Question
South Ltd has invested in several intangible assets and the following information is provided by the company: Copyright South Ltd acquired the copyright for the
South Ltd has invested in several intangible assets and the following information is provided by the company:
Copyright
South Ltd acquired the copyright for the publication of an educational book series for gifted and talented kids. The copyright was acquired on 1 July 2021 for $350,000. The copyright lasts for 30 years. However, the research department estimates that the book series will generate cash inflows for only the next 25 years, based on the assessment of competitiveness and typical life cycle of similar books in the market.
Computer software
South Ltd has a strong pool of programming expertise in its computer department. The company started to develop new software that will detect cyber crime using anomaly detectors in its operating system. Once this is successful, the company intends to market this software as one of its products. The company has since incurred the following expenditure in relation to this project:
Date | Expenditure | $ |
30 July 2021 | Research on initial software ideation and planning | 135,000 |
28 August 2021 | Legal and professional fees for initial patent | 20,000 |
15 March 2022 | Further refining on system design & coding | 142,000 |
9 May 2022 | Design, construction and testing of pre-use prototype | 185,000 |
1 August 2022 | Further improvement on system design | 65,000 |
9 October 2022 | Legal and professional fees to register for final patent | 38,000 |
20 November 2022 | Staff training and development to use the new system | 40,000 |
5 December 2022 | Marketing costs to promote the new system | 160,000 |
The research department reports that after the system has been improved on 1 August 2022, the technical feasibility of the software has been very positive. As a result, the new software will be commercially viable and likely to take up 20% of the market share in the cyber security market in the next few years. The software will bring in net cash flow for the company for at least the next 10 years.
Required:
You should answer all the following questions by making references to AASB 138, whenever relevant.
In relation to the copyright:
- Will the costs of $350,000 be recognised as intangible assets in South Ltd's books on 1 July 2021? Why? (5 marks)
- Assuming the copyright is recognised as an intangible asset on 1 July 2021, determine the carrying amount of the asset in the financial statements for the year ended 30 June 2022. Explain your answers. (6 marks)
In relation to the computer software
c. Explain with reasons, which expenditure can be capitalised in South Ltd's financial statements for the years ended 30 June 2022 and 2023. (7 marks)
d. Determine any carrying amount of the asset in the financial statements for the years ended 30 June 2022 and 2023. Explain your answers. (2 marks)
Step by Step Solution
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Step: 1
a Recognition of Copyright as Intangible Asset According to AASB 138 an intangible asset is recognized if it is probable that future economic benefits ...Get Instant Access to Expert-Tailored Solutions
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