Reference no: EM133541877

Question: Three small South Australian accounting & consulting firms, James & Partners, Kent & Co. and Loftus Pty Ltd, decided to merge to form a medium-sized accounting practice offering accounting and business advisory services. The new entity was called James, Kent & Loftus Accountants and Business Advisors Ltd. The merger was funded by issuing shares in the new company to the public, as well as a large loan from the South Australia's Premier bank, which was very keen to support the merger. The company has many shareholders. After the merger, the three senior managers (James, Kent and Loftus) decided to develop a brand name for their new accounting firm because the company name was too long.

James, Kent & Loftus Accountants & Business Advisors Ltd engaged Beatrice, a leading researcher in accounting and business branding, to undertake research on the existing and potential clients' perceptions of alternative brand names.

After conducting extensive research, and charging a fee of $1 000 000, Beatrice recommended that the new partnership adopt the brand name JKL ACCOUNTING because it:

is very popular among potential clients

is easier to remember

would be easier for people to key the name into internet search engines, potentially attracting new clients

would also save on signage costs because it was shorter.

James, Kent & Loftus Accountants and Business Advisors Ltd quickly registered the new brand name. The registration costs of $98 for three years was paid on 15 September 2023. It was accounted for as prepaid registration and amortised on a straight-line basis over three years. Registration can easily be renewed.

The bookkeeper thought the fee paid to Beatrice should be recognised as an intangible asset called 'brand name'. The brand name should not be revalued. It should not be amortised because the business is a going concern. However, she was unsure about the policy and asks you for advice.

Note, in this assignment you are NOT required to consider the registration fee. The main issue is whether to recognise the brand name as an asset.

Required

 If your answer is "yes", write "Yes" and identify the Standard.
If your answer is "no", write "no" and identify the authoritative pronouncement (Standard or Conceptual Framework) should be used instead as a source of principles to account for the brand name.

Identify one principle that is relevant to the accounting policy issue that you identified in question 1, by providing a reference for that principle (e.g., AASB XXX, para. zz; or Conceptual Framework, Chapter X, para. x.xx).
describe what the principle means AND explain why it is relevant to the expenditure on the JKL ACCOUNTING brand name.

Describe the accounting policy for the JKL ACCOUNTING brand name suggested by the bookkeeper. State any components of the accounting policy (definition, recognition, measurement and disclosure) that have been omitted.

Ddescribe an accounting policy for the expenditure on the JKL ACCOUNTING brand name. Your policy must be different from the one suggested by the bookkeeper. Do not justify your policy, just describe it.