Question

Due to rapid turnover in the accounting department, the following transactions involving intangible assets were improperly recorded by Riley Co. in the year ended December 31, 2021:

Riley developed a new manufacturing process early in the year, incurring research and development costs of $160,000. Of this amount, 45% was considered to be development costs that could be capitalized. Riley recorded the entire $160,000 in the Patents account and amortized it using a 15-year estimated useful life.
On July 1, 2021, Riley purchased a small company and, as a result of the purchase, recorded goodwill of $400,000. Riley recorded a half-year's amortization on the goodwill in 2021 based on a 40-year useful life and credited the Goodwill account.
Several years ago, Riley paid $70,000 for a licence to be the exclusive Canadian distributor of a Danish beer. In 2018, Riley determined there was an impairment of $40,000 in the value of the licence and recorded the loss. In 2021, because of a change in consumer tastes, the value of the licence increased to $80,000. Riley recorded the $50,000 increase in the licence's value by crediting Impairment Loss and debiting the Licence account. Management felt the company should consistently record increases and decreases in value.

Assuming that Riley Reports under IFRS, prepare the journal entries that are needed to correct the errors made during 2021.

The majority of intangible asssets reported on a balance sheet have been purchased as opposed to being internally generated. Why? WHat happens to the cost of an internally generated intangible asset if it is not recorded as an asset?

Answer 1

No	Accounts	debit	credit
1	Research Expense	88000
	Patents		88000
	(160000*55%)
	Accumulated amortization-Patents	5867
	Amortization expense		5867
	(88000/15)
2	Accumulated amortization-Goodwill	5000
	Amortization expense		5000
	(40000/40)*6/12
3	Impairement Loss	12500
	Trademark		12500
	(47500-35000)
4	Impairement Loss	10000
	Licence		10000
	(47500-35000)

Ques 2

Purchased intangible

assets are capitalised instead of being

expensed like internally generated

assets.

Since the costs cannot

be separately measured for internally

generated assets they must be expensed

immediately