Chapter 12: Q11FRS (page 656)
Question: Where can authoritative IFRS guidance related to intangible assets be found?
Answer
IAS 38 and IAS 36.
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Question: Sinise Industries acquired two copyrights during 2017. One copyright related to a textbook that was developed internally at a cost of \(9,900. This textbook is estimated to have a useful life of 3 years from September 1, 2017, the date it was published. The second copyright (a history research textbook) was purchased from University Press on December 1, 2017, for \)24,000. This textbook has an indefinite useful life. How should these two copyrights be reported on Sinise’s balance sheet as of December 31, 2017?
Izzy Inc. purchased a patent for $350,000 which has an estimated useful life of 10 years. Its pattern of use or consumption cannot be reliably determined. Prepare the entry to record the amortization of the patent in its first year of use.
Presented below is selected information related to Martin Burke Inc. at year-end. All these accounts have debit balances.
Cable television franchises | Film contract rights |
Music copyrights | Customer lists |
Research and development costs | Prepaid expenses |
Goodwill | Covenants not to compete |
Cash | Brand names |
Discount on notes payable | Notes receivable |
Accounts receivable | Investments in affiliated companies |
Property, plant, and equipment | Organization costs |
Internet domain name | Land |
Instructions:
Identify which items should be classified as an intangible asset. For those items not classified as an intangible asset, indicate where they would be reported in the financial statements.
Joni Hyde Inc. has the following amounts reported in its general ledger at the end of the current year.
Organization costs $24,000
Trademarks 15,000
Discount on bonds payable 35,000
Deposits with advertising agency for ads to promote goodwill of company 10,000
Excess of cost over fair value of net identifiable assets of acquired subsidiary 75,000
Cost of equipment acquired for research and development projects; the equipment has an alternative future use 90,000
Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years 80,000
Instructions
(a) On the basis of the information above, compute the total amount to be reported by Hyde for intangible assets on its balance sheet at year-end.
(b) If an item is not to be included in intangible assets, explain its proper treatment for reporting purposes.
Merck and Johnson & Johnson
Question: Merck & Co., Inc. and Johnson & Johnson are two leading producers of healthcare products. Each has considerable assets, and each expends considerable funds each year toward the development of new products. The development of a new healthcare product is often very expensive, and risky. New products frequently must undergo considerable testing before approval for distribution to the public. For example, it took Johnson & Johnson 4 years and \(200 million to develop its 1-DAY ACUVUE contact lenses. Below are some basic data compiled from the financial statements of these two companies.
(all dollars in millions) | Johnson & Johnson | Merck |
Total assets | \)53,317 | \(42,573 |
Total revenue | 47,348 | 22,939 |
Net income | 8,509 | 5,813 |
Research and development expense | 5,203 | 4,010 |
Intangible assets | 11,842 | 2,765 |
Instructions
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