Accounting Standards Exercise 3
Goodwill and Intangible Assets
Intangible asset and Goodwill have a limited useful life should be amortised over its economic life usually 20 years or less. In addition the purchase of Goodwill and other Intangible assets to be capitalised and in most circumstances to be amortised through the profit and loss account over 20 years or less.
Accounting treatment
Dr P&L admin expenses, Cr Amortisation of goodwill
b) Research and Development
This is the creation of knowledge to be used in products or process. Expenditure on pure applied research shall be written off in the period of expenditure through the profit and loss account. Amortisation must take place only when commercial production takes place.
Accounting treatment
Dr Intangible asset, credit R&D expenses
Dr P&L Admin Credit R&D expenses C) Stock and long term contract
Stocks are goods or other assets purchased for resale, while long term contracts are contracts which are spread over more than one accounting year. Stock valuation must match cost and revenue in the year revenue is received. In addition stock should be shown as the lowest of cost and net realisable value of stock.
Accounting treatment
Dr closing stock, credit cost of sale
d) Investment properties
These are interest in land or buildings that are held for their investment potential, rather than for consumption in the business operations. Investment properties should be included in the balance sheet at the open market value without charging depreciation. This will show a true and fair