question archive ANSWER IN YOU OWN WORDS! Part a and b are scenarios that are part of the same question
ANSWER IN YOU OWN WORDS! Part a and b are scenarios that are part of the same question
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ANSWER IN YOU OWN WORDS!
Part a and b are scenarios that are part of the same question.
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13. Determining the useful life of an intangible asset should generally be based on the lesser of management’s estimate of the period of time over which it is expected to produce benefits (such as cash flows), legal, regulatory, or market-related factors (obsolescence, competition, etc.) that may limit its useful life. What useful life would you estimate for the following intangible assets?
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a. An acquired customer list. A direct-mail marketing company acquired the customer list and expects that it will be able to derive benefit from the information on the acquired customer list for at least one year but for no more than three years.
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b. An acquired Patent that expires in 15 years. The product protected by the patented technology is expected to be a source of cash flows for at least 15 years. The reporting entity has a commitment from a third party to purchase that Patent in 5 years for 60 percent of the fair value of the Patent at the date it was acquired, and the entity intends to sell the Patent in 5 years.
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13. IFRS provides that useful life for depreciation of intangible assets should be based on management estimate over which the Company shall derive economic benefit from continued use of the assets. Such estimation includes legal life, contractual terms, period over use, obsolence among others.
(a) In case of customer list, useful life should be contractual period of contract entered with such customers. In the given case, the management beleives benefit shall be derived atleast for a year but not more than 3 years. hence, on conservative basis life of customer list should be only 1 year because probability of use beyond 1 years is not probable.
(b) Life of patent both legally and contracually is 15 years. Further, entity intends to sell the Patent after 5 years of use at pre-committed rate. However, such sale considerations are one of the indications and in given case, sale value at end of year 5 is higher than continued use value. Hence, management should use 15 years as estimated life.
