Question

Barooga Ltd acquired two copyrights during 2016. One copyright related to a textbook that was developed internally at a cost of $10,500. This textbook is estimated to have a useful life of 5 years from 1 September 2016, the date it was published. The second copyright was purchased from the Queen Elizabeth University Press on 1 December 2016 for $12,000. This book, which analyses Aboriginal history in Western Australia prior to 2000, is considered to have an indefinite useful life.

Required:

1. For each of these two copyrights, discuss the required accounting treatment under the current accounting standards. ( 3 marks)

Answer 1

Answer

Copyright related to a textbook that was developed internally at a cost of $10,500. doe not satisfy the recognition criteria of intangible assets hence the cost of development needs to be charged of as expense in the income statement.

The second copyright that was purchased from the Queen Elizabeth University Press on 1 December 2016 for $12,000 is eligible for capitalization as intangible assets however since they have a undefinite useful life, the same shall not be amortized because there is no foreseeable limit to the cash flows generated by these intangible assets. Instead of amortization, indefinite-life assets shall be evaluated for impairment on yearly basis.