Question
ABC purchased a non-transferable right to distribute its products through a direct-to-doctor sales company. The company visits doctors and hospitals and directly promotes the benefits
ABC purchased a non-transferable right to distribute its products through a direct-to-doctor sales company. The company visits doctors and hospitals and directly promotes the benefits of the products in order to sell the product. MPL paid $1.2 million to acquire the distribution rights for a four-year period, and must pay a royalty of 2% of all products sold through this outlet. Management expects that there is a 55% chance that this new distribution arrangement will in crease total sales by 5%. Total revenue in the current fiscal year is $5,150,000. However, there is a 25% probability that sales could increase by as much as 10%, and a 20% probability that sales could increase by as little as 2%.
Required:
1) Provide all related Journal Entries for ABC (using Straight-line depreciation method) including initial recognition, annual entry and entry at end of life - assuming IFRS accounting treatment. *Show all calculations*
2) Provide all related Journal Entries for ABC (using expected rate of return to calculate depreciation) including initial recognition, annual entry and entry at end of life - assuming IFRS accounting treatment. *Show all calculations*
3) Advise which methodology the company should proceed with
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