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Explain the accounting for transactions

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Question - KLA Ltd. is a company engaged in the manufacture of microchips for the car industry. During financial years ending 31 December 2020 and 31 December 2021, KLA Ltd. undertook the following transactions:

1 February 2020: Employed brand valuation experts to value an internally generated brand. The brand valuation experts valued the brand at $45,0000 and KLA Ltd. estimates to have spent $30,000 since 1 January 2020 on building the brand.

1 May 2020: Purchased a machine, Machine A, costing $120,000 from a third party. This machine is to be used on a number of R&D projects. The machine has a useful economic life of 60 months at the end of which it will have a net realisable value of $10,000.

1 September 2020: Purchased patents from a third party costing $20,000. These patents have an indefinite useful life.

1 January 2021: Started work on a Research and Development project (Project Chip1) to develop a new microchip for the car industry. Specifically for this project, on 1 January 2021, KLA Ltd. purchased a new machine, Machine B costing $30,000. This machine has a useful economic life of 60 months at the end of which it will have $0 realisable value. During the period up to 31 December 2021, the company spent $15,000 on wages for employees working exclusively on this project.

On 1 June 2021: Successfully defended a court case relating to the patents purchased on 1 September 2020. KLA Ltd. believes that this court case has increased the value of the patents. Legal fees for this court case amounted to $10,000.

REQUIRED - You are the accountant for KLA Ltd. and have been asked by the Board of Directors of the company to report in which you:

a) By making reference to relevant academic articles discuss how the increasing importance of intangible assets affects the usefulness of financial statements to financial statement users.

b) Explain the accounting for transactions (1) to (6) under IAS38 and indicate the entries that would be required in the financial statements of KLA Ltd. for years ending 31 December 2020 and 31 December 2021 to account for these transactions.

Reference no: EM133162950

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