Question

Intangible Assets. Global Music Enterprises, Inc, had a balance sheet loaded with intangible assets-copy rights on music, goodwill from various prior acquisitions, and internet customer lists purchased from othe online music retailers. During the year, several accounting policy decisions were required regarding various intangible asset-related expenditures. Required What accounting policy should be adopted for the following expenditures? 1. Acquisition of new music rights from the estate of a deceased artist 2. Advertising costs intended to create customer loyalty 3. Purchase of online customer lists from Amazon.com. 4. Marketing costs to promote the new music library. 5. Computer programmer costs to fully convert the new music library to a digital format.

Answer 1

1. Acquisition of new music rights from the estate of a deceased artist - should be capitalized in the books of accounts as Goodwill and should be amortized on the basis of expected future cash flows from it.

2. Advertising costs intended to create customer loyalty- Should be charged off to the profit and loss account, instead of capitalizing the same in the books. ( As this expense is incurred to gain the operational efficiency of the business and to sustain in the market)

3. Purchase of online customer list from amazon.com- Should be capitalized as "Internet Customer List" under the Head Intangible asset, and amortized on the basis of expected future cash flows from it.

4. Marketing cost to promote the new music library - Should be charged off to the profit and loss account, instead of capitalizing the same in the books. ( As this expense is incurred to gain the operational efficiency of the business and to sustain in the market).

5. Computer program cost to fully convert the new music library to digital - should be capitalized in the books of accounts as Goodwill and should be amortized on the basis of expected future cash flows from it.