Ind AS 38 'Intangible Assets' 16. SS Limited had the following transactions during the Financial Year 20X1-20X2. (i) On 1 st April 20X1, SS Limited…
CA Final · Financial Reporting · RTP · November 2024
Ind AS 38 'Intangible Assets' 16. SS Limited had the following transactions during the Financial Year 20X1-20X2. (i) On 1 st April 20X1, SS Limited purchased the net assets of M Limited for 13,20,000. The fair value of M Limited's identifiable net assets was - 10,00,000. SS Limited is of the view that due to popularity of M Limited's product, the life of goodwill is 10 years. (ii) On 4 th May 20X1, SS Limited purchased a Franchisee to organize musical shows from A TV for 80,00,000 and at an annual fee of 2% of musical shows revenue. The Franchisee expires after 5 years. Musical shows revenue were - 10,00,000 for financial year 20X1-20X2. The projected future revenues for financial year 20X2-20X3 is 25,00,000 and - 30,00,000 p.a. for remaining 3 years thereafter. (iii) On 4 th July 20X1, SS Limited was granted a Copyright that had been applied for by M Limited. During the financial year 20X1-20X2, SS Limited incurred - 2,50,000 on legal cost to register the Patent and - 7,00,000 additional cost to successfully prosecute a copyright infringement suit against a competitor. The life of the Copyright is for 10 years. SS Limited follows an accounting policy to amortize all intangible on SLM (Straight Line Method) basis or any appropriate basis over a maximum period permitted by relevant Ind AS, taking a full year amortization in the year of acquisition. You are required to prepare: (i) A Schedule showing the intangible section in SS Limited Balance Sheet as on 31 st March 20X2, and (ii) A Schedule showing the related expenses that would appear in the Statement of Profit and Loss of SS Limited for the year ended 20X1-20X2.
Suggested Answer and Working Notes:
(i) SS Limited Balance Sheet (Extract relating to intangible asset) as at 31 st March 20X2 Note No. ₹ Assets (1) Non- current asset Intangible assets 1 69,45,000 (ii) SS Limited Statement of Profit and Loss (Extract) for the year ended 31 st March 20X2 Note No. ₹ Revenue from Operations 10,00,000 Total Revenue Expenses: Amortization expenses 2 16,25,000 Other expenses 3 7,20,000 Total Expenses Notes to Accounts (Extract) 1. Intangible Assets Gross Block (Cost) Accumulated amortisation Net block Opening balance Additions Closing Balance Opening balance Additions Closing Balance Opening Balance Closing Balance ₹ ₹ ₹ ₹ ₹ ₹ ₹ ₹ 1. Goodwill* (W.N.1) 3,20,000 3,20,000 - - 3,20,000 2. Franchise** (W.N.2) 80,00,000 80,00,000 16,00,000 16,00,000 64,00,000 3. Copyright (W.N.3) 2,50,000 2,50,000 25,000 25,000 2,25,000 85,70,000 85,70,000 16,25,000 16,25,000 69,45,000 *As per Ind AS 36, irrespective of whether there is any indication of impairment, an entity shall test goodwill acquired in a business combination for impairment annually. This implies that goodwill is not amortised annually but is subject to annual impairment, if any. **As per the information in the question, the limiting factor in the contract for the use is time i.e., 5 years and not the fixed total amount of revenue to be generated. Therefore, an amortisation method that is based on the revenue generated by an activity that includes the use of an intangible asset is inappropriate and amortisation based on time can only be applied. 2. Amortization expenses Franchise (W.N.2) 16,00,000 Copyright (W.N.3) 25,000 16,25,000 3. Other expenses Legal cost on copyright 7,00,000 Fee for Franchise (10,00,000 x 2%) 20,000 7,20,000 Working Notes: ₹ (1) Goodwill on acquisition of business Cash paid for acquiring the business 13,20,000 Less: Fair value of net assets acquired (10,00,000) Goodwill 3,20,000 (2) Franchise 80,00,000 Less: Amortisation (over 5 years) (16,00,000) Balance to be shown in the balance sheet 64,00,000 (3) Copyright 2,50,000 Less: Amortisation (over 10 years as per SLM) (25,000) Balance to be shown in the balance sheet 2,25,000
Topics: Ind AS 38
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