Chapter 8: SP - Intangible NCA

Question 1

Goodwill - recognition (5)

impairment not in this FC

Answer 1

1. Approval of acquisition in minutes of the board
2. Agree consideration paid with bank statement, sale agreement, cash book
3. Inspect due-diligence report for fair value of net assets and ensure completeness of such assets
4. Recalculate the purchased goodwill
5. Check disclosures

Question 2

Amortization/Impairment (5)

Answer 2

1. Understand Management’s process
2. Check annual impairment testing (& correctly)
3. evaluate appropriateness of assumptions: professional judgement > comparision with industry
4. Engage expert for assumptions, if necessary
5. Obtain written representation that assumptions are reasonable

ensure FV = CA in books (agree)

Question 3

Assumptions for impairment (4)

Answer 3

sales volume
prices
operating cost
growth rate

Question 4

Development Cost (6)

Answer 4

1. Criteria (PIRATE)
2. Discuss feasibility of project with management
3. Select sample of cost and check documents (Bills, timesheet, payroll sheet, supplier invoice, patent registration, development contracts)
4. Review list of capitalized expenses for proper classification (doesnt include research exp that is sunk cost)
5. Obtain representation about intention regarding the project
6. Check amortization and impairment (possibilty of impairment subsequent to recognition)

Question 5

Things to check when assessing the feasibility of the project/product (3)

Answer 5

1. Review projections and forecasts and consider if they are reasonable
2. Assess production and marketing plans and whether such market exists
3. Consider funding requirements for project

Question 6

Other Intangibles (e.g. purchase of Brand) (5)

Answer 6

1. Approval of board in minutes for purchase
2. Inspect legal and purchase documents for valuation, existence, and title of company
3. discuss with mgmt determination of useful life
4. check if amortization calculation is accurate using client’s policy (Recalculation)
5. Discuss with management and review for possibility of impairment subsequent to recognition