Reference no: EM13490239

Sweet Limited, a New Zealand ice-cream manufactory, is trying to develop a new flavour of ice-cream. The marketing department conducted a survey in August 2011 to assess consumer preference for the best flavour(s). The survey result shows that hazel-nuts toffee flavour is the most popular one in NZ and Australia. The cost of the survey is $20,000.

The production department needs to identify some possible suppliers for the hazel-nuts and coffee beans used in producing toffee flavour ice-cream. The traveling expenses in visiting possible suppliers and checking on quality of the raw materials amount to $30,000. These expenses were incurred during November 2011 to February 2012.

In April 2012, the production department produced some hazel-nuts toffee ice-cream for testing. The cost of producing these ice-creams was $25,000. These ice-creams are used for another marketing research. The second round research costs amount to $15,000. This time the consumers were asked to evaluate the taste and to determine how much they would like to buy it for. After a few more rounds of testing in May and June 2012, consumers show a satisfaction of the taste and they are willing to pay $8 per container (1 litre container). The cost of production is $2.5 per container. The overhead per container is $.50 cent. The marketing department estimates 1 million containers of hazel-nuts toffee ice-cream can be sold annually.

Sweet Limited's balance date is 31March.

Required:

i) Discuss the accounting treatment of Research and Development costs, stating at which point the hazel-nuts ice-cream project should be capitalised? (Explain with reference to the applicable requirements from NZIAS 38)

ii) Provide journal entries for the income year 2011 and 2012 respectively.

Question 1 (b): Accounting for Goodwill and goodwill impairment

i) Briefly discuss the accounting treatment of purchased goodwill. (In your answer you should make reference to the relevant accounting standards)

ii) Briefly explain impairment concept in relation to intangible assets, with reference to relevant accounting standards.