Katamanso Ltd (Katamanso) is a company which is a subsidiary of a media company. Katamanso’s principal asset is the rights it owns to a classic film. Katamanso had the following intangible assets as at the year end 31 December 2017:

The following information includes all relevant events that occurred during the year ended 31 December 2018:

i) The film was originally published on 1 January 1970 and the rights were acquired by Katamanso on 1 January 2015 for GH¢10 million. Copyright was set at 50 years from the date the film was originally published. The film was amortised by Katamanso using straight line method over the remaining copyright period. However, recent legislative changes passed on 1 January 2018 have extended the copyright period from 50 years to 70 years, subject to payment of a registration fee prior to the original expiry date. This, together with associated legal costs, amounted to GH¢70,000 and was paid on 1 January 2018.

As a result, the market value of the rights to the film was GH¢12.1 million at 31 December 2018, according to Katamanso’s professional valuers, who determined the valuation on 1 January 2018.

ii) During the year Katamanso developed a new interactive website to market the film and associated merchandise given its extended copyright period. The website includes its own e-commerce system for online DVD sales, direct streaming of the film and associated material and merchandise sales.
Costs incurred were as follows:                                      GH¢’000
Planning the new website                                                         8
Registration of various domain names                                    18
Internal design costs                                                                85
External contractor design costs                                             112
New content development                                                        38
Advertising of the new website                                                22

The new website went live on 1 July 2018 and the old website, which was being amortised using straight line method over five years, was taken offline on that date and will not be used for any other purpose.

Required:
Prepare a note reconciling the carrying amount of Katamanso’s intangible assets from the beginning to the year ended 31 December 2018 as required by IAS 38: Intangible Assets. (Note: Comparative information is not required. All amounts are material)                 (10 marks)

The trial balance of Alabar Ltd extracted from the company’s general ledger as at 31 December 2017 showed a development costs balance of GH¢12.8 million. The development costs consist of amounts capitalised in 2015 and 2016 relating to a new product development. No additional development expenditure was incurred in the year ended 31 December 2017. The product began commercial production on 1 July 2017, and the company estimated at that date that, the product’s useful life was four years due to its technological nature.

Sales of the product did not achieve the amount expected during the second half of 2017, and so, at 31 December 2017, management performed an impairment test on the development expenditure. The estimated net cash flows are (at 31 December 2017 prices):
Year to 31 December 2018          GH¢3.2 million
Year to 31 December 2019          GH¢3.4 million
Year to 31 December 2020          GH¢1.6 million
6 months to 30 June 2021            GH¢0.8 million

All cash flows occur on the final day of each period mentioned. An appropriate annual discount rate (adjusted to exclude the effects of inflation) is 5%. The fair value of the development expenditure asset was expected to be less than the sum of the discounted cash flows.

The company recognises amortisation and impairment losses on development expenditure in cost of sales.

Required:
Set out the accounting treatment as the above information permits in the financial statements of Alabar Ltd for the year 31 December 2017.                                                                                                                                                                 (6 marks)

Nyame Ltd incurred the following expenditure during the year:

Nyame Ltd owns the rights to a popular range of books, which it purchased from another entity for GH¢180,000 few years ago. The rights were not amortised as they have been attributed an indefinite useful life. The books are still very popular so no impairment losses have been necessary and it was valued by an independent valuer at GH¢280,000 at the year-ended 31 December 2017.

The company’s policy is to use the revaluation model for its intangible assets where a market valuation is available and permitted.

Required:
Recommend with suitable calculations the carrying amount of intangible assets at the end of the year 31 December 2017 according to the guidance given in IAS 38: Intangible assets.                                                                                       (5 marks)

Oyarefa Ltd, acquired 80% ordinary shares in Abokobi Ltd on 1 January 2015. The intangible assets of Abokobi Ltd include GH¢9 million of training and marketing expenditure incurred during the year ended 31 December 2016. The Directors of Abokobi Ltd believe that these should be capitalised as they relate to the startup period of a new business venture in Oyibi, and they intend to amortise the balance over the five years commencing 1 January 2017.

On 1 July 2016, Oyarefa Ltd purchased a customer list from the liquidator of a competitor. The price paid was GH¢4 million and was based on the list having a useful life of two years. At 31 December 2016, the Finance Director of Oyarefa Ltd commissioned a report on the value of the customer list from a firm of independent valuers. The firm has valued the customer list at GH¢5 million and estimates a total useful life of five years. The customer list is currently included in intangible assets at a carrying value of GH¢4 million but the Finance Director wants the list to be revalued to the higher amount.

Required:
Recommend the treatment of the above in the consolidated financial statements for Oyarefa Ltd Group for the year ended 31 December 2016 in accordance with IAS 38: Intangible Assets.                                                                                       (6 marks)

IAS 38 Intangible assets deals with the recognition and subsequent measurement of intangible assets.
Required:
a. Explain the term ‘intangible asset’, and state the intangible assets that fall within the scope of IAS 38.                       (2 marks)

b. Explain the FOUR (4) criteria that need to be satisfied before expenditure can be recognised as an intangible asset under IAS 38.                                                                                                                                                                                     (8 marks)