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Topic10 Questions - AF3110 Intermediate Accounting 1...

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1 AF3110 Intermediate Accounting 1 2009/10 Semester 2 Topic 10 Question 1 (Chapter14 Q15) (a) Discuss the recognition and initial measurement criteria for intangible assets contained in HKAS 38 Intangible Assets . (b) On 1 July 20X6, Heywood, a publicly listed company, was finally successfully in acquiring the entire share capital of Fast Trak. The terms of the bid by Heywood had been improved several times as rival bidders also made offers for Fast Trak. The terms of the initial bid by Heywood were: 20 million $1 ordinary shares in Heyw000d. Each share had a stock market price of $3.50 immediately prior to the bid; a cash element of $15 million. The final bid that was eventually accepted on 1 July 20X6 by Fast Trak ' s shareholders had improved the cash offer to $25 million and included a redeemable loan note of a further $25 million that will be redeemed on 30 June 20Y0. It carried no interest, but market rates for this type of loan note were 13% per annum. There was no increase in the number of shares offered but at the date of acceptance the price of Heywood's shares on the stock market had risen to $4.00 each. The present value of $1 receivable in a future period where interest rate is 13% can be taken as at end of year 3 $0.70 at end of year 4 $0.60 The fair value of Fast Trak's net assets other than its intangible long- term assets was assessed by Heywood to be $64 million. This value had not changed significantly throughout the bidding process. The details of Fast Trak's intangible assets acquired were: (i) The brand name of Kleenwash’ a dish washing liquid. A rival brand name thought to be of a similar reputation and value to ` Kleenwash' had recently been acquired for a disclosed figure of $12 million. (ii) A government licence to extract a radioactive ore from a mine for the next 10 years. The licence is difficult to value as there was no fee payable for it. However, as Fast Trak is the only company that can mine the ore, the directors of Heywoold have estimated the licence to be worth $9 million. The mine itself has been included as part of Fast Trak's property, plant and equipment.
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2 (iii) A fishing quota of 10,000 tonnes per annum in territorial waters. A specialist company called Quotasales actively trades in these and other quotas. The price per tonne of these fishing quotas at the date of acquisition was $1,600. The quota is for an
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