15-2 Three intangibles acquired by Hamm Ltd. (HL) in the current year are described below HL, a progressive company with a variety of divisions and subsidiaries, has applied fair value measures on it...
15-2 Three intangibles acquired by Hamm Ltd. (HL) in the current year are described below HL, a progressive company with a variety of divisions and subsidiaries, has applied fair value measures on its balance sheet wherever permitted Intangible #1 is a license granted by the federal government to HL that allows the company to provide essential services to a key military installation overseas. The license expires every five years, but is renewable indefinitely at little cost. Because of the profitability associated with this license, HL fully expects to renew it continually. The license is very marketable and will generate cash flows indefinitely. Intangible 2 is a non-competition covenant acquired by HL when the company bought out a major owner-managed competitor. The seller signed a contract in which she agreed not to set up or work for another business that is in direct or indirect competition with HL. The projected cash flows resulting from this agreement are expected to continue for at least 25 years Intangible 3 are medical files. One of HL's subsidiary companies owns several medical clinics. A recent purchase of a retiring doctor's practice required a significant payment for the practice's medical files and clients. HL considers that this base will benefit the business for as long as it exists, providing cash flows indefinitely. Instructions (a) Does each intangible as described above qualify to be recognized as an intangible asset? Explain briefly. (b)Identify the appropriate method of accounting for each intangible described above after acquisition, and explain the decisions you have made.
15-2 Three intangibles acquired by Hamm Ltd. (HL) in the current year are described below HL, a progressive company with a variety of divisions and subsidiaries, has applied fair value measures on its balance sheet wherever permitted Intangible #1 is a license granted by the federal government to HL that allows the company to provide essential services to a key military installation overseas. The license expires every five years, but is renewable indefinitely at little cost. Because of the profitability associated with this license, HL fully expects to renew it continually. The license is very marketable and will generate cash flows indefinitely. Intangible 2 is a non-competition covenant acquired by HL when the company bought out a major owner-managed competitor. The seller signed a contract in which she agreed not to set up or work for another business that is in direct or indirect competition with HL. The projected cash flows resulting from this agreement are expected to continue for at least 25 years Intangible 3 are medical files. One of HL's subsidiary companies owns several medical clinics. A recent purchase of a retiring doctor's practice required a significant payment for the practice's medical files and clients. HL considers that this base will benefit the business for as long as it exists, providing cash flows indefinitely. Instructions (a) Does each intangible as described above qualify to be recognized as an intangible asset? Explain briefly. (b)Identify the appropriate method of accounting for each intangible described above after acquisition, and explain the decisions you have made.