Question 2 (15 marks)

Explain the term intangible assets and discuss the initial recognition of intangible assets. (6 marks)

You are working as a Chief Accountant in Liril (Pty) Co. which produces beauty cosmetics and sells them through their retail stores. The company designed a new product and intended to launch it soon. Therefore, the company started promotional activities and spent a substantial amount on a series of television advertisement to promote the new product. During the year ended 30 April 2022, the company actually paid $720,000 of which $95,000 for advertisement shown in May 2022.

Edwin Ronald, the managing director of Liril, asked you to recognise this promotional cost as intangible asset to avoid written off as an expense against the profit as the product most likely to be successful.

As a qualified Accountant and expert of IFRS, you are required to explain and advise how to treat these costs of $720,000 in the financial statement for the year ended 30 April 2022. (9 marks)