Juilette Ltd is a digital marketing company that undertakes online marketing functions for its customers. In May 2018, Juilette Ltd hired an external consulting firm to review its operations. One of the recommendations made by the external consultants was that the computer software used by Juilette Ltd to produce online advertisements was outdated and should be replaced. Management of Juilette Ltd prepared a report that outlined the following options for the replacement of the computer software:
· Option 1: acquire a licence from Media Solutions Ltd to use their computer software package. The licence could be acquired immediately for $80,000 and would last five years. A condition of the licence is that Juilette Ltd is prohibited from selling, transferring, licensing, renting or exchanging the computer software even after the licence has expired.
· Option 2: internally develop a computer software package. It would take between 8 and 12 months to develop the computer software at an estimated cost of $50,000. The computer software would be patented at an additional cost of $15,000.
· Option 3: internally develop a computer software package. It would take between 8 and 12 months to develop the computer software at an estimated cost of $50,000. The computer software would not be patented.
(a) For each of the three options, explain whether the computer software satisfies the definition of an intangible asset in accordance with AASB 138 Intangible Assets. In particular, explain whether the computer software satisfies the criterion of identifiability in the definition of an intangible asset.
(b) For each option that satisfies the definition of an intangible asset, explain the recognition criteria that would be applied by Juilette Ltd. (2 marks)