Below is select information for the following independent transactions for Hilde Co., an ASPE company:
i. On January 1, 2015, a patent was purchased from another company for $900,000. The useful life is estimated to be fifteen years. At the time of the sale, the patent had a carrying value on the seller’s books of $915,000. A year later, Hilde re-assessed the patent to have only ten years’ useful life at that time.
ii. During 2015, Hilde incurred $350,000 in costs to develop a new electronic product. Of this amount, $180,000 was incurred before the product was deemed to be technologically and financially feasible. By December 31, 2015, the project was completed. The company estimates that the useful life of the product to be ten years, and earnings are estimated to be $3.6 million over its useful life. Hilde’s policy is to capitalize any costs meeting the ASPE criteria.
iii. On January 1, 2015, a franchise was purchased for $1.8 million. In addition, Hilde must also pay 2% of revenue from operations to the franchisor. For the year ended 2015, the revenue from the franchise was $5.6 million. Hilde estimates that the useful life of the franchise is forty years.
iv. During 2015, the following research costs were incurred; materials and equipment of $25,000; salaries and benefits of $250,000; and indirect overhead costs of $15,000. (Assume a single entry in 2015 for these costs.)
Required:
a. For each independent situation above, prepare all relevant journal entries including any adjusting entries for 2015 (and 2016 for situation i) for Hilde Co. Hilde’s year-end is December 31 and follows ASPE.
b. Prepare a partial income statement and balance sheet for 2015, including all required disclosures. Income tax rate is 27%.
c. Explain how the accounting treatment for each of the situations above would differ if Hilde was a public company that followed IFRS.
d. Explain how limited-life intangibles are tested for impairment for ASPE and IFRS companies. How is the impairment calculated for each standard?