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How to deal with development expenditure and intangibles (Group Accounts)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › How to deal with development expenditure and intangibles (Group Accounts)

  • This topic has 5 replies, 3 voices, and was last updated 11 years ago by MikeLittle.
Viewing 6 posts - 1 through 6 (of 6 total)
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  • May 24, 2014 at 9:51 am #170468
    abbas7796
    Member
    • Topics: 135
    • Replies: 256
    • ☆☆☆

    Hello Mike

    I am really confused how to recognize development expenditure and intangible assets when acquiring a subsidiary. In June 2010 question, the subsidiary had 500k software in its records at the date of acquisition and they wrote it off shortly after acquisition since parent directors believed it had no recoverable value. can you explain the treatment of this? also is there any notes regarding how to deal with these including their amortization when making consolidated accounts?

    May 25, 2014 at 10:23 am #170617
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23322
    • ☆☆☆☆☆

    “can you explain the treatment of this? also is there any notes regarding how to deal with these including their amortization when making consolidated accounts?”

    In working W2, Goodwill, I presume the fair value of the Subsidiary’s net assets has been reduced by the $500 software – it should have been

    If not, and it was only in the post acquisition period that the directors decided that the software had no value, then it would be a post-acquisition period expense

    What do you want to know about amortisation? Surely that’s really just a fancy word applied to writing off an intangible asset and is the equivalent of depreciation for tangibles.

    Your question is too vague for me to know what it is you are unsure about It’s like telling a doctor that you have a health problem but don’t tell him what the symptoms are!

    May 25, 2014 at 10:55 am #170630
    abbas7796
    Member
    • Topics: 135
    • Replies: 256
    • ☆☆☆

    hello Mike

    Apologies for not being clear.

    i would like to know how to deal with amortization when we recognize intangible assets during consolidation? i have done the revision kit from BPP and i noticed that when we recognize intangibles as brands and customer relationships in consolidation then we do deduct their amortization expense from retained earnings just like we deduct depreciation when there is an increase in fair value of assets of subsidiary in post acquisition period. however there was one case i encountered where we recognized domain name as intangible assets but we didnt amortize it and we didnt deduct amortization costs from retained earnings. my question is that are there an intangibles that we dont amortize at all even if they have finite life?

    May 25, 2014 at 11:10 am #170636
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23322
    • ☆☆☆☆☆

    I think the domain name question specifically stated within the question that licence could be renewed indefinitely.

    Beyond 20 years? No amortisation! But be prepared to argue with the auditors if they consider remaining life to be less than 20 years

    ok?

    May 25, 2014 at 2:16 pm #170696
    aishaasad
    Member
    • Topics: 159
    • Replies: 185
    • ☆☆☆

    And Sir the relationship with customer as customer base intangible assets came how to deal with that ( paladin 12/11 note ii 2nd para )

    May 25, 2014 at 3:19 pm #170717
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23322
    • ☆☆☆☆☆

    Like you would any intangible asset! Capitalise and amortise over estimated useful life (6 years in this case).

    It’s a fair valued identifiable intangible asset previously recognised at nil value ie not recognised at all. But Paladin reckons that it has a value and it should be included at a value of $3m

    If it had been called a “brand” instead of a “customer base” then you wouldn’t have felt the need to ask this question, surely!

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