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.
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
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
(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.
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