UV-Protection Inc. (UVP) is a privately held Canadian company that manufactures generic sunscreens and related products for
Question:
UV-Protection Inc. (UVP) is a privately held Canadian company that manufactures generic sunscreens and related products for the consumer market.
In January of this year, the company purchased the exclusive and enduring rights to a proprietary chemical formula for a dual insect repellent and sunscreen product. At the time of purchasing the formula rights, UVP determined that the formula met the definition of an intangible asset.
UVP carried out extensive research in the first six months of the year and was able to present product samples at an international dermatology conference at the beginning of August. Since then, interest has been strong and UVP began final product testing after it received purchase commitments from several significant retailers at the conference.
Costs associated with the product, which have been capitalized as deferred development costs for accounting purposes, are as follows:
Salaries and benefits $282,403
Research on formulation 138,000
Market analysis and focus groups 100,000
Final product testing 45,000
Proprietary rights — chemical formula 22,000
Total $587,403
The salaries and benefits were incurred evenly from January to October.
It is now the end of October. UVP expects to amortize the capitalized costs over five years (the average life of a cosmetic product). UVP reports under IFRS.
Required:
a) Analyze the financial reporting for the capitalized costs and determine the appropriate treatment. Use the Issue-Analysis-Recommendation (IAR) approach to structure the analysis and prepare any required journal entries.
Identify the primary disclosure requirements that UVP must follow for intangible assets under IFRS.
Financial management theory and practice
ISBN: 978-0324422696
12th Edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt