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

Growth Corp., a publicly accountable entity, purchased a company with the following assets and liabilities for $100,000: Carrying value Fair value Inventories 18,000 17,000 Equipment 12,000 10,000 Intangible assets 32,000 40,000 Accounts payable 15,000 15,000 Long-term liabilities 10,000 15,000 Which of the following is not correct about the difference between carrying value and fair value?

Kryan Corp. mines and produces aluminum. During 2021, the company explored two new sites and evaluated them for aluminum ore potential. By the December 31, 2021 year-end, both sites remained in the evaluation stage. During 2022, evaluation of site Atlanta was completed and the site was deemed to have sufficient quantities of ore; consequently, development of the site began. However, site Blenty was determined to have ore concentrations too low to be commercially viable. The following is the cost of exploration and evaluation incurred on the two sites: 2021 2022 Atlanta \ 3,140,000 \ 957,000 Blenty \ 3,965,000 \ 2,507,000 Required: Record the journal entries in 2021 and 2022 relating to the exploration and evaluation costs using the full cost method.

Which statement is correct?

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: Stadium Fair value in \ millions Land 70 Cable TV broadcasting contract 20 Player contracts 91 Spectator leases on luxury viewing boxes 9 Product licensing agreements 17 Season ticker subscriber list 18 Contacts and commitments for use of stadium 24 The "team" imputed or residual value 225 Total 34 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. There are several identifiable intangible assets noted on the list. Group these assets into three classes, being those that are (i)easily measurable and identifiable; (ii)reasonably measurable and identifiable; and (iii)very difficult to measure and identify. For each group, what common quality or feature of these items distinguishes their classification? b. While all the items can be assigned a value, would you capitalize all these amounts? Explain your conclusion.

Soorya Resources incurred the following costs: Mine Site Costs incurred 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 capitalized as "intangible assets" under the successful efforts method?

Which statement does not describe the "successful efforts" method?

Listed below are several transactions that occurred during the year. In each case, all the amounts were debited to an account called "R and D costs." At the end of the year the company wants this account closed out and the amounts either expensed or capitalized to an asset account called "Development costs." a. During the year $34,000,000 was paid to staff in the research division of a pharmaceutical firm. Supplies used totaled $3,000,000. Rent on the research building totaled $1,000,000. Utilities totaled $1,400,000. Head office allocated $1,500,000 in general overhead to the research division. The total spent on research was $40,900,000. The company is completing five different projects investigating whether five different drug combinations effectively reduce cancer in patients. One of the five drugs was very successful in most cases. Market research shows there is a huge market for this drug. The Board has committed resources to complete the project and market the drug; 10% of the total research staff is working on the successful drug combination. b. During the year $22,000,000 was paid to staff to investigate whether a drug combination was effective for reducing a specific type of cancer. The drug was very successful in most cases. Management is committed to continuing this project and has secured financial and technical resources to see if the drug will prove to be commercially viable. c. Last year $70,000,000 in costs were capitalized as all the development cost criteria were satisfied for a specific drug combination. During the current year a further $10,000,000 was spent that can be directly attributed to this drug's development. Near the end of the year a competitor surprisingly started selling a similar drug. The first-mover advantage of the competing drug seriously challenges the market usefulness and success of the drug this company is researching. Management and the Board are nonetheless financially and strategically committed to launching their drug in 18 months. Required: Prepare the journal entry required for each case. Explain your proposed treatment

Which of the following statements is correct about intangible assets that have an indefinite life span?

Which statement is correct?

Which statement is not correct?

Which of the following is correct with respect to the accounting for re-payment of government grants?

The following transactions occurred in fiscal 2021: •Synthesize Inc. exchanged machinery with Energize Corp. Synthesize's machinery Energize's machinery Cost 500,000 620,000 Accumulated depreciation 200,000 500,000 Fair value 350,000 Not known •Synthesize Inc. purchased equipment by signing a 5 year non-interest bearing note payable for $200,000. The implicit rate of interest was 5%. •Synthesize received a government grant of $10,000 to help purchase the equipment. Required: a)Assuming the machinery exchange has commercial substance, prepare the required journal entries for the exchange for both Synthesize and Energize. b)Assuming the machinery exchange does not have commercial substance, prepare the required journal entries for the exchange for both Synthesize and Energize. c)Prepare the required journal entry to record the purchase of the equipment purchased by the non-interest bearing note. d)Prepare the required journal entries to record the government grant using both the gross method and the net method.

Which statement is correct?

Which statement is not correct?

What are the unique features that lead to the differing accounting treatment between research and development costs?

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 depletion expense under the successful efforts method?

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

Which criteria under IAS 38 would be met if there is a "project budget that outlines the specific costs, so the costs of the project are likely to be measured with sufficient reliability"?

Wind Town is a builder of wind turbines that are used in electricity generation. To encourage the installation of wind turbines and the development of wind power technology, the provincial government has several programs in place that support the industry. In 2021, Wind Town incurred the following costs that were potentially eligible for government subsidies: i.The company spent $10 million on research and development (R&D); these costs are eligible for a 25% tax credit. The $10 million had been previously expensed. ii.For each megawatt of wind power generating capacity installed, the government provides a subsidy of $100,000 to the customer. In 2021, Wind Town installed 17 megawatts for its customers (utility companies). iii.Wind Town is eligible for a full tax rebate on sales tax normally levied on materials used in the construction of its turbine factory. This sales tax amounted to 5% of the materials cost of $35 million. Required: a. Record the journal entries for the above transactions using the gross method for government grants. b. Record the journal entries for the above transactions using the net method for government grants.

Patent Corp., a publicly accountable entity, purchased the following assets: Patents 18,000 Trademarks 12,000 Equipment 32,000 Training on using equipment 15,000 How much, if any, of the costs can be capitalized as intangible assets?