Page 411 - SBR Integrated Workbook STUDENT S18-J19

Answers

Example 5

Intangible assets

IAS 38 Intangible Assets states that advertising expenditure cannot be
recognised as an intangible asset. The $1 million should be written off to the
statement of profit or loss.
The brand cannot be recognised as an intangible asset. With the exception of
expenditure during a development phase, IAS 38 prohibits the capitalisation of
internally generated assets because the cost of the asset cannot be reliably
determined. The cost of improving and maintaining a brand cannot be
distinguished from the cost of running the business’ day-to-day operations.

Example 6

Impairment

The recoverable amount is the higher of the value in use and the fair value
less costs to sell, which is $65 million. The impairment loss charged to profit or
loss is $35 million ($100m – $65m).
Impairment losses of a CGU are firstly allocated against goodwill. Any
remaining impairment loss is allocated to the other assets of the CGU in
proportion to their carrying amounts. An individual asset cannot be written
down below the higher of zero and its recoverable amount (if determinable).
The goodwill is written down from $25 million to nil.

The remaining impairment of $10 million ($35m – $25m) is not allocated to
receivables, inventories or cash. This is because these assets are already
held at or below their recoverable amounts.

The impairment allocated to other intangible assets is $2 million ($10m ×
($10m/$10m + $40m)). The impairment allocated to property, plant and
equipment is $8 million ($10m × ($40m/$10m + $40m)).

The carrying amount of other intangible assets is therefore reduced to $8
million ($10m – $2m) and the carrying amount of property, plant and
equipment is reduced to $32 million ($40m – $8m).

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