INTANGIBLE ASSETS $[25$ MARKS$]$

The managing director of Sky Ltd approached you for advice regarding the following

issues:

A$.$ Sky Ltd has been in business for a number of years and has established a

portfolio of loyal customers. The managing director wants to include this portfolio of

customers in the statement of financial position as intangible asset, as is of the opinion

that Sky

Ltd is worth more than is reflected by the companys current net asset value.

B$.$ Market research has indicated that there is a need for a shocking device that

can be used for self$-$defence. Two prototypes were developed during the year at a

cost of R $65000.$ A final choice between the two prototypes will be made early in the

next financial year. The managing director wants to capitalize the R$65000$ as an asset.

C$.$R $90000$ was spent during the current financial year to generate a trademark

internally. It is expected that the benefits from the trademark will flow to the entity over

a period of $10$ years. The company therefore wants to capitalize the trademark and

amortise it over $10$ years.

D$.$ Early in the current year a new production process was brought into use.

Personnel were trained for three months to operate the new system. The total training

expenditure amounted to R $50000.$ The new system will be in use for at least $6$ years,

and therefore the company wants to capitalize the training expenditure and amortise

it over $6$ years.

E$.$ Advertisement costs amounting to R $35000$ were incurred during the year

$($radio and television advertisements$).$ The objective of these advertisements was to

introduce to the public two new product of Sky Ltd$.$ It is expected that the demand for

these products will last for approximately $4$ year. As the economic benefits will flow to

the entity over a $4$ year period, the managing director wants to capitalize the

advertisement costs and amortise it over $4$ years.

Required:

Indicate in each of the mentioned cases whether or not the relevant cost may be

capitalized. Motivate your answer in accordance with the requirements of statements

of Generally Accepted Accounting Practice. Assume all amounts to be material.