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Qn) For each issue, identify the correct accounting treatment in Medeira’s financial statements.
Issue 1) $400 000 spent on marketing a new product which has led to increased sales of $800 000.
Issue 2) $400 000 spent on designing a new corporate logo for the business.
Answer key:
Issue 1) Expense off
Issue 2) Expense offFor the above question sir, i just want to check whether my understanding is correct.
Issue 1 is expensed off because it doesn’t meet the definition of development since commercial production use has already taken place by means of the sale of the product.
“Development is the application of reasearch findings or other knowledge to plan or design the production of a new or substantially improved system, before the start of commercial production or use”
Issue 2 is expensed off because it doesn’t meet the definition of intangible asset. The corporate logo is a tangible asset.
An intangible asset is a ” identifiable non-monetary asset without physical substance”
Am i right sir ?
The marketing $400,000 is not separable – ie it’s not capable of being sold as a separate distinct item and thus does not satisfy any of the three characteristics of an intangible asset
“Thus, the three critical attributes of an intangible asset are:
identifiability
control (power to obtain benefits from the asset)
future economic benefits (such as revenues or reduced future costs)”
The $400,000 cost of designing a new company logo is an internally generated asset and thus is not to be treated under IAS 38. If this amount had been paid to some third party in exchange for them designing the new logo, that would be a different matter
OK?
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