On 31 December 2018, Sela Plc. acquired Lomo Plc. which had a separately identified brand, valued at
Question:
On 31 December 2018, Sela Plc. acquired Lomo Plc. which had a separately identified brand, valued at £7,600,000. In addition to this, Sela Plc. also estimated at the end of 2019 that their own internally generated brand is worth £12,000,000.
A director has suggested that both figures should be recorded in the statement of financial position as intangible assets, as brands would strengthen their financial position.
Sela Plc. is currently working towards a target gearing ratio in order to secure external funds for expansion. Both brands described have an indefinite life.
Requirement:
i). With reference to the above scenario, explain how these brands would be accounted for in the financial statements of Sela Plc. for year ending 31 December 2019.
ii). How does the recognition and accounting treatment of goodwill differ from that used for brands? Explain any three differences.
iii). Explain any two justifications for reporting brands as assets.
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield