Intangible Asset initial Measurement

Intangible Asset initial Measurement

The intangible asset is initially recognized at cost, however, in case of Good will, the Good will is recognized at fair value.

Nature of Asset	Reconciliation
Intangible asset (Normal case)	Cost
Intangible asset (Business Combination)	Fair value
Intangible asset (Business combination fair value cannot be determined)	Value is submerged in Goodwill

Example # 1

ABC & Co entered into a contract with a international brand Rim & Co. The Rim & Co sell the production right of manufacturing the quality soap with the brand name of Rim. The rights were sold at the $ 50,000. The other party was ready to take the rights for $ 70,000 but rejected due to the low market reputation. What amount shall be recorded in ABC books of accounts?

Solution

Initial recognition Rule

The intangible asset is initially is recognized at cost , Therefore the asset will be recognized at $ 50,000 and fair value of rights is ignored in this example.