Question

Case 1

Ten years ago, Innovate developed a new game called ‘Our Sports’. This game sold over 10 million copies around the world and was extremely profitable. Due to its popularity, Innovate release a new game in the Our Sports series every year. The games continue to be best-sellers.

Base on cash flow projections for 5 years, the directors have prudently valued the Our Sports brand at RM20 million and wish to recognise this in the statement of financial position as at 31 December 2017.

Question

Can Innovate recognise the transaction above in the statement of financial position as at 31 December 2017?

On 31 December 2017, Innovate also paid RM1 million for the rights the ‘Pet & Me videogame series from another company.

Question

Can Innovate recognise the transaction above in the statement of financial position as at 31 December 2017?

Answer 1

1. No, the above transaction can't be recognised in the financial statement since it is not a transaction. The above is a valuation of the brand based upon its future cash flows and brand value. It is the price or the valuation that the company expects to recognise when the transaction occurs i.e. when the brand is sold to any other company.

2. Yes, the transaction can be recognised since the above is a Financial transaction where innovate has paid the sum to another company for rights. It will come under the amortization expenses i.e. intangible expenses and will be amortized over the expected life.