QUESTION 4: a. Titan Ltd has spent 18 mln in developing a new software for its payment system for the period of 1 Jan 2017 - 31 Dec 2018(it is spread equally across 24 months). The company is able to demonstrate that from 1 Oct 2018 the production process met the criteria for recognition as an intangible asset. The financial year end is 31 Dec. Calculate the amount to be recognized in SFP and I/S for the year ended 31 Dec 2017 and 2018. Clearly show your workings. b.Warmington plc produces a range of kids' toys and sells them under it internally developed brand "KidzToys". On 1 Jul 2018, Fraser plc the whole company for 240 mln. At this date, the brand valuation expert valued the Kidz Toys brand at 47 mln on the basis of useful life of 10 years. Other net assets were deemed to have a fair value of 135 mln. Calculate the amount to be recognized in SFP and I/S for the year ended 31 Dec 2018. Clearly show your workings. Part 2: Merck & Co., Inc. (USA) and Johnson & Johnson (USA) are two leading producers of healthcare products. Each has considerable assets and each expends considerable funds each year toward the development of new products. The development of a new healthcare product is often very expensive and risky. New products frequently must undergo considerable testing before approval for distribution to the public. For example, it took Johnson & Johnson 4 years and $200 million to develop its 1-DAY ACUVUE contact lenses. The following are some basic data compiled from the financial statements of these two companies. (all dollars in millions) Johnson & Johnson Merck Total assets $53,317 $42,573 Total revenue 47,348 22,939 Net income 8,509 5,813 Research and development expense 5,203 4,010 Intangible assets 11,842 2,765 Required a. What kinds of intangible assets might a healthcare products company have? Does the composition of these intangibles matter to investorsthat is, would it be perceived differently if all of Merck's intangibles were goodwill, than if all of its intangibles were patents? b. Suppose the president of Merck has come to you for advice. He has noted that by eliminating all research and development expenditures the company could have reported $4 billion more in net income. He is frustrated because much of the research never results in a product, or the products take years to develop. He says shareholders are eager for higher returns, so he is considering eliminating research and development expenditures for at least a couple of years. What would you advise? c. The notes to Merck's financial statements state that Merck has goodwill of $1.1 billion. Where does recorded goodwill come from? Is it necessarily a good thing to have a lot of goodwill on a company's books