Blossom Ltd. has these transactions related to intangible assets and goodwill in
ID: 2571206 • Letter: B
Question
Blossom Ltd. has these transactions related to intangible assets and goodwill in 2018, its first year of operations:
Tested the intangible assets for impairment. Recoverable amounts exceeded carrying amounts for all intangible assets. Also tested goodwill and determined that it had a recoverable amount of $244,770.
Prepare the entries to record the above transactions. Assume all costs incurred during January through September were incurred for cash. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)
Show the presentation of the intangible assets and goodwill on the statement of financial position at December 31.
Jan. 2 Purchased a patent with an estimated useful life of five years for $36,020. The company that sold the patent to Collins registered the patent 10 years ago. Apr. 1 Acquired another company and recorded goodwill of $293,900 as part of the purchase. July 1 Acquired a franchise for $235,600. The franchise agreement is renewable without charge and not expected to expire. Sept. 1 Incurred research costs of $144,000. 30 Incurred development costs of $50,700. A marketable product has been identified and resources have been secured so that production will start next year. Dec. 31 Recorded annual amortization. 31Tested the intangible assets for impairment. Recoverable amounts exceeded carrying amounts for all intangible assets. Also tested goodwill and determined that it had a recoverable amount of $244,770.
Prepare the entries to record the above transactions. Assume all costs incurred during January through September were incurred for cash. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)
Show the presentation of the intangible assets and goodwill on the statement of financial position at December 31.
Debit Credit To record amortization expense) To record goodwill impairment)Explanation / Answer
Journal Entry
Date
Particulars
Dr. Amount (In $)
Cr. Amount (In $)
Jan2
Patent
TO Cash
36,020
36,020
April 1
Goodwill
TO Cash
293,900
293,900
July 1
Franchisee
To Cash
235,600
235,600
Sept 1
Research costs
TO Cash
144,000
144,000
Sept 30
Development Cost(WIP)- Intangibles
TO Cash
50,700
50,700
Dec 31
Amortization Expense
TO Accumulated Amortization on Patent
TO Accumulated Amortization on Franchisee
(See Note1)
22,910.66
7,204
15,706.66
Dec 31
Impairment on Goodwill
TO Goodwill
49,200
49,200
NOTE 1: Patents are required to be amortized on expected useful life irrespective of the years of purchase and usage of old company. Goodwill refers to the excess of the amount paid to purchase the business and fair value of assets of the company taken over. Goodwill is never amortized in the books but can be impaired. Franchisee agreements are infinite but as per Accounting Standards, it is required to amortized over 15 years of period.
NOTE 2: Research costs are expensed out in the year in which they are incurred since future economic benefits are not ascertain at the reporting date.
NOTE 3: Development cost is usually charged to income statement in the year in which it is incurred but as per IAS 38 they can be capitalize if it can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale. In the given case, product will be launched next year and therefore, technical feasibility is established.
2. Presentation in Balance Sheet
STATEMENT OF FINANCIAL POSITION
Assets
Amount
Total
Intangible Assets
Goodwill
293,900
Less: Impairment Loss
(49,130)
244,770
Patents
28,816
Franchisee Agreement
227,746.67
Total Intangible Assets
501,332.67
Capital Work in Progress- Intangible Assets
50,700
Date
Particulars
Dr. Amount (In $)
Cr. Amount (In $)
Jan2
Patent
TO Cash
36,020
36,020
April 1
Goodwill
TO Cash
293,900
293,900
July 1
Franchisee
To Cash
235,600
235,600
Sept 1
Research costs
TO Cash
144,000
144,000
Sept 30
Development Cost(WIP)- Intangibles
TO Cash
50,700
50,700
Dec 31
Amortization Expense
TO Accumulated Amortization on Patent
TO Accumulated Amortization on Franchisee
(See Note1)
22,910.66
7,204
15,706.66
Dec 31
Impairment on Goodwill
TO Goodwill
49,200
49,200