MC 3 Int Assets - Students - A202

BKAR1013 FINANCIAL ACCOUNTING AND REPORTING II (A202)
MINI CASE 1:
INTANGIBLE ASSETS
DUE DATE: 13April 2021, Tuesday
Guidelines for submission:
1) Please answer all questions.
2) Please write your name, matric number, group on the header and page number on the
bottom of your answer document.
3) The mini case is an individual task, however discussion is allowed, but copying other
student’s answer is forbidden.
4) Your answer should be handwritten and subsequently scanned with a scanner or

mobile scanner apps in a combined PDF file. The scanned document must be clear,
easily readable and complete. Photo is not allowed.
5) Submit your scanned answer via Online Learning portal → within

the allotted time and period, before 12.00 mid night, 13 April 2021 (MYT). Only one
submission will be accepted.
QUESTION 1
At the end of 2017, Renewable Power Bhd successfully developed a green and sustainable
engine, which is called Green O5 engine that runs on extract from coconut oil. In order to
protect the technology of the engine, the company acquired a patent at a cost of RM600,000
on 1 January 2018. The legal life of the patent is six years while the economic useful life of
the patent is five years. On 31 December 2018, due to adverse press reports on the new
technology, the patent was deemed to have a recoverable amount of RM440,000. The
recoverable amount of the patent was RM350,000 on 31 December 2019.
Meanwhile, as part of its diversification strategy, on 1 January 2019, Renewable Power Bhd
acquired a small and medium technology company, CloudS Sdn Bhd. Renewable Power Bhd
paid RM2,350,000 to acquire all of the ordinary shares of the CloudS Sdn Bhd. This company
was then became a division (cash generating unit) of Renewable Power Bhd. It was
determined that at the date of the purchase the fair value of the identifiable net assets of
CloudS Sdn Bhd was RM2,100,000. Over the next 10 months of the operations, the newly
purchased division experienced operating losses. In addition, it was appeared that it will
generate substantial losses for the foreseeable future. At 31 December 2019, CloudS division
reported the following in statement of financial position:
RM
Current assets 630,000
Non-current assets (including goodwill 2,200,000
recognised in purchase)
Current liabilities (300,000)
Non-current liabilities (700,000)
Net assets RM1,830,000
On the same date, it was determined that the present value of expected future cash flows of
the CloudS division was RM1,935,000.
REQUIRED:
(a) Prepare the relevant journal entries related to the patent on the following dates:
(i) 31 December 2018
(ii) 31 December 2019
(b) Determine the impairment loss (if any) of CloudS division on 31 December 2019 and
prepare the journal entry (if any) to record the impairment loss.
(c) Assume that the value in use of CloudS division on 31 December 2019 was
RM1,740,000. Determine the impairment loss (if any) on 31 December 2019 and
prepare the journal entry (if any) to record the impairment loss.
QUESTION 2
On 1 January 2018, LFC Bhd acquired a fast food franchise for RM300,000. The legal life of
the franchise is seven (7) years while the economic useful life is six (6) years. On 31
December 2018, the franchise was revalued at RM340,000. Due to the outbreak of the
COVID-19 at the end of year 2019, sale of fast food from the franchise is declining.
Impairment test conducted showed that the fair value of the franchise was RM250,000. At this
date the current trend of the outbreak indicates further sale declining in the next six (6)
months. The company adopts the revaluation model to record the franchise.
The company also has legal title to a soft drink brand which was acquired on 1 January 2019
at RM350,000. The brand product is expected to generate cash inflow indefintitely. However,
there is no active market available for this type of soft drink. On 31 December 2019,
impairment test conducted showed the recoverable amount of the brand was RM310,000.
Financial year end for the company is 31 December.
REQUIRED:
(a) Prepare journal entries to record the accounting treatment related to the franchise of
LFC Bhd on 31 December 2018 and 31 December 2019.
(b) Explain the accounting treatment for the soft drink brand of LFC Bhd on 31
December 2019.
QUESTION 3
During the year 2017, Alternative ReSources Bhd developed a green technology that helps to
extract latex from rubber tree efficiently. In order to protect the exclusive right on the
technology, the company applied and successfully defended a patent at a cost of RM840,000
on 1 April 2017. The useful life of the patent is ten years and it is expected that the economic
benefits of the patent will be consumed evenly throughout its useful life. At the end of the
year 2017, there is no indication of impairment on the patent.
However, at the end of the year 2018, an impairment test indicates a significant drop in the
price of latex. This may affect the cash flows generated from using the assets, including the
patent. On 31 December 2018, the patent was assessed to have a recoverable amount of
RM600,000.
In addition, the company also assessed the value of its cash generating unit of NatureMe
division at the end of the year 2018. The company had acquired NatureMe Sdn Bhd on 1 July
2016 and treated NatureMe as a division (cash generating unit) of Alternative ReSources Bhd.
At the acquisition date, the different between the fair value of the identifiable net assets of
NatureMe division with the cash consideration paid was RM120,000. During financial year
2018, NatureMe experienced operating losses. It is expected that NatureMe division will
generate substantial losses for the foreseeable future. At 31 December 2018, carrying amount
of NatureMe division’s net assets (including the goodwill) is RM1,345,000. Meanwhile, the
present value of expected future cash flows of NatureMe division’s net assets is
RM1,320,000.
FGG Bhd’s financial year end is at 31 December.
REQUIRED:
(Round your answer to the whole number)
(a) Prepare the relevant journal entries related to the patent on 31 December 2018.
(b) Determine the impairment loss (if any) of NatureMe division on 31 December 2018.
Prepare the journal entry to record the impairment loss (if any).
(c) Assume that the recoverable amount of NatureMe division’s net assets in the
following year 2019 improves and exceeds the carrying value of CYC division’s net
assets. Discuss the accounting treatment according to MFRS 136 Impairment.

MC 3 Int Assets - Students - A202

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BKAR1013 FINANCIAL ACCOUNTING AND REPORTING II (A202)

DUE DATE: 13April 2021, Tuesday

Guidelines for submission:

1) Please answer all questions.

4) Your answer should be handwritten and subsequently scanned with a scanner or

5) Submit your scanned answer via Online Learning portal → within

FGG Bhd’s financial year end is at 31 December.

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