRS 3 so I’d assume that it would be the same for customer lists, unless there is something in the standard that says that it isn’t.

    Thanks

    August 31, 2020 at 9:39 pm #582922
    kushhinduja
    Participant
    • Topics: 1
    • Replies: 3
    • ☆

    Thank you for the reply. Just to confirm, according to you, there might be a mistake in the solution of the first question, right?

    September 2, 2020 at 8:14 pm #583166
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7171
    • ☆☆☆☆☆

    Possibly, it looks that way.

    September 3, 2020 at 11:37 am #583248
    kushinduja
    Member
    • Topics: 8
    • Replies: 2
    • ☆

    Thank you very much!

    September 6, 2020 at 10:51 am #583660
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7171
    • ☆☆☆☆☆

    You’re welcome!

  • Author
    Posts
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