Speedy Bhd is a company engaged in trading of motor vehicles. With increasing orders received by the company since its incorporation, Speedy Bhd is optimistic of a better sales growth in the future. The company closes its account on every 31 December.

In order to meet customers demand for its product, the company acquired the plant assets of Jupiter Sdn Bhd on 2 March 2015. The plant assets consist of:

Cost (RM)

Land 3,200,000

Building 4,000,000

Warehouse 600,000

Speedy Bhd also incurred the following expenditure in cash between 15 March and 15 May 2015:

Ordinary repairs to the building RM 13,000

Additions to the building RM 200,000

The building was estimated to have useful life of 10 years with no residual value. The company used straight-line depreciation method for building and the company policy is to recognise depreciation to the nearest whole year where assets acquired during the first six-month are considered held for the entire year while assets acquired during the last six-month are not considered in the depreciation computation.

In early 2018, the company replaced the marble floor with wooden floor and the cost was RM180,000 which extends the estimated life of the building by two years. At the end of 2019, the building was revalued at RM3,500,000 by the qualified appraisal agent. On 30 December 2020, of the building was sold to MJ Sdn. Bhd. for cash consideration of RM1,500,000. The company also constructed a building on 1 April 2017. A piece of land was purchased for the building construction with a cost of RM130,000. On 1 April 2017, the company paid RM30,000 for architect fees. The excavation work began during the first week in April with payments made to the contractor in 2017 as follows:

Date Amount of payment (RM)

30 June 2017 120,000

21 August 2017 180,000

1 December 2017 90,000

The construction was completed on 1 May 2018 and the last payment of RM50,000 was made on the same date. To finance the construction of the building, Speedy Bhd borrowed RM650,000 from Rich Bank on 1 April 2017. The RM650,000 was a 10-year loan bearing interest at 8%. Speedy Bhd had no other borrowing.

Speedy Bhd acquired a machine in 2015. Its carrying amount as at 31 December 2017 was RM68,500. There was a widespread adverse publicity against product #334 such that the demand dropped substantially. The company decided to report an impairment loss of RM50,000 on 31 December 2017. The company estimates that the present value of cash flows expected from the future use and eventual sale of the asset at the end of its useful life is RM70,000 and RM5,000, respectively.

In addition, Speedy Bhd has three main categories of inventories which are Ducati motorbike, Moto Guzzi motorbike, and Aprillia motorbike. At 31 December 2021, the balance of Inventory account was RM3,450,000 and Allowance to Reduce Inventory to NRV (credit balance) was RM220,000. The company summarised the relevant inventory costs and market data at 31 December 2021 in the table below.

Inventory	Cost (RM)	Sales Price (RM)	Selling cost (RM)
Ducati motorbike	1,500,000	1,380,000	90,000
Moto Guzzi motorbike	1,200,000	1,150,000	60,000
Aprillia motorbike	750,000	845,000	30,000

As a new account assistant, Miss Lina has been assigned to calculate the amount that should appear on Speedy Bhds financial statement for inventory under the lower-of-cost-or-NRV (LCRNV) rule as applied to each item in inventory. The company applies the loss method and uses an Allowance Account to record for the write down of the inventory to net realisable value (NRV).

However, Madam Bee, Speedy Bhds accountant had an argument with Mr. Han, senior accountant of the company regarding the method to be used to record the write down of the inventories. Madam Bee prefers to use the loss method to write down inventory because it is more clearly discloses the decline in the net realisable value and does not distort the cost of goods sold. But, Mr. Han prefers the cost-of-goods-sold method to write down because it does not call attention to the decline in net realizable value.

On 31 December 2020, Speedy Bhd recorded an intangible asset, patent, at a revalued amount of RM6,500,000. The patent is related to a new sustainable technology in the motor engine, which was developed by the R&D team of the company. The patent was initially recorded at RM8,000,000 on 1 January 2018. The management of the company expected that the estimated future benefits from the patent would be consumed evenly for the next eight (8) years. In 2021, due to adverse effect of Covid-19 pandemic to the market, the company revalued the patent to market value of RM4,000,000. Due to this latest development the company revalued the remaining useful life of the patent to be three (3) years. Beside the patent, other intangible assets of Speedy Bhd consist of:

1. A customer list purchased on 1 April 2019 at a cost of RM680,000. The company expected that 40% of the estimated future benefits from the customer list will flow into the company in 2019 and the rest will be generated evenly in the next three (3) years.

2. The company acquired a legal title to a leading motor brand on 1 June 2020 for RM500,000. The legal life of the brand is five years but is renewable every five years at little cost. The company intends to renew it continuously. One of the companys directors believes that the brand should be amortised and an impairment test should only be carried out when the brand is renewed. In 2021, due to covid-19 pandemic the company is expected to lose 30% of the market share. However, it has evidence that the brand product will generate positive cash inflows indefinitely.

1. Analyse whether the company should report an impairment loss of RM50,000.