Question Tag: Intangible Asset

Digital Ghana Ltd has agreed to work with Pixel Ghana Ltd in order to develop a new musical platform for the Ghana Musician Association. On 31 December 2021, the companies established a new entity called Flowbeat Ltd with equal shareholdings and share in profit. Digital Ghana Ltd has contributed its own intellectual property in the form of employee expertise, cryptocurrency with a carrying amount of GH¢6 million, which now has a fair value of GH¢8 million, and an office building with a carrying amount of GH¢12 million with a fair value of GH¢20 million. The cryptocurrency has been recorded at cost in Digital Ghana Ltd.’s financial statements.

Pixel Ghana Ltd has contributed the technology and marketing expertise required for the smooth operations of Flowbeat Ltd. The board of Flowbeat Ltd will comprise of directors appointed equally by Digital Ghana Ltd and Pixel Ghana Ltd. Decisions are made by a unanimous vote.

Required:
In accordance with the provisions of relevant International Financial Reporting Standards:

i) Advise on the classification of the investment which Digital Ghana Ltd has in Flowbeat Ltd.
(3 marks)

ii) Advise on the derecognition of the assets exchanged for the investment in Flowbeat Ltd and any resulting gain/loss on disposal in the financial statements of Digital Ghana Ltd at 31 December 2021.
(2 marks)

iii) Advise whether the cryptocurrency should be classified as a financial asset or an intangible asset.
(2 marks)