Reference no: EM133003857
Eat Limited is a diversified company involved in a wide range of activities in the food industry. The following independent transactions relate to the company's activities both during the current year and during prior years (listed below).
a) The company purchased a brand on 2 January 20X0 for C2 000 000. At acquisition, the estimated useful life of the brand was twenty years, and this has remained unchanged. There is no commitment from a third party to acquire the brand at the end of its useful life. At 31 December 20X3, the directors believe that the brand is now worth C5 000 000.
b) In the past, the company began a research and development programme (known as the super tin project) for a new vacuum sealed tin that extends the shelf life of tinned food. During the current year, C300 000 was incurred on research costs from 1 January 20X3 to 31 March 20X3. On 1 April 20X3, the R&D director announced that all the development phase recognition criteria were met. A further C1 500 000 was incurred on development costs from 1 April 20X3 to 31 December 20X3. At this stage the directors believe that the super tin project will have an indefinite useful life. The recoverable amount of the super tin project at 31 December 20X3 is estimated at C2 000 000.
c) A large advertising promotion was carried out during the second half of the 20X3 year at a cost of C220 000. The costs relate to the creation of advertising brochures and the recording of a radio advert. The directors believe that the main benefits of this programme will occur during the 20X4 year. In addition, an amount of C25 000 was paid in advance to the BBC to air the adverts during 20X4.
d) The company publishes its own consumer magazine and has incurred costs of C270 000 in previous years in promoting the magazine and its masthead 'Food Matters'. A further C30 000 was incurred in the current year. The directors believe that the masthead is very valuable and can be sold for at least C1 300 000.
The accounting policy of Eat Limited is to measure intangible assets using the cost model, except for intangible assets for which there is an active market which are measured using the revaluation model.
Requirement:
Problem 1: Explain, giving reasons, how each of the above transactions should be dealt with in the financial statements of Eat Limited for the year ended 31 December 20X3, in accordance with IAS 38 Intangible assets .