Question

1. Tandren has internally developed intangible assets comprising the capitalised expenses of the production of software used in primary school children’s education. The intangible assets generate substantial sums of revenue for the company through sales to schools on a global basis.

   The intangible asset is a material item in the statement of financial position. The costs incurred improving the software to a higher standard of performance are capitalised. The costs related to maintaining the software at that same standard of performance and correcting software ‘bugs’ are expensed.

   Tandren’s accounting policy states that intangible assets are valued at historical cost. The company considers the software to have an indefinite useful life which is reconsidered annually when it is tested for impairment.

   Required:

   Discuss the approach adopted by Tandren in accounting for their intangible asset.

Answer 1

The approach adopted by Tandren is not in accordance with the accounting standards.

The internally generated intangiable asset has to be amortised over a defined period like 5 or 10 years but should not be kept in financials for a indefinite life & testing for impairment annually is not correct.

Only goodwill acquired while acquistion of goodwill needs to be tested for impairment & will have a infinite life.

So, the interenally generated intangiable asset has to be amortised yearly over it's useful life.