Why the cfo may not want to record the patent

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Reference no: EM132915651

Banyan Developments Limited has a year end of 31 March 2021. Its principal activities are providing fitness and welfare services. On 31 March 2021 Banyan Developments Ltd acquired 100% of the share capital of a competitor, Portello Ltd for $4,000,000. The netassets of Portello Ltd at that date were $1,500,000. You are the Financial controller of Banyan Developments Ltd and have reported to your Chief Financial Officer, that in addition to the reported net assets of Portello Ltd you have identified two further intangible assets related to Portello Ltd, including a patent with a remaining useful life of 5 years that you have estimated to be worth $750,000 and a new piece of software about to be launched which you estimate to have a value of $500,000 and to have an estimated useful life of 4 years. The CFO has thanked you for your work, but has stated that he will record goodwill relating to the acquisition of $2.5 Million.

Required:

Problem a. Evaluate why the CFO may not want to record the patent and software development in the acquisition of Portello Ltd.

Reference no: EM132915651

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