Exam 9: Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Soorya Resources incurred the following costs: Mine Site Costsincurred in exploration and evaluation Costs incurred in development Status at year-end Alpha 300,000 100,000 Producing @5\% of reserves Beta 200,000 Abandoned Zeta 100,000 200,000 In development How much would be recorded as depreciation expense under the successful efforts method?

In 2021, New Wave Inc. (NW)set up a new manufacturing facility in Manitoba. To encourage NW to set up its factory, the province provided equipment with a fair value of $75,000 and an estimated useful life of 10 years using straight-line depreciation. What journal entry would be required to record the equipment contribution in fiscal 2021, using the net method?

A professional sports team and related items (including a stadium)were bought by an exceedingly wealthy investor and sports fan. The negotiated price was $225,000,000. Details of what was purchased and the agreed fair values are as follows: Fair value in \ millions Stadium 70 Land 20 Cable TV broadcasting contract 9 Player contracts 31 Spectator leases on luxury viewing boxes 9 Product licensing agreements 17 Season ticker subscriber list 18 Contacts and commitments for use of stadium 27 The "team" imputed or residual value Total 225 The team has been less than successful in its professional sports league and has been recording losses of $1,000,000 to $8,000,000 per year on its audited financial statements for the past five years. It was these losses that prompted the last owner to sell the team and related assets. Required: a. Of the $225 million purchase price, how much of it relates to tangible assets? What percentage of the purchase price relates to tangible assets? b. Describe the nature of the future economic benefits associated with each of the intangible assets acquired. For example, for the cablevision broadcasting contract, this would be the present value of the future payments expected from contracts for the broadcast of games on cablevision channels plus potential renewal contracts thereafter.

Which criteria under IAS 38 would be met if the "project plan outlines the feasibility and timeline of the project"?

New Ventures Corp., a publicly accountable entity, incurred the following costs in its research and development division: Jan 1-April 30, 2021 May 1- Dec. 31, 2021 Materials 10,000 12,000 Labour costs 15,000 32,000 Directly attributable overhead 8,000 15,000 Indirect overhead 5,000 7,000 At April 30, 2021, New Ventures determined that the project was technically feasible and commercially viable. New Ventures had sufficient resources and intentions to complete the project and was confident that there was demand in the marketplace for the product. How much, if any, of the costs can be capitalized for fiscal 2021?

Which statement describes the "full cost" method?

How does IFRS require that government grants for property, plant and equipment (PPE)be recorded?

Research Corp., a publicly accountable entity, incurred the following costs in its research and development division: Jan 1 - July 31, 2021 Aug 1- Dec. 31, 2021 Materials 10,000 12,000 Labour costs 15,000 32,000 Directly attributable overhead 8,000 15,000 At July 31, 2021, Research Corp. determined that the project was technically feasible and commercially viable. Research Corp. had sufficient resources and intentions to complete the project and was confident that there was demand in the marketplace for the product. How much, if any, of the costs can be capitalized for fiscal 2021?

Which of the following is a difference between intangible assets and property, plant and equipment (PPE)?

What is economic profit as it would be defined in finance or economics? Why is accounting net income not the same as an economist's determination of earnings, as measured from a shareholder's perspective?

In 2021, Waverly Corp. set up a new manufacturing facility in Nova Scotia. To encourage Waverly to set up its factory, the province provided equipment with a fair value of $250,000 and an estimated useful life of 15 years using straight-line depreciation. What journal entry would be required to record the equipment contribution in fiscal 2021, using the gross method?

Explain the accounting requirements for externally purchased intangibles and internally developed intangibles.

Which statement is correct?

Which statement is not correct?

Which of the following is NOT a "class" of intangible assets?

Patent Corp., a publicly accountable entity, purchased a company with the following assets and liabilities for $100,000: Carrying value Fair value Cash 10,000 10,000 Inventories 18,000 17,000 Property, plant and equipment 12,000 10,000 Intangible assets 32,000 40,000 Accounts payable 15,000 15,000 Long-term liabilities 10,000 15,000 Equity 47,000 How much goodwill should be recorded?

Lilly Limited is planning to enlarge its factory in an economically challenged area of Canada. The federal, provincial, and municipal governments are all keen to assist the firm in making this investment successful, and hopefully generate permanent and significant economic and social benefits for the region. Collaboratively the three levels of government and the company have made the following commitments: i. Lilly will build a factory that will cost $90 million. ii. The city will donate the land for the factory, which has a fair value of $6,000,000. Upon completing construction, the legal title of the land will be transferred to Lilly. iii. For the next five years, the city will reduce the property and municipal taxes the company has to pay on the new factory by 15%. It is estimated that these taxes would be $2,200,000 per year before the discount. iv. The federal government will provide a forgivable loan of $7,500,000 to assist in the financing of the factory. The loan will be forgiven over five years if the company employs at least 220 workers per year in the new factory. v. For the next five years, the provincial government will provide a training subsidy of $2,500,000 a year for the employment and skill development of local residents. vi. The federal government will give Lilly a $1,200,000 grant immediately for having had a factory in the region for the past 10 years. vii. The federal government will give Lilly $15,000,000 in five years if it maintains an average workforce of 920 workers employed at the new factory. During the first year an average of 235 workers were employed, as the factory was in the start-up stage. Required: a. Prepare journal entries to record each of the seven items described above for the first year. Assume all estimates and expectations for the first year are correct and the factory is built and operational in the first year. Lilly Limited uses the net method to record grants. No depreciation will be recorded in the first year. b. What will be the annual depreciation expense for the factory starting in year two? Lilly Limited uses the net method to record grants. The factory is expected to have useful life of 30 years (excluding the first year in the start-up phase)and no material residual value. The company uses straight-line depreciation. c. By how much was net income increased because of government assistance in the first year? For the second year, assume all continuing conditions to be eligible for the grants are met. How much was net income increased by in the second year? Ignore income taxes.

Why is it important to understand the difference between research costs and development costs?

Calculate the missing amounts by completing the table below. \ 00s) Carrying value Fair value Pash \ () \ 62,000 Accounts receivable 30,000 28,000 Inventories 55,000 52,000 PPE, net 175,000 148,000 Intangible assets 100 Total assets 322,100 (C) Total liabilities Net assets \ B ) (D) Purchase price Accounting goodwill

Explain the accounting for internally developed intangible assets.