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In the year ended 31 October 20X8, Mizzle Co incurred the following expenditure:
$330,000 to buy the rights to a soft drink formula on 1 January 20X8. The rights were determined to have an indefinite useful life.
$12,000 to register its legal right to the formula on the day it was acquired. The right has no termination date.
$45,000 to build up a list of customers and their preferences. The list was completed on 1 March 20X8 and expected to be useful for five years.
$150,000 to acquire technology on 1 July 20X8. It was expected to be used by Mizzle Cofor 10 years.What amount should Mizzle Co report as intangible assets at 31 October 20X8 in respect of this expenditure?
Hi,
I’m happy to answer the question but you need to have attempted the question first so that I can then point out where you are going wrong. I don not just answer questions outright so if you can show an attempt then I’ll gladly help you out.
Thanks
There is no worries Sir, i actually ended up managing the question. However, i ended up getting another one i ended up getting mixed up in.
In a country where the economy is growing and prices are subject to regular increases, which of the
following are false when using historical cost accounting compared to current value accounting?1. Historical cost profits are understated in comparison to current value profits
2. Capital employed which is calculated using historical cost is understated compared to current value
capital employed
3. Historical cost profits are overstated in comparison to current value profits
4. Capital employed which is calculated using historical costs is overstated compared to current value capital employedI do have the answer, its 2&3 and i gave myself different scenarios to understand it but i need to fully understand it incase of an exam situation. What is the reasoning behind the choice of the answer?
Hi,
If we are using historical cost as opposed to current value then the assets will always be held at a lower amount than current value as they’d have been recorded at cost and depreciated, when the current value is likely to have increased due to the growing economy. Given this then the capital employed (think of it as total assets plus current liabilities) will be lowed under historical cost accounting as opposed to under current value accounting. So 2 is a correct answer.
The historical cost profits will be over stated as the asset’s depreciation will be be based on its original cost and so the annual depreciation will be lower under this method than under current value where we would see a higher depreciation charge as the amount being depreciated is going to be higher. So 3 is a correct answer.
Thanks
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