Bunga Api Bhd (BAB) is developing a project to build industrial machinery that is able to manufacture fire cracker. The following are the achievements of the project in February 2019. 1. BAB had started developing a project during February till June 2019 costing RM423,000. The project made significant progress and has sufficiently sure of the future success of the project. However, there was no indication that the project would be commercially feasible. 2. BAB had built a prototype valued at RM145,000 that appeared to be successful during the month of July August 2019. The prototype was demonstrated to a number of engineering companies in September 2019. Several of these companies expressed interest in the further development of the machine. 3. Some adjustments had been made during September till October 2019 for the problems highlighted by some of the engineering firms during the demonstration. These adjustments incurred cost of RM55,000 4. BAB had applied a patent and incurred legal and administrative costs. These had occurred in October 2019 for RM30,000. The patent has a useful life of five years, and is renewable for a further five years upon application 5. In December 2019, BAB spent RM185,000 as an additional amount on engineering and consulting costs to develop the project such that the machine was at manufacturing stage. This resulted in changes in the overall design of the machine. The cost of RM185,000 included to add minor changes to the patent authority. 6. In January 2020, BAB was invited tenders for the manufacture of the engine for commercial safe. The cost is negligible. Required: a) Explain to BAB the criteria that need to be satisfied before expenditures on assets can be recognized as intangible assets under MFRS138. (7 marks) (CLO1: PL01:02) b) Prepare the journal entries to the above transactions (8 marks) (CLO1. PLO1:03) C) Discuss the accounting treatment to the above items according to MFRS138 Intangible Assets (10 marks) (CLO1:PLO1 C4) Bunga Api Bhd (BAB) is developing a project to build industrial machinery that is able to manufacture fire cracker. The following are the achievements of the project in February 2019. 1. BAB had started developing a project during February till June 2019 costing RM423,000. The project made significant progress and has sufficiently sure of the future success of the project. However, there was no indication that the project would be commercially feasible. 2. BAB had built a prototype valued at RM145,000 that appeared to be successful during the month of July August 2019. The prototype was demonstrated to a number of engineering companies in September 2019. Several of these companies expressed interest in the further development of the machine. 3. Some adjustments had been made during September till October 2019 for the problems highlighted by some of the engineering firms during the demonstration. These adjustments incurred cost of RM55,000 4. BAB had applied a patent and incurred legal and administrative costs. These had occurred in October 2019 for RM30,000. The patent has a useful life of five years, and is renewable for a further five years upon application 5. In December 2019, BAB spent RM185,000 as an additional amount on engineering and consulting costs to develop the project such that the machine was at manufacturing stage. This resulted in changes in the overall design of the machine. The cost of RM185,000 included to add minor changes to the patent authority. 6. In January 2020, BAB was invited tenders for the manufacture of the engine for commercial safe. The cost is negligible. Required: a) Explain to BAB the criteria that need to be satisfied before expenditures on assets can be recognized as intangible assets under MFRS138. (7 marks) (CLO1: PL01:02) b) Prepare the journal entries to the above transactions (8 marks) (CLO1. PLO1:03) C) Discuss the accounting treatment to the above items according to MFRS138 Intangible Assets (10 marks) (CLO1:PLO1 C4)
