Question

CASE STUDY 1. Canto has acquired a UK company, Bento, which owns and operates a social media site on which the public can post material relating to any particular topic. The cost of setting up the site was $3 million. The company generates revenue by selling advertising space on the site. The domain name is protected legally through registration with the national authority. Bento has attempted to build up customer relationships with the advertisers on the site and expects the customers to continue to trade with the entity. There are no contracts with those customers. Bento also uses the site to trade in transferable domain names. Bento owns the names and allows purchasers of the names to use the name for a period of five years before it reverts back to Bento. Bento has itself purchased the names from the national regulator. Bento expects to achieve an 80% margin on the sale of the domain names. Required: Advise Canto on whether the above items should be accounted for as intangible assets under IFRS for SMEs and discuss the key differences between accounting for the recognition of intangible assets other than goodwill under IFRS for SMEs.

The answer of case study must be at least 1000 words

Answer 1

Yes, the above items should be accounted for as intangible assets under International Financial Reporting Standards for SMEs. This is because the domain names can be used by the purchasers for a period of five years and there is literally no expense for these names. Also these names will be reverted back to Bento in the end of the five years. For using the names, the purchasers will also pay for the same to Bento.

Key differences between accounting for the recognition of intangible assets other than goodwill under IFRS for SMEs:

Intangible assets are those assets which doesnt have any physical existence but will generate actual fund or revenue for the organization. But Goodwill wont be able to generate any revenue.

Intangible assets will be available with the organization at the end of the contract or lease while goodwill is variable and depends on the working, status of the organization.

There is literally no expenses in case of an intangible asset, while to have goodwill an organization sometimes have to put some expenditure.