Question
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
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 recognised in purchase) | 2,200,000 |
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:
- Prepare the relevant journal entries related to the patent on the following dates:
- 31 December 2018
- 31 December 2019
- 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.
- 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.
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