MASTERKEY ASSOCIATES

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)

IAS 38: INTANGIBLE ASSETS
Question 1
IAS 38 describes intangible asset as an identifiable non-monetary asset without physical substance,
held for use in the production or supply of goods and services for rental to others and for administrative
purposes.
You are required to:
(a) (i) State how intangible assets are valued
(ii) Enumerate the classes of intangible assets.
(b) (i) Describe Goodwill
(ii) State the characteristics of Goodwill
(c) Calculate the value of Goodwill of Bounty Ltd. from the following data:
Okondo Group of Companies is considering selling off one of its fifteen subsidiaries known as
Bounty Ltd, but is having difficulty in valuing it for sale. The projected profits generated from
the profit forecast for the next four years of Bounty Ltd are N86,000; N70,000; N54,000 and
N50,000.
The separable net assets of the business are valued at N300,000 and normal expected rate of
Return on Capital by Okonedo Plc is 12%.

Question 2
IAS 38- Intangible Assets, specifies the criteria that must be met before an intangible asset can be
recognised by an entity in its Financial Statements. Intangible assets are identifiable non-monetary
assets without physical substance and include goodwill, brands, copyright and research and
development expenditure. They could be purchased and/or internally generated.
Required:
(a) Identify any TWO characteristics of goodwill which distinguish it from other intangible
assets?
(b) Explain THREE differences between purchased goodwill and non-purchased goodwill.
(c) Identify any THREE conditions that must be met under IAS 38 for development
expenditure to be recognised as an intangible assets.
(d) State any FOUR factors to be considered when determining the useful life of an
intangible asset.
(e) Calculate the goodwill on consolidation from the information below:
N'000
Parent's cost of investment in subsidiary 299,700
Net asset at acquisition date (parent) 986,600
Net asset at acquisition date (subsidiary) 345,800
Fair value of non-controlling interest at acquisition date 169,500
Net asset at reporting date (subsidiary) 316,400
Impairment of goodwill 62,200
Parents has 80% interests in subsidiary.

By; Arogundade Kamaldeen .O.

08141838062
Question 3
Intangibles assets by their nature do not exist physically under IAS 38 Intangible assets. The following
information on initial cost of intangibles asset were extracted from the Notes to the financial statements
of Igbo-hood Limited, a film production company on January 1, 2017.
N '000
Books and literary works 800
Quick books and SAGE 950
Patents 1,200
Video and motion picture film 2,500
Franchise 3,200
Pictures and photographs 3,400
Order or production backlog 4,000
Plays 4,200
Customers' contract 4,400
Trade marks for customers 4,600
Broadcasting rights 5,000
Internet 5,400
Trade secrets 4,800
Additional Information:
(i)
Date of Acquisition AssessedUseful Life
Quick books and SAGE January 1, 2016 5
Trade marks January 1, 2015 8
Plays January 1, 2014 7
Franchise January 1, 2013 8
(ii) Intangible assets are to be amortised on a straight line basis.
Required:
a. Calculate the costs of the following intangible assets:
(i) Market based
(ii) Customer related
(iii) Artistic related
(iv) Contract based
(v) Technology based
b. Calculate the carrying amounts of the following intangibles assets as at December 31,
2017.
(i) Quick books and SAGE
(ii) Trade marks
(iii) Plays
(iv) Franchise
c. Identify FOUR internally generated intangible assets that are prohibited in IAS 38
(Intangibles Assets).

By; Arogundade Kamaldeen .O.

08141838062
Question 4
a. Soft Solutions Limited is a Nigerian company that specialises in the development of software
applications. The company has been in operation for over 16 (sixteen) years and they have
invested considerable amount of money internally in developing accounting and banking
softwares. The treatment of these assets is prescribed by IAS 38 - Intangible Assets.
Required:
As a partly qualified accountant working in the accounts department of Soft Solutions Limited,
the financial controller of the company asked you for a memo which addresses the following:
i. Whether internally developed intangible assets should be recognised and if so, how
should they be recorded initially and subsequently accounted for.
ii. The criteria for revaluation of intangible assets?
b. During the year 31 December, 2018 Soft Solutions Limited carried out the following
transactions:
 N720m was spent on developing a new "Microfinance Software" which received the approval
of software regulatory authority in Nigeria on 1 July, 2018 and is proving commercially
successful. The financial controller expects the project to be in profit within 12 months of the
approval date. The patent was registered with Federal Ministry of Trade and Investment on 1
July, 2018; it costs N180m and remains in force for three years.
 On 1 September, 2018 Soft Solution Limited acquired an up to date list of Global Positioning
System (GPS) at a cost of N60m and the company has been visiting the tracked customers to
explain the operations of the new microfinance software in rural and urban areas. This is
expected to generate sales throughout the life-cycle of the microfinance software.
 A research project was set up on 1 October, 2018 which is expected to result in a new banking
software called "Recent Bankers". N24m was spent on computer equipment and N48m on staff
salaries. The equipment has an expected life of four years.
Required:
i. Prepare the extract of statement of financial position of Soft Solutions Limited as at 31
December, 2018.
ii. Prepare the summary of the cost to be charged to statement of profit or loss for the year
ended 31 December, 2018.

Question 5
Kalejaiye Ltd purchased a 90% share of a locally incorporated company, Okonjo Ltd Limited.
Following are the brief details of the acquisition:
Date of acquisition January 1, 20X8
Total paid up capital of Okonjo Ltd Limited (N10 each) 500,000,000
Purchase price per share N30
Net assets of Okonjo Ltd Limited (as per 20X7 audited financial statements) 650,000,000
Fair value of net assets (other than intangible assets) of Okonjo Ltd Limited 1,100,000,000
Okonjo Ltd Limited has an established line of products under the brand name of "SuperKal". On
behalf of Kalejaiye Ltd, a firm of specialists has valued the brand name at N100 million with an
estimated useful life of 10 years at January 1, 20X8. It is expected that the benefits will be spread
equally over the brand's useful life.

By; Arogundade Kamaldeen .O.

08141838062
As impairment test of goodwill and brand was carried out on December 31, 20X8 which indicated an
impairment of N50 million in the value of goodwill.
An impairment test carried out on December 31, 20X9 indicated a decrease of N13.5 million in the
carrying value of the brand.
Required:
(a) State the IFRS requirements relating to amortisation of intangible assets which have a
finite life.
(b) Prepare T accounts for goodwill and the brand, showing initial recognition and all
subsequent adjustments.
Professional accountants may find themselves in situations where values are in conflict
with one another due to responsibilities to employers, clients and the public.
ICAN has a code of conduct called the Professional Code of Conduct for Members which
members and student members must follow.
Required:
(c) List the FIVE fundamental principles set out in the ICAN code and the FIVE categories
of threats to these fundamental principles.
Question 6
Emerald
Product development costs are a material cost for many companies. They are either written off as an
expense or capitalised as an asset.
Required:
(a) Discuss the conceptual issues involved and the definition of an asset that may be applied
in determining whether development expenditure should be treated as an expense or an
asset.
(b) Emerald has had a policy of writing off development expenditure to the income statement
as it was incurred. In preparing its financial statements for the year ended 30 September
2012 it has become aware that, under IFRS rules, qualifying development expenditure
should be treated as an intangible asset. Below is the qualifying development expenditure
for Emerald:
N'000
Year ended 30 September 2009 300
Year ended 30 September 2010 240
Year ended 30 September 2011 800
Year ended 30 September 2012 400
All capitalised development expenditure is deemed to have a four year life. Assume
amortisation commences at the beginning of the accounting period following capitalisation.
Emerald had no development expenditure before that for the year ended 30 September 2009.
Required:
Treating the above as the correction of an error in applying an accounting policy, calculate the
amounts which should appear in the income statement and statement of financial position
(including comparative figures), and statement of changes in equity of Emerald in respect of the
development expenditure for the year ended 30 September 2012.

By; Arogundade Kamaldeen .O.

08141838062
Question 7
a. An internally generated intangible asset is an asset created by a company through its own efforts
and by its nature does not exist physically.
Required:
i. Explain the terms: Research and Development and state TWO examples each.
ii. Development costs must be recognized as an intangible asset if only some conditions can
be satisfied. Identify FIVE such conditions
a. The following information were extracted from the non-current assets register of Olugbenga
Nigeria Limited for the year ended March 31, 2021.
N’millon
Internally generated development costs 1,595
Software licence at cost 418
Goodwill at cost 4,050
Accumulated amortization and impairment loss:1/4/2020:
N’million
Development costs 775
Software licences 204
Goodwill 540
During the year, the following acquisitions and disposals of assets were recorded:
N’million
Acquisitions- Development costs 330
Software licences 91
Disposals- Development costs 160
Software licence 12
Also during the year, goodwill acquired from business combination amounted to N102million.The year
end impairment test on the goodwill revealed a loss of N82million.
Annual amortization charge on the internally generated development costs and software licences are
based on their estimated useful life of 10 years and 15 years respectively. The accumulated
amortizations on the disposal were N110million and N40million for development costs and software
licences respectively.
Required:
Prepare a schedule for movement in intangibles to be disclosed in the notes to the financial
statements for the year ended March 31,2021.

By; Arogundade Kamaldeen .O.

08141838062