Due to rapid turnover in the accounting department, several transactions involving intangible assets were improperly recorded by

Question:

Due to rapid turnover in the accounting department, several transactions involving intangible assets were improperly recorded by Riley Co. in the year ended December 31, 2014:

1. 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.

2. On July 1, 2014, 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 2014 based on a 40-year useful life.

3. The company purchased a trademark for $47,500. Shortly thereafter, it was sued for trademark infringement.

At the end of the year, Riley determined that the recoverable amount of the trademark was $35,000. Riley did not record an impairment loss because it is hopeful that the recoverable amount will rebound next year after the conclusion of a legal case defending the company's right to use this trademark.

4. Several years ago, Riley paid $70,000 for a licence to be the exclusive Canadian distributor of a Danish beer. In 2011, Riley determined there was an impairment of $40,000 in the value of the licence and recorded the loss.

In 2014, 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.

5. The company made an $8,000 charitable donation on December 31, 2014, which it debited to goodwill.

Instructions

Assuming that Riley reports under IFRS, prepare the journal entries that are needed to correct the errors made during 2014.

TAKING IT FURTHER

The majority of the intangible assets 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?

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of... Intangible Assets
An intangible asset is a resource controlled by an entity without physical substance. Unlike other assets, an intangible asset has no physical existence and you cannot touch it.Types of Intangible Assets and ExamplesSome examples are patented... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...