IAS 38. Intangible Assets. On March 1, 2016, we obtained a patent for 7,500 euros. At the close of the fiscal year, on December 31, 2016, the fair value of the patent was 9,000 euros. As of December 31, 2017, the fair value of the patent stands at 8,000 euros. The criterion we use for valuation after the initial recognition of the asset is the revaluation model. Make the accounting entries corresponding to the acquisition of the asset and at each accounting close.

Question

Business

Gianni Ross

7 September, 19:07

IAS 38. Intangible Assets. On March 1, 2016, we obtained a patent for 7,500 euros. At the close of the fiscal year, on December 31, 2016, the fair value of the patent was 9,000 euros. As of December 31, 2017, the fair value of the patent stands at 8,000 euros. The criterion we use for valuation after the initial recognition of the asset is the revaluation model. Make the accounting entries corresponding to the acquisition of the asset and at each accounting close.

+3

Answers (1)

Know the Answer?

Ali Potts · Answer 1

Acquisition of the asset:

March 1, 2016

Dr. Patent €7,500

Cr. Cash €7,500

At Year end:

December 31, 2016

Dr. Patent €1,500

Cr. Revaluation reserve €1,500

December 31, 2017

Dr. Revaluation reserve €1,000

Cr. Patent €1,000

Explanation:

*Assumption: Normally Patents do not valued under the revaluation model as they are very unique and do not have any active market. Because it given in the question I am assuming it fulfil the criteria of revaluation.

On March 1, 2016 patent will be recognized on cost. At the year end patent will be revalued and it's gains and losses are calculated. Dec 31, 2016 there is a gain of €1,500 which is transferred to revaluation reserve account. Dec 31, 2017 there is a revaluation loss which will firstly adjust any previous accumulated gain then it will be charged to Profit and loss as Revaluation loss. As there is excess gain of €1,500 and entire loss of €1,000 will be adjusted in the revaluation reserve account.