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Dear Sir/Mdm,
I have come across this question 292 on BPP FR Pratice book, it is asking the treatment for a customer contract, the contract is as follows:
At the date of acquisition Savannah Co had five years remaining of an agreement to supply goods to one of its major customers, the agreement has been consistently renewed when it expires. The directors of Plateau Co estimate that the value of this customer based contract has a fair value of 1 million and indefinite life.
Now the answer is that this should be recognised at 1 million, and not amortised, but I think the customer contract should not be recognised as it is internally generated, was my thought wrong? Because if this can be recognised, isn’t that the company can anyhow raise their estimate of the contract, and their asset will thus be overstated?
Looking forward for your response,
It is not Goodwill. It’s Intangible Asset. Valuation should be made at Fair Value i.e 1 million, on the date of acquisition.
Hi,
If a previously unrecognised intangible in S’s books has a fair value then it can be recognised in the group accounts at fair value upon acquisition. This is because our consideration paid it reflective of this fair value and so therefore separately recognised but only in the group accounts. It remains unrecognised in the individual accounts of the subsidiary.
Thanks
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