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You are an experienced accountant in a top - tier accounting firm in Australia. Your client Dragon Pty Ltd , an innovative company that specialises
You are an experienced accountant in a toptier accounting firm in Australia. Your client Dragon Pty Ltd an innovative company that specialises in acquiring and developing the latest technologies, has prepared a draft set of financial statements for the year ended June and has included the following amount on the balance sheet:
The client provided further details regardiYou and your manager met with the owner of Dragon Pty Ltd to discuss the changes to intangible assets during the year. Below is a summary of the discussion you had with the owner.
The customer list was acquired on April at a cost of $ from a third party. The company has elected to use the revaluation model for the customer list for the year ended The fair value of the acquired customer list on June is determined to be $ In addition to the revaluation of the acquired customer list Dragon Pty Ltd has spent an additional $ adding to the customer list in the current year. The total customer list is now expected to have a useful life of five years, with benefits expected to be received evenly during this time, and an estimated residual value of $note there is no commitment by a third party for the residual value at this time The company expects to amortise the customer list by $ each year for the next five years.
The goodwill recorded on June was part of a business combination that took place on June The company has decided to amortise the goodwill over years on a straightline basis.
Trademark XYZ was acquired from a third party on January at a cost of $ An additional $ was incurred registering the trademark. Costs incurred to train staff in relation to the new trademark amounted to $ The useful life of the trademark is indefinite.
No internally generated goodwill is currently recorded on the balance sheet. However, the owner is concerned that the balance sheet therefore does not reflect the true value of the business. The owner is looking to sell the company soon and would like to report the internally generated goodwill on the balance sheet.
Following this discussion, you become aware of confusion your client has regarding intangible assets. Your manager has asked you to prepare a business letter to provide the client with accounting advice regarding the accounting treatment of intangible assets. Your draft business letter is to be addressed to the client make up a name for your client but would be signed off by the partner of the firm make up a name for the partner of your firm
Required:
Prepare a business letter for your client to outline the accounting treatment and disclosure requirements in relation to intangible assets. Provide support for your accounting advice with reference to the relevant paragraphs of the accounting standards. Outline for your client if you are aware of any changes to the accounting treatment of goodwill amortisation. A major purpose of the business letter is to educate the client to have a better understanding of intangibles assets, business combinations and the meaning and purpose of the balance sheet.
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