Question 5

On 31 December 2018, Sela Plc acquired Lomo Plc which had a separately identified brand, valued at 7,600,000. In addition to this, Sela Plc also estimated at the end of 2019 that their own internally generated brand is worth 12,000,000. A director has suggested that both figures should be recorded in the statement of financial position as intangible assets, as brands would strengthen their financial position. Sela Plc is currently working towards a target gearing ratio in order to secure external funds for expansion. Both brands described have an indefinite life. Requirement:

i) With reference to the above scenario, explain how these brands would be accounted for in the financial statements of Sela Plc for year ending 31 December 2019. (maximum word count 140 words)

ii) How does the recognition and accounting treatment of goodwill differ from that used for brands? Explain any three differences. (maximum word count 120 words)

iii) Explain any two justifications for reporting brands as assets. (maximum word count 40 words)