Intangible Assets Of The Microsoft’s Company

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Author’s Note:

1ACCOUNTING
Table of Contents
Part A...............................................................................................................................................2
Question 1....................................................................................................................................2
Question 2....................................................................................................................................2
Question 3....................................................................................................................................3
Part B...............................................................................................................................................5
Question 1....................................................................................................................................5
Question 2....................................................................................................................................5
Question 3....................................................................................................................................5
Question 4....................................................................................................................................6
Part C...............................................................................................................................................7
Part D...............................................................................................................................................9
Part E.............................................................................................................................................10
References......................................................................................................................................11

2ACCOUNTING
Part A
Question 1
The goodwill is well tested for an impairment basis at unit level of
report by the company that is (operating segment or one level below the
operating segment) for an annual consideration that would be from (May 1
for us) and the same can also be in the form of annual tests if an event does
well occurs or the level of circumstances change that would be more likely
seen for reducing the fair value of a reporting unit that is well below its
carrying value.
Intangible Assets
The intangible assets of the Microsoft’s Company are well subject to
amortization and are well amortized by applying the straight-line method
over their useful estimated period of benefit that well ranges from a period of
one year to 20 years. The Microsoft Company well evaluates the
recoverability for the intangible assets that periodically takes into account
various events or circumstances that may warrant revised estimates of
useful lives or that indicate the asset may be impaired.
In Microsoft Corp., balance sheet:
US$ in millions Jun 30,2019 Jun 30,2018
Goodwill 42,026 35,683
Intangible Assets 7,750 8,053

3ACCOUNTING
Question 2
The management of the Microsoft Corporation records the figures of Goodwill and other
intangible assets in the Balance sheet which depicts the financial position of the business.
Goodwill and other intangible asset for the business form part of the non-current assets of the
business (Microsoft.com. 2020). The figures which are shown in the financial statements of 2018
and 2019 are appropriately shown in the table below:
Balance Sheet Extracts
US$ in millions Jun 30,2019 Jun 30,2018
Goodwill 42,026 35,683
Intangible Assets 7,750 8,053
The value of goodwill shows a rise from previous year estimate and the other intangible assets
depicts a fall in their respective values. The value of goodwill and other intangible assets are
shown after charging amortization and impairment for the assets.
The impairment which was reported by the business of Microsoft is reflected in the profit and
loss statement for the period. The annual report of the company shows that no impairments are
charged on other intangible assets by the business during the periods of 2018 and 2019. In the
case of goodwill impairments, accumulated goodwill impairment was $11.3 billion considering
the period of 2018 and 2019. The amount is properly shown in the notes section of the annual
reports and proper disclosures and treatments are also shown properly.

4ACCOUNTING
The annual report for the company does not show any non-controlling interest for the
period as the same usually appears in the profit and loss statement or comprehensive income
statement. However, the business has recently acquired the company of GitHub and LinkedIn
which was done for enhancing the service and revenue of the business.
Question 3
The company has acquired the business of GitHub in the month of October and the
information related to the same are included in the financial statements. The company acquired
the business of GitHub for $7.5 billion stock transaction which also included a cash payment of
$1.3 billion in respect of vested GitHub equity awards and an indemnity escrow. An extract
which is shown below reveals information regarding the assets and respectively the goodwill
which was taken over by the business.
(In millions)
Cash, cash equivalents, and short-term investments
$ 234
Goodwill
5,497
Intangible assets
1,267
Other assets
143
Other liabilities
(217)
Total
$ 6,924

5ACCOUNTING
The information relating to the acquisition was reported under the notes to account
section under the segment of business combinations. The other assets which are covered in the
financial statements and the same also shows disclosures.
Part B
Question 1
The investment which is made by the business during the period of 2015 is charged with
impairments considering the business model of the company. The impairment charges is
associated with the company of Phone Hardware. The same is appropriately shown in the notes
to accounts section of the financial reports of the business. The impairment charges which can be
identified from the annual report of the company is shown to be $7.5 billion for goodwill and
asset impairment charges and the same is related to Phone Hardware.
Question 2
The impairment charge which is reported by the company is done following the principles of
accounting which is followed in the company and forms part of generally accepted principles
(Hamberg and Beisland 2014). The business records impairments of goodwill in the income
statements and shows proper disclosures for the same in the notes to account section of the
business. The business conducts a goodwill tests and the results revealed that the carrying value
of Phone Hardware goodwill was in excess of its estimated fair value (Ey.com. 2020). The
impairment of goodwill is done so that the business is able to present accurate information
regarding the goodwill in the financial statements and there is no situation of inaccuracy in the
financial statements.

6ACCOUNTING
Question 3
The impairment charges needs to be properly reported in the profit and loss statement and also
cash flow statement and proper disclosures also needs to be provided in the notes to account
section of the financial statements (André, Dionysiou and Tsalavoutas 2018). The profit and loss
statement for Microsoft Company shows that impairment charges are considered to be a charge
against the profits and the same is deducted from the revenue figure to arrive at the net profits for
the business during the period. It is to be noted that impairment charges form part of non-cash
expenses (Johansson, Hjelström and Hellman 2016). As per the 2015 annual report of the
company, the management utilizes indirect method of cash flow and therefore considers the
profits as the starting point. The non-cash expenses need to be added back to the profits so that
cash profits can be achieved. The cash flow statement for the company shows similar treatments
during the period. The business also adjusts other non-cash items which are required to be done
in order to achieve the cash profits of the business. The management of the company also needs
to consider such impairments with proper disclosures and the same should be presented in the
notes to accounts section of the business.
Question 4
The impairment of goodwill is done after proper testing for impairments is done for any
company. In the case of Microsoft also, the management of the company conducts impairments
tests by analysing the goodwill at reporting unit level. The first step which needs to be followed
while measuring impairment charges for goodwill is identification of reporting units in
association with the same. Then the fair value of the identified reporting unit is computed and the
method which is used for such a purpose is discounted cash flow. It is also to be noted that
number of assumptions needs to be made by the management of the company for accurately

7ACCOUNTING
ascertaining the impairment charges (Lange, Fornaro and Buttermilch 2014). Further, if any
changes takes place in the reporting unit or the assumptions which is considered than the whole
computation process for ascertaining the impairment charges would alter. The complexity of the
estimation of impairment charges for goodwill is the reason that the business needs to provide
proper disclosures in the financial statements so that a level of transparency is maintained in the
reporting framework of the entity.
Part C
IFRS GAAP
Assignment/allocation of Goodwill As per the provisions of
IAS 36, goodwill is
allocated to CGU or a
group for the purpose of
testing the same for
impairment charges. In
case the allocation of
Goodwill cannot be done
than the same is
measured at the lowest
level for the entity and
the same monitored
effectively.
In the case of GAAP,
goodwill is computed as a
difference between the
purchase price and total
value of assets and
liabilities. The goodwill is
appropriately measured
under this principle
considering thee assets
and liabilities of the
business which is being
considered.
Impairment of goodwill As per the provisions
which are covered in
IFRS framework, the
method compares the
total carrying value of
the CGU with the
recoverable amounts so
that it can be ascertained
if impairment charges is
applicable or not. In case
impairment is applicable,
Under GAAP framework,
the requirement is that
companies needs to
annually review their
goodwill for impairment
charges at a reporting unit
level. In case, the
carrying value of the
goodwill is higher than
the fair value of the
goodwill than impairment

8ACCOUNTING
the loss is first charges to
goodwill and then the
same is allocated to other
assets of the business. In
the case of IFRS
framework, reversal of
impairment charges is
prohibited considering
the provisions of IAS 36.
charges would be
applicable to the
business. The method is
more consistent with
considering the assets of
the business for analysis.
In the case of GAAP
principles as well,
reversal of impairment is
also prohibited so it can
be said that consistency is
maintained.
Amortization and impairment of
intangible assets other than goodwill
The criterion which is
followed for measuring
the intangible assets
needs to be followed. In
addition to this allocation
must be done to CBU for
identifying the carrying
value of the assets and
ensuring proper reporting
is maintained
The amortization and
impairment charges for
assets under this
framework need to be
properly measured. The
assets and liabilities of
the business also need to
be measured. The
amortization and
impairments charges for
GAAP are slightly
consistent with the
treatments which is
covered in IFRS
framework
Non-Controlling interest The non-controlling
interest for the business
is measured
appropriately. The
provisions of IAS 27
states that any position
that holds less than 50%
of the outstanding voting
rights is deemed to be
a non-controlling
interest.
The non-controlling
interest for the business
under IFRS framework
and the same is consistent
with the US GAAP
framework and the same
needs to be properly
reported in the financial
statements and
appropriate disclosures
are provided

9ACCOUNTING

10ACCOUNTING
Part D
The balance for that would be well appearing for the following account has been well
shown below:
Cost of Goods Sold Amount ($)
Total COGS in 2018 682000
Less: Mark-up on intra entity transfers
For 2017 5800
For 2018 12600
Total COGS in 2018 663600
Inventory Amount ($)
Valuation of Inventory
Available with Polar Inc. 484000
Available with Icecap Inc. 276000
Total Inventory 760000
Less: Mark-up on available inventory 9800
Actual Inventory available 750200
Net Income Attributable to non-controlling interest Amount ($)
Sales 1400000
Less: COGS 663600
Gross Profit 736400
Operating Expenses 357000
Net Income 379400
Net Income Attributable to non-controlling interest 75880

11ACCOUNTING
Part E
Schedule to determine Controlling Interest Share of Net Income
Particulars 2013 2014 2015
Sales 790000 840000 940000
Cost of Sales -420000 -440000 -500000
Gross Profit 370000 400000 440000
Operating Expenses -300000 -320000 -350000
Net Income 70000 80000 90000
Intra-company profits 12000 5000 -
Net Income 58000 75000 90000
Share of Controlling Interest 46400 60000 72000

12ACCOUNTING
References
André, P., Dionysiou, D. and Tsalavoutas, I., 2018. Mandated disclosures under IAS 36
Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on analysts’
forecasts. Applied Economics, 50(7), pp.707-725.
Ey.com. (2020). [online] Available at:
https://www.ey.com/Publication/vwLUAssets/Impairment_accounting_the_basics_of_IAS_36_I
mpairment_of_Assets/$FILE/Impairment_accounting_IAS_36.pdf [Accessed 5 Apr. 2020].
Hamberg, M. and Beisland, L.A., 2014. Changes in the value relevance of goodwill accounting
following the adoption of IFRS 3. Journal of International Accounting, Auditing and
Taxation, 23(2), pp.59-73.
Johansson, S.E., Hjelström, T. and Hellman, N., 2016. Accounting for goodwill under IFRS: A
critical analysis. Journal of international accounting, auditing and taxation, 27, pp.13-25.
Lange, C., Fornaro, J. and Buttermilch, R., 2014. Qualitative assessment of impairment for
goodwill and other indefinite-lived intangibles. The CPA Journal, 2014, pp.22-29.
Microsoft.com. (2020). Download Center - Microsoft 2019 Annual Report. [online] Available at:
https://www.microsoft.com/investor/reports/ar19/download-center/ [Accessed 5 Apr. 2020].