Question: Six examples follow of purchased intangible assets They are reported

Six examples follow of purchased intangible assets. They are reported on the consolidated statement of financial position of Phelp Enterprises Limited and include information about their useful and legal lives. Phelp prepares financial statements in accordance with IFRS.
Intangible 1 (i) is the trade name for one of the company's subsidiaries. The trade name has a remaining legal life of 16 years, but it can be renewed indefinitely at a very low cost. The subsidiary has grown quickly, has been very successful, and its name is well known to Canadian consumers. Phelp management has concluded that it can identify positive cash flows from the use of the trade name for another 25 years, and assumes the cash flows will continue even longer.
Intangible 1 (ii) is the trade name as identified in 1 (i), but assume instead that Phelp Enterprises expects to sell this subsidiary in three years since the subsidiary operates in an area that is not pan of Phelp's core activities.
Intangible 2 is a licence granted by the federal government to Phelp that allows Phelp to provide essential services to a key military installation overseas. The licence expires in five years, but is renewable indefinitely at little cost. Because of the profitability associated with this licence, Phelp expects to renew it indefinitely. The licence is very marketable and will generate cash flows indefinitely.
Intangible 3 is a magazine subscription list. Phelp expects to use this subscriber list to generate revenues and cash flows for at least 25 years. It has determined the cash flow potential of this intangible by analyzing the subscribers' renewal history, the behaviour of the group of subscribers, and their responses to questionnaires.
Intangible 4 is a non-competition covenant. Phelp acquired this intangible asset when it bought out a major owner managed competitor. The seller signed a contract in which he agreed not to set up or work for another business that was in direct or indirect competition with Phelp. The projected cash flows resulting from this agreement are expected to continue for at least 25 years.
Intangible 5 is medical files. One of Phelp's subsidiary companies owns several dental clinics. A recent purchase of a retiring dentist's practice required a significant payment for the practice's medical files and clients. Phelp considers that this base will benefit the business for as long as it exists, providing cash flows indefinitely.
Intangible 6 is a favourable lease. Phelp acquired a sublease on a large warehouse property that requires an annual rental amount that is 50% below competitive rates in the area. The lease extends for 35 years.
For each intangible asset and situation described above, do the following:
(a) Identify the appropriate method of accounting for the asset subsequent to acquisition, and justify your answer.
(b) Provide an example of a specific situation that would cause you to test the intangible asset for impairment.

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  • CreatedSeptember 18, 2015
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