Week 9 – Tutorial Exercises – Intangible Assets IAS 38

Question 1
An entity has incurred the following expenditure during the current year:

i. A brand name relating to a specific range of chocolate bars, purchased for £200,000. By the
year end, a brand specialist had valued this at £250,000.
ii. £500,000 spent on developing a new line of confectionery, including £150,000 spent on
researching the product before management gave approval to fully fund the project.
iii. Training costs for staff to use a new manufacturing process. The total training costs
amounted to £100,000 and staff are expected to remain for an average of 5 years.

Explain the accounting treatment for the above issues.

Question 2

Question 3
During the year to 31 December 20X8 X Co incurred £200,000 of development costs for a
new product. In addition, X Co spent £60,000 on 1 January 20X8 on machinery specifically
used to help develop the new product and £40,000 on building the brand identity.
Commercial production is expected to start during 20X9.

The machinery is expected to last 4 years with no residual value.

What value should be included within Intangible Assets in respect of the above in
X Co’s Statement of Financial Position as at 31 December 20X8?
Question 4

Question 5
For each issue, identify the correct accounting treatment in Madeira's financial statements:

Capitalise Expense
as
intangible
£400,000 developing a new process which will bring in no
revenue but is expected to bring significant cost savings

£400,000 developing a new product. During development a

competitor launched a rival product and now Madeira is hesitant
to commit further funds to the process

£400,000 spent on marketing a new product which has led to

increased sales of £800,000
£400,000 spent on designing a new corporate logo for the
business