Question

Windsor Industries acquired two copyrights during 2017. One copyright related to a textbook that was developed internally at a cost of $16,000. This textbook is estimated to have a useful life of 5 years from September 1, 2017, the date it was published. The second copyright (a history research textbook) was purchased from University Press on December 1, 2017, for $48,000. This textbook has an indefinite useful life.

How should these two copyrights be reported on Windsor’s balance sheet as of December 31, 2017?

Copyright #1: $

Copyright #2: $

Answer 1

Balance sheet extract:

Intangible assets:

Copyright 1 $0

Copyright 2 $48,000

Step-by-step explanation:

The points to note in the question are enumerated as follows:

An internally generated intangible asset cannot be capitalized.By capitalization ,I mean its costs is treated as intangible asset to be amortized over its useful life.As a result,the $16,000 incurred on the internally generated intangible asset,specifically,the first copyright should be treated as expense when incurred.

However,the second copyright that was bought from University Press can be treated as asset but cannot be amortized since it has indefinite life,but would be tested for impairment on a yearly basis,with impairment losses charged to profit or loss account.