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Hello Chris.
“GHK purchased a subsidiary during the year. During the fair value exercise, it was found that the subsidiary has a brand name with an estimated value of $50,000, but was not recognised by the subsidiary as it was internally generated.”
-IAS 38 says that internally generated brands cannot be distinguished from the cost of developing the whole business and thus should be expensed as incurred.
So how come during the fair value exercise, someone has been able to estimate the cost?Hi,
You need to distinguish between the two standards, IAS 38 and IFRS 3. In this scenario as GHK is entering into a business combination then we need to follow the rules in IFRS 3, which means that in the group accounts the brand is recognised at fair value.
The brand would still remain unrecognised in the subsidiary’s individual accounts as per IAS 38.
Thanks
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