HEYWOODThe problems of identifying and measuring intangible assets with a view to recognising them in the statement of financial position has been an area of inconsistent practice that has led to great debate within the accountancy profession. IAS 38 Intangible Assets was issued in order to try and eliminate these inconsistent practices.Required:(a) Explain the recognition and initial measurement criteria for intangible assets contained in IAS 38. (9 marks)(b) On 1 July 20X8 Heywood, a company listed on a recognised stock exchange, was finally successful in acquiring the entire share capital of Fast Trak. The terms of the bid by Heywood had been improved several times as rival bidders also made offers for Fast Trak. The terms of the initial bid by Heywood were: 20 million $1 equity shares in Heywood. Each share had a market price of $3.50 immediately prior to the bid;a cash element of $15 million.The final bid that was eventually accepted on 1 July 20X8 by Fast Trak’s shareholders. Heywood had improved the cash offer to $25 million and included a redeemable loan note of a further $25 million that will be redeemed on 30 June 20Y2. It carried no interest, but market rates for this type of loan note were 13% per annum. There was no increase in the number of shares offered but at the date of acceptance the price of Heywood’s shares on the stock market had risen to $4.00 each. The present value of $1 receivable in a future period where interest rates are 13% can be taken as:at end of year three $0.70at end of year four $0.60 The fair value of Fast Trak’s net assets, other than its intangible long-term assets, was assessed by Heywood to be $64 million. This value had not changed significantly throughout the bidding process. The details of Fast Trak’s intangible assets acquired were: The brand name Kleenwash; a dish washing liquid. A brand valuation agency has followed accepted standards for the calculation of the Kleenwash brand's fair value and determined it to be $12 million.A Government licence to extract a radioactive ore from a mine for the next ten years. The licence is difficult to value as there was no fee payable for it. However, as Fast Trak is the only company that can mine the ore, the directors of Heywood have estimated the licence to have a fair value of $9 million. The mine itself has been included as part of Fast Trak’s property, plant and equipment.A fishing quota of 10,000 tonnes per annum in territorial waters. A specialist company called Quotasales actively trades in these and other quotas. The price per tonne of these fishing quotas at the date of acquisition was $1,600. The quota is for an indefinite period of time, but in order to preserve fish stocks the Government has the right to vary the weight of fish that may be caught under a quota. The weights of quotas are reviewed annually.The remainder of the long-term intangible assets is attributable to the goodwill of Fast Trak.Required:Calculate the purchase consideration and prepare an extract of the intangible assets of Fast Trak that would be separately recognised in the consolidated financial statements of Heywood on 1 July 20X8. Your answer should include an explanation justifying your treatment of each item. (8 marks)(c) On the same date, but as a separate purchase to that of Fast Trak, Heywood acquired Steamdays, a company that operates a scenic railway along the coast of a popular tourist area. The summarised statement of financial position at fair values of Steamdays on 1 July 20X8, reflecting the terms of the acquisition was:$000Goodwill 200Operating licence 1,200Property – train stations and land 300Rail track and coaches 300Steam engines (2 × $500,000) 1,000Purchase consideration 3,000 The operating licence is for ten years. It has recently been renewed by the transport authority and is stated at the cost of its renewal. The carrying amounts of the property and rail track and coaches are based on their estimated replacement cost. The carrying amount of the engines closely equates to their fair value less any disposal costs. On 1 August 20X8 the boiler of one of the steam engines exploded, completely destroying the whole engine. Fortunately no one was injured, but the engine was beyond repair. Due to its age a replacement could not be obtained. Because of the reduced passenger capacity the estimated value in use of the business after the accident was assessed at $2 million. Passenger numbers after the accident were below expectations even after allowing for the reduced capacity. A market research report concluded that tourists were not using the railway because of the fear of a similar accident occurring to the remaining engine. In the light of this the value in use of the business was re-assessed on 30 September 20X8 at $1.8 million. On this date, Heywood received an offer of $900,000 in respect of the operating licence (it is transferable without incurring transfer costs). Required:Briefly describe the basis in IAS 36 Impairment of Assets for allocating impairment losses; and show how each of the assets of Steamdays would be valued at 1 August 20X8 and 30 September 20X8 after recognising the impairment losses.

HEYWOODThe problems of identifying and measuring intangible assets with a view to recognising them in the statement of financial position has been an area of inconsistent practice that has led to great debate within the accountancy profession. IAS 38 Intangible Assets was issued in order to try and eliminate these inconsistent practices.Required:(a) Explain the recognition and initial measurement criteria for intangible assets contained in IAS 38. (9 marks)(b) On 1 July 20X8 Heywood, a company listed on a recognised stock exchange, was finally successful in acquiring the entire share capital of Fast Trak. The terms of the bid by Heywood had been improved several times as rival bidders also made offers for Fast Trak. The terms of the initial bid by Heywood were: 20 million $1 equity shares in Heywood. Each share had a market price of$3.50 immediately prior to the bid;a cash element of $15 million.The final bid that was eventually accepted on 1 July 20X8 by Fast Trak’s shareholders. Heywood had improved the cash offer to$25 million and included a redeemable loan note of a further $25 million that will be redeemed on 30 June 20Y2. It carried no interest, but market rates for this type of loan note were 13$4.00 each. The present value of $1 receivable in a future period where interest rates are 13$0.70at end of year four $0.60 The fair value of Fast Trak’s net assets, other than its intangible long-term assets, was assessed by Heywood to be$64 million. This value had not changed significantly throughout the bidding process. The details of Fast Trak’s intangible assets acquired were: The brand name Kleenwash; a dish washing liquid. A brand valuation agency has followed accepted standards for the calculation of the Kleenwash brand's fair value and determined it to be $12 million.A Government licence to extract a radioactive ore from a mine for the next ten years. The licence is difficult to value as there was no fee payable for it. However, as Fast Trak is the only company that can mine the ore, the directors of Heywood have estimated the licence to have a fair value of$9 million. The mine itself has been included as part of Fast Trak’s property, plant and equipment.A fishing quota of 10,000 tonnes per annum in territorial waters. A specialist company called Quotasales actively trades in these and other quotas. The price per tonne of these fishing quotas at the date of acquisition was $1,600. The quota is for an indefinite period of time, but in order to preserve fish stocks the Government has the right to vary the weight of fish that may be caught under a quota. The weights of quotas are reviewed annually.The remainder of the long-term intangible assets is attributable to the goodwill of Fast Trak.Required:Calculate the purchase consideration and prepare an extract of the intangible assets of Fast Trak that would be separately recognised in the consolidated financial statements of Heywood on 1 July 20X8. Your answer should include an explanation justifying your treatment of each item. (8 marks)(c) On the same date, but as a separate purchase to that of Fast Trak, Heywood acquired Steamdays, a company that operates a scenic railway along the coast of a popular tourist area. The summarised statement of financial position at fair values of Steamdays on 1 July 20X8, reflecting the terms of the acquisition was:$000Goodwill 200Operating licence 1,200Property – train stations and land 300Rail track and coaches 300Steam engines (2 × $500,000) 1,000Purchase consideration 3,000 The operating licence is for ten years. It has recently been renewed by the transport authority and is stated at the cost of its renewal. The carrying amounts of the property and rail track and coaches are based on their estimated replacement cost. The carrying amount of the engines closely equates to their fair value less any disposal costs. On 1 August 20X8 the boiler of one of the steam engines exploded, completely destroying the whole engine. Fortunately no one was injured, but the engine was beyond repair. Due to its age a replacement could not be obtained. Because of the reduced passenger capacity the estimated value in use of the business after the accident was assessed at$2 million. Passenger numbers after the accident were below expectations even after allowing for the reduced capacity. A market research report concluded that tourists were not using the railway because of the fear of a similar accident occurring to the remaining engine. In the light of this the value in use of the business was re-assessed on 30 September 20X8 at $1.8 million. On this date, Heywood received an offer of$900,000 in respect of the operating licence (it is transferable without incurring transfer costs). Required:Briefly describe the basis in IAS 36 Impairment of Assets for allocating impairment losses; and show how each of the assets of Steamdays would be valued at 1 August 20X8 and 30 September 20X8 after recognising the impairment losses.