As a specialist in the accounting of intangible assets, explain if the costs identified can be capitalized. - Tea Limited discovered that it had been manufacturing a product illegally because this product was patented and yet Bee did not have the necessary rights. Bee immediately shut down its factory and hired a firm of lawyers to act on its behalf in the acquisition of the necessary rights to manufacture this product - Legal fees of R60 000 were incurred during July 2007. The legal process was finalised on 31 July 2007, when Tea was then required to pay R900 000 to purchase the rights, including R90 000 in refundable VAT - During the July factory shut-down: - overhead costs of R50 000 were incurred; and - significant market share was lost with the result that Tea’s t total sales over August and September was R30 000 but its expenses were R60 000, resulting in a loss of R40 000 - To increase market share, Bee spent an extra R35 000 aggressively marketing their product. This marketing campaign was successful, resulting in sales returning to profitable levels in October. - The accountant wishes to capitalise the cost of the patent at: Purchase price: R900 000 + Legal fees: R60 000 + Overheads during the forced shutdown in July: R50 000 + Operating loss in Aug & Sept: R40 000 + Extra marketing required: R35 000 = R 1 085 000
Question 37
As a specialist in the accounting of intangible assets, explain if the costs identified can be capitalized.
- Tea Limited discovered that it had been manufacturing a product illegally because this product was patented and yet Bee did not have the necessary rights. Bee immediately shut down its factory and hired a firm of lawyers to act on its behalf in the acquisition of the necessary rights to manufacture this product
- Legal fees of R60 000 were incurred during July 2007. The legal process was finalised on 31 July 2007, when Tea was then required to pay R900 000 to purchase the rights, including R90 000 in refundable VAT
- During the July factory shut-down: - overhead costs of R50 000 were incurred; and - significant market share was lost with the result that Tea’s t total sales over August and September was R30 000 but its expenses were R60 000, resulting in a loss of R40 000
- To increase market share, Bee spent an extra R35 000 aggressively marketing their product. This marketing campaign was successful, resulting in sales returning to profitable levels in October.
- The accountant wishes to capitalise the cost of the patent at: Purchase price: R900 000 + Legal fees: R60 000 +
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