Snow Protek Ltd is a small company and predict that there will be a great expansion in their business for five to ten years due to the successful research project. In the current accounting period, Snow Protek Ltd has classified two type of intangible assets; Brand name and Research and Development in their draft Statement of financial position as at 30 June 2016.
The issues arise from the acquisition of brand are the recognition and measurement of intangible asset, revaluation, amortization and additional cost incurred by Snow Protek Ltd. The Snow Protek Ltd’s Managing Director (MD) has revalued the brand based on their experience in the field and it is inconsistent to the accounting standard. Snow Protek Ltd also have…show more content…
The Managing Director (MD) for Snow Protek Ltd has treated brand as an intangible asset quite well. But there are a couple of core issues regarding this asset. Firstly, the valuation issue. In accordance to AASB 138:81, if there is no active market for that asset, it should be carried and recorded at cost less any accumulated amortization and impairment losses (if any). For brand name, it should not have any revaluation as the measurement use for this asset after initial recognition is cost model (AASB 138:74). Therefore, the amount value in use (VIU) of $1,000,000 as stated by the Managing Director is not applicable for the revaluation.
In addition, asset amortization is also an important issue for intangible asset. For the brand name acquired by the Snow Protek Ltd, there is no useful life recorded and it is expected to drive a positive future benefits for the entity continuously, hence there is no amortization for the brand name according to AASB 138:107 but it should be tested for impairment loss (AASB 136).
Additional cost incurred of an intangible asset is the final issue on brand acquired by Snow Protek Ltd. The company is incompetent to increase the value of the brand even though their sales have rising after the advertising and marketing of its brand because any expenditure that spent after the initial recognition of an intangible asset barely will be recognized and capitalized in the carrying amount of the asset (AASB 138:20). This brand is already capable