Question 1

Reksine entered into a contract to acquire the franchise for Yummy Ice cream. Reksine has to pay RM1 million for the franchise and recipe and can manufacture and sell the ice cream for 5 years. Additionally Reksine has to have premises to manufacture and sell the ice cream. Reksine rented the premises, and the equipment and furniture were bought from the franchiser for RM 1.5 million. It has also incurred RM 300,000 in advertising and recruiting staff.

Required: Discuss the accounting treatment for the various costs incurred.

Question 2

Coco, a manufacturer of ladies handbag hired a brand consultancy agency to build up the name of the brand Shortchamp for its line of handbags. The consultancy was paid RM 20 million. Massive advertising and marketing strategy was used and Coco managed to capture a considerable market share and was a hit with the ladies. For year 2016 and 2017, the brand was a success and then in year 2018 the brand was sold to Noco for RM45 million.

Required:

a) Discuss the accounting treatment of the RM20 million paid by Coco to the brand consultancy.

b) Discuss the accounting treatment of the RM45 million paid by Noco to acquire the brand from Coco.

Question 3

Jazzy is developing a new gaming app. During the year 2017, the expenditure incurred was RM120,000 of which RM100,000 was incurred before 1 October 2017 and the balance from October to December 2017.(20000)

Only on 1 October was the entity able to demonstrate that the project can meet all the criteria for recognition as intangible asset. In year 2018, the cost incurred was RM60,000.

Required:

Discuss the accounting treatment.

Question 4

Justify, with reasons, how the following expenditure would be dealt with in the financial statements of Prebnex plc to confirm with MFRS 138:

i) Money spent on a joint project with a university investigating the potential use of carbon nanotubes for the storage of digital data. No previous study has been done on this area before.

ii) Expenditure on developing a new high speed hard disk which, in the opinion of Prebnex plc, has an assured and profitable market. Work has been suspended pending the development of a new glue suitable for the construction of the disk drives.

iii) Prebnax plc carried out a development project that met the criteria for recognition as an asset on 1 April 2017. Costs incurred till April was RM4.5 million and RM3 million was incurred from April 2017 till the completion of the project on 31 May 2018. The fair value development cost as at 31 December 2018 was RM5.2 million. The economic life of the asset is indefinite.

Question 5

Y Stretch entered into an agreement with Y Exercise to use Y Exercises concept to operate a health and fitness centre. Y Exercise will help set up the centre and provide consultation service. Y Stretch had to pay RM4 million to Y Exercise to use the logo and exercise techniques of Y Exercise.

Y Stretch also paid another RM6 million to Y Exercise for renovating the premises and its acquisition of Y Exercises equipment. The agreement is for five years. At the end of the five year period, the agreement can be renewed at a minimal charge.

Required: Discuss the accounting treatment (as per MFRS 138) of the RM10 million spent by Y Stretch.

Question 6

a) Lolly has decided to enter the retail market to sell ice cream in kiosks to be set up in the various private universities throughout the Klang Valley. It recently purchased two ice cream brands. Creamer has been in existence for many years and has a good reputation for taste and quality. Icy has only been in the market for a short time and is being marketed as being a healthier option. Lolly finds it difficult to estimate the useful lives of the two brands and therefore intends to treat the brands as having indefinite lives.

Required:

Explain to Lolly how the acquisition of the brands should be treated in accordance with MFRS 138 Intangible Assets.

b) The following information relates to three companies that use revaluation model in relation to intangible assets and prepare annual financial statements to 31 December:

i) Company W acquired an intangible asset for $250,000 on 31 December 2018. This asset was revalued at $225,00 on 31 December 2019 and $270,000 on 31 December 2020.

ii) Company X disposed of an intangible assets on 31 December 2020. The asset acquired some years previously at a cost of $100,000 and had a carrying amount of $160,000 on the date of disposal. Disposal proceeds were $195,000.

iii) Company Y acquired an intangible asset for $80,000 on 31 December 2018. This asset was revalued at $90,000 on 31 December 2019 and at $65,000 on 31 December 2020.

Required:

Explain how the above revaluation will be treated in the financial statements for the year ended 31 December 2020