Amandla Ltd is a company that manufactures batteries for motor vehicles. The company has a 31 December year end.

The following details regarding certain assets of the company are available:

Purchased patent - Vuka

On 1 January 2007, the company acquired a battery patent, called Vuka, for R1 400 000. This patent will ensure that the company manufacture more reliable batteries. On acquisition of the Vuka patent, Amandla Ltd also incurred consulting and legal fees amounting to R25 500 and R11 500 respectively. These capital expenditures were paid in cash on acquisition date of the patent. The patent's useful life was determined to be 10 years and no residual value was allocated to the patent. The patent was available for use, as intended by management, on acquisition date.

However, during the 2013 financial year, numerous customers complained about defective batteries. After internal investigations, it was discovered that there is a defect present in some batches of batteries already sold to customers. As a result, Amandla Ltd had to recall the defective batteries already sold and had to replace them, free of charge, with new ones. Sales of these batteries started to decrease significantly due to the customer dissatisfaction and management had to assess the impact thereof on the value of the patent. On 31 December 2013, the fair value of the patent was estimated to be only R425 000 and the value in use was determined to be R399 507. This value was

determined using a pre-tax discount rate of 15%. Legal and other administration fees to sell the patent was estimated to amount to R30 000.Internally generated patent - Allready

After the complications with the Vuka battery patent, Amandla Ltd decided to develop its own product and registered the patent as the Allready patent. Research and development of the Allready patent commenced on 1 February 2013. After completion of the research phase on 31 March 2013, the project manager and the chief financial officer of Amandla Ltd determined that all the criteria for the recognition of an intangible asset were satisfied. On 1 August 2013, the development of the Allready patent was completed and it was available for use, as intended by management, on this date.

The following costs directly relating to the Allready patent were evenly incurred during the research and development phase:R Salaries350 000 Consumables50 000 General overheads40 000

On 1 February 2013, a specialized machine was purchased at a cost of R1 000 000 from Chang Ltd. Amandla Ltd paid R550 000 in cash immediately and the outstanding balance was settled on 30 November 2013. Chang Ltd's normal credit terms for these machines are 2 months. Management intends to use the machine for the next 5 years, initially for the purpose of the development of the Allready patent, thereafter for commercial production of the batteries. Management estimated the residual value of this machine to amount to R150 000. The machine was available for use, as intended by management, on 1 February 2013.

The Allready patent's useful life was estimated to be 15 years. A residual value of Rnil was allocated to the patent. On 31 December 2013, management decided to sell the Allready patent as it was not generating income as initially anticipated. The sale is expected to be completed by 28 February 2014 for cash. All of the criteria as set out in IFRS 5 for classifying an asset as held for sale was met on 31 December 2013. The fair value less cost to sell of the Allready patent on 31 December 2013 was determined to be R200 000.

Additional information:

1. It is the accounting policy of the company to account for intangible assets according to the cost model.

2. It is the accounting policy of the company to provide for amortisation according to the straight-line method over the assets' estimated useful lives.

3. Assume all amounts to be material.

QUESTION TWO(30 MARKS)

REQUIRED:

2.1 Calculate the impairment loss (if any) for the Vuka patent in the books of Amandla Ltd for the year ended 31 December 2013, according to the requirements of IAS 36 - Impairment of Assets and IAS 38 - Intangible Assets.(20)Note: Show all calculations. Round all amounts to the nearest Rand.

2.2 Using your answer in (2.1) above, disclose the impairment loss note in the notes to the annual financial statements of Amandla Ltd for the year ended 31 December 2013, according to the requirements of only IAS 36 - Impairment of Assets.(10) Note: Accounting policy notes are not required. Ignore comparative information. Ignore any VAT and tax implications.