Good Entertainment Ltd Good Entertainment Ltd (GEL) is a company in Hong Kong selling golf equipment and accessories. The following transactions were taken place in 2016 and 2017. Acquisition of Oldies Ltd On 1 July 2016, GEL acquired all the assets and liabilities of Oldies Ltd (Oldies) for $1,540,000 in cash. Oldies provided video golf instruction at kiosks in shopping malls. GEL planned to integrate the video golf instruction business into its golf equipment and accessory business. On the acquisition date, Oldies’s statement of financial position reported assets of $1,300,000 and liabilities of $400,000. The fair value of Oldies’s assets was $1,600,000 on the acquisition date. Included in the assets were Oldies’s trade name with a fair value of $20,000 and a copyright of some instructional books with a fair value of $48,000. The trade name had a remaining life of 5 years and could be renewed at nominal cost indefinitely. The copyright had a remaining life of 40 years. On 31 December 2016, GEL conducted impairment review on the acquired goodwill and the trade name and confirmed that they were not impaired. With reference to the acquisition of Oldies Ltd, answer the following questions. (a) Explain in detail the THREE (3) conditions that must be satisfied for an asset to be qualified as an intangible asset under HKAS 38 Intangible Assets. (b) Determine the goodwill generated from the acquisition of Oldies Ltd. (c) Explain and prepare the necessary accounting journal entries to record amortization of the intangible assets of GEL on 31 December 2016. Show your workings.

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter14: Property Transactions: Capital Gains And Losses, § 1231, And Recapture Provisions

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Problem 75P

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Good Entertainment Ltd

Good Entertainment Ltd (GEL) is a company in Hong Kong selling golf equipment and accessories. The following transactions were taken place in 2016 and 2017.

Acquisition of Oldies Ltd

On 1 July 2016, GEL acquired all the assets and liabilities of Oldies Ltd (Oldies) for $1,540,000 in cash. Oldies provided video golf instruction at kiosks in shopping malls. GEL planned to integrate the video golf instruction business into its golf equipment and accessory business. On the acquisition date, Oldies’s statement of financial position reported assets of $1,300,000 and liabilities of $400,000. The fair value of Oldies’s assets was $1,600,000 on the acquisition date. Included in the assets were Oldies’s trade name with a fair value of $20,000 and a copyright of some instructional books with a fair value of $48,000. The trade name had a remaining life of 5 years and could be renewed at nominal cost indefinitely. The copyright had a remaining life of 40 years. On 31 December 2016, GEL conducted impairment review on the acquired goodwill and the trade name and confirmed that they were not impaired.

With reference to the acquisition of Oldies Ltd, answer the following questions.

(a) Explain in detail the THREE (3) conditions that must be satisfied for an asset to be qualified as an intangible asset under HKAS 38 Intangible Assets.
(b) Determine the goodwill generated from the acquisition of Oldies Ltd.
(c) Explain and prepare the necessary accounting journal entries to record amortization of the intangible assets of GEL on 31 December 2016. Show your workings.

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