Reference no: EM132493860

Barner Chester prepares F/S to 30 September each year. During the year ended 30 September 2018 Iota (which has a number of subsidiaries) engaged in the following transactions:

Point 1: On 1 April 2018, Barner Chester purchased all the equity capital of Kappa and Kappa became a subsidiary from that date. Kappa sells a branded product that has a well-known name and the directors of Barner Chester have obtained evidence that the fair value of this name is Rs 20 million and that it has a useful economic life that is expected to be indefinite. The value of the brand name is not included in the statement of financial position of Kappa as the directors of Kappa do not consider that it satisfies the recognition criteria of IAS 38 for internally developed intangible assets. However, the directors of Kappa have taken legal steps to ensure that no other entities can use the brand name.

Point 2: On 1 October 2016 Barner Chester began a project that sought to develop a more efficient method of organising its production. Costs of Rs 10 million were incurred in the year to 30 September 2017 and debited to the statement of comprehensive income in that year. In the current year the results of the project were extremely encouraging and on 1 April 2018 the directors of Barner Chester were able to demonstrate that the project would generate substantial economic benefits for the group from 31 March 2019 onwards as its technical feasibility and commercial viability were clearly evident. Throughout the year to 30 September 2018 Barner Chester spent Rs 500,000 per month on the project.

Required:

Question 1: Explain how both of the above transactions should be recognised in the F/S of Barner Chester for the year ending 30 September 2018. You should quantify the amounts recognised and make reference to relevant provisions of IAS 38 - Intangible Assets - wherever possible.