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QUESTION 3 (10 MARKS: 24 MINUTES) Hightech Bhd is an outsource information technology (IT) support services company based in Malaysia. It provides IT consulting, IT
QUESTION 3 (10 MARKS: 24 MINUTES) Hightech Bhd is an outsource information technology (IT) support services company based in Malaysia. It provides IT consulting, IT managed services, and cybersecurity for small and medium businesses. In providing these services, Hightech Bhd highly relies upon a number of intangible assets. One of the intangible assets was acquired on 1 January 2019 at a cost of RM3,300,000. The estimated useful life and legal life of the intangible asset is six and seven years respectively. Onethird of the assets economic benefits are expected to be consumed evenly in the first two years of its useful life and the remaining economic benefits will be consumed evenly throughout its remaining estimated useful life. There is a commitment by a third party to buy the intangible asset at the end of its useful life and it is estimated that the intangible assets residual value is RM300,000. On 31 December 2019, due to fierce market competition, the recoverable amount of this intangible asset is RM2,500,000. In the following year, as many businesses venture into online businesses during COVID-19 pandemic, demand for cybersecurity has increased substantially that lead to a RM50,000 increase in the recoverable amount of the intangible asset from the previous year. The accounting year of Hightech Bhd ends on 31 December. REQUIRED: (Show all the workings and round the answer to the whole number) (a) Prepare relevant journal entries for the intangible asset in 2019 and 2020. (8 Marks) (b) Assume that the commitment by a third party to buy the intangible asset at the end of its useful life is very uncertain. Nevertheless, it is probable that there will be an active market for this type of asset to be existed at the end of its useful life. Discuss how this will affect the accounting treatment of the intangible asset.
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