Reference no: EM135894
Q1: Accounting for Intangible Assets
Sweet Limited, a New Zealand ice-cream manufactory, is trying to prepare a new flavor of ice-cream. The marketing department conducted a survey in August 2011 to assess consumer preference for the best flavor(s). The survey result indicates that hazel-nuts toffee flavor is the most popular one in NZ and Australia. The cost of the survey is $20,000.
The production department requires to identify some possible suppliers for the hazel-nuts and coffee beans used in producing toffee flavor ice-cream. The traveling expenses in visiting probable suppliers and checking on quality of the raw materials amount to $30,000. These expenses were incurred in November 2011 to February 2012.
In April 2012, the production department manufactured some hazel-nuts toffee ice-cream for testing. The cost of producing these ice-creams was $25,000. These ice-creams are used for one more marketing research. The second round research costs amount to $15,000. This time the consumers were asked to determine the taste and to evaluate how much they would like to buy it for. After a few more rounds of testing in May and June 2012, consumers demonstrate 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 guesses 1 million containers of hazel-nuts toffee ice-cream can be sold yearly.
Sweet Limited's balance date is 31 March.
Required:
- Show the accounting treatment of Development and Research costs, stating at which point the hazel-nuts ice-cream project should be capitalized?
- Give journal entries for the income year 2011 and 2012 correspondingly.
Q2: Accounting for Goodwill and goodwill impairment
- Briefly show the accounting treatment of purchased goodwill.
- Briefly describe impairment concept in relation to intangible assets, with reference to relevant accounting standards
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