Question
Investor is a listed company with a number of subsidiaries located throughout the United Kingdom. Investor currently appraises investment opportunities using a cost of capital
Investor is a listed company with a number of subsidiaries located throughout the United Kingdom. Investor currently appraises investment opportunities using a cost of capital of 10 percent. On 1 April 2019 Investor purchased 80 percent of the equity share capital of Cornwall for a total cash price of Shs.60m. Half the price was payable on 1 April 2019; the balance was payable on 1 April 2021. The net identifiable assets that were actually included in the statement of financial position of Cornwall had a carrying value totaling Shs.55m at 1 April 2019. With the exception of the pension provision (see below), you discover that the fair values of the net identifiable assets of Cornwall on 1 April 2019 are the same as their carrying values. When performing the fair-value exercise at 1 April 2019, you discover that Cornwall has a defined-benefit pension scheme that was actuarially valued three years ago and found to be in deficit. As a result of that valuation, a provision of Shs.6m has been built up in the statement of financial position. The fair-value exercise indicates that on 1 April 2019, the pension scheme was in deficit by Shs.11m. This information became available on 31 July 2019. Assume that today's date is 31 October 2019. You are in the process of preparing the consolidated financial statements of the group for the year ended 30 September 2019. Intangible assets are normally written off on a pro-rata basis over twenty years. Your financial director is concerned that profits for the year will be lower than originally anticipated. She is therefore wondering about changing the accounting policy used by the group so that all intangible assets are treated as having an indefinite useful life.
Write a memorandum to your financial director with reference to the case above;
(i) Evaluate the policy of writing off all intangible assets over twenty years.
(ii) Explain whether it is ever permissible to select a longer write-off period for intangible assets, and describe the future implications of selecting such a period.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
i In accounting immaterial resources are characterized as nonfinancial resources that cant be seen contacted or genuinely estimated Under US GAAP theo...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started