Question 3 [15 marks] Intangible assets Groceries Online Ltd is an Australian supermarket that sells competitively priced groceries to customers across Australia. Groceries Online Ltd does not have any supermarket stores. Its focus is solely on making sales via online orders from customers, with grocery orders being packed at the closest warehouse and then either delivered to the customer, or picked up by the customer from the warehouse. The directors of Groceries Online Ltd believe that the company has done so well in recent years because its products are cheaper than at other supermarkets, and customers love the convenience and service. You are the financial accountant at Groceries Online Ltd and are currently preparing the financial reports for the year ended 30th June 2016. As you prepare these financial reports, the directors of Groceries Online Ltd have asked you to determine whether the following assets can be recognised in the companys financial statements: Goodwill. The directors have worked tirelessly to build the company into the successful operation that consumers and investors know today. The directors have determined that the goodwill of the company amounts to $10,250,000. The trademark name Groceries Online. Whilst there were not any costs incurred in developing this asset, the company has spent $850,000 on marketing and promotion costs over the past 2 years. As a result, the Groceries Online trademark name is known in millions of households across Australia. The directors estimate that the fair value of the trademark is $3,000,000, and it has an indefinite useful life. Computer software. In 2016, the company purchased new computer software, costing $475,000. Groceries Online Ltd also paid a consultant $12,000 to install and test the software before the new system was made live. The software is used to manage and track all grocery orders/sales, from when the orders are received until they are delivered or picked up, as well as for inventory management. The directors estimate that the useful life of the computer software is 5 years. Costs associated with a project aimed at developing a new high-tech warehousing system similar to a vending machine but on a factory-wide scale. Instead of having employees manually walking around the warehouse to fill each customer order, orders would be filled by the warehousing system at the press of a button. The selected products are dropped onto a conveyor belt, they move along the conveyor belt to the packaging area, and are boxed ready for the customer. The directors are confident that the project will be successful. In 2016, the directors spent $36,000 on research activities, $5,000 on design costs for the new warehousing system, and $2,000 on other general overhead expenses. Development activities will continue in 2016/17. Required: With reference to AASB 138, explain whether each of the above items/expenses can be recognised as an intangible asset in Online Groceries Ltds financial statements for the year ended 30th June 2016, and if so, the amount to be capitalised. Question 3 Max. marks awarded Discussion of appropriate accounting treatment for each item/expense 13 References to accounting standards 2 Total 15