Terpaling Hitech Berhad $($THB$)$ was established in year $1999$ and listed on the Bursa Malaysia

on its fifteen years anniversary. The company dealings with the production of commercial and

industrial equipment. The company has its headquarters in Bayan Baru, Pulau Pinang and its

main factory located in Batu Kawan, Seberang Perai.

Property Plant and Equipment

The company reported its property, plant and equipment $($PPE$)$ as for the year $2023$ as follows:

Included in the additional cost to the building were RM$25,000$ interest capitalised from the loan

taken specifically to finance the construction of the building. The loan was obtained in July

$2021$ and the final repayment of the loan is in June $2026.$ The construction has completed in

September $2023.$

The company depreciates all its assets using the straight$-$line method. Due to the advancement

of the technology in the industrial equipment, there is a need for THB to do an impairment test

on its production machinery. The following information is related to the impairment test on

the company's machinery:Inventories

As a commercial and industrial equipment supplier company, THB Bhd has grouped its

inventories based on the undertaking projects and their percentage of completion. Currently,

THB has two ongoing projects and one completed project. The following information is

available from the company's inventory records as of $31$ December $2023.$

Cost to complete per unit is estimated based on the $\%$ for completion $x$ cost per unit as at $31$

December $2023.$

Intangible assets

On $31$ December $2022,$ THB recorded an intangible asset, patent, at a revalued amount of

RM$6,500,000.$ The patent is related to a sustainable technology in the commercial and

industrial equipment, which was developed by the R&D team of the company. The patent was

initially recorded at RM$8,000,000$ on $1$ January $2019.$ 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 $2023,$ due to advancement of new technology, the company revalued

the patent to market value of RM$4,000,000$ and revalued the remaining useful life of the patent

to be two $(2)$ years. Beside the patent, other intangible assets of THB consist of:

i$.$ A customer list purchased on $1$ April $2022$ at a cost of RM$680,000.$ The company

expected that $40\%$ of the estimated future benefits from the customer list will flow

into the company in $2022$ and the rest will be generated evenly in the next three $(3)$

years.

ii$.$ The company acquired a legal title to an industrial equipment brand on $1$ June $2020$

for RM$500,000.$ 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

company's 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.Mr$.$ Lohan is a newly appointed Chief Operating Officer $($COO$)$ of THB$.$ He is an accounting

graduate from the most eminent university in Malaysia. He never involve in any accounting

or auditing firms since his graduation. He experienced more on marketing and investment

activities than accounting. Thus, his knowledge of accounting is limited and not up$-$to$-$date.

During the presentation by Madam Kay, the Head of Accounting Depatment, Mr$.$ Lohan was

expecting that the total interest from the bank loan taken to finance the newly completed

building, should be capitalised continuously until June $2026.$ Mr$.$ Lohan was also arguing on

the practice of impairment on the machineries. He feels that it might have a negative effect on

the balance sheet and related financial ratios because it may have a lower market value than its

book value. He suggested that the impairment test should not be carried out during the use of

the asset and any loss would only be recorded on the date of the disposal of the assets. Mr$.$

Lohan believes that the carrying amount shown in the statement of financial postion is

sufficient to show the current value of the assets. Further, Mr$.$ Lohan is also not literally agreed

with the use of LCNRV approach to determine the value of company's inventory as he is in

the opinion that it might distort the company's income data.

CASE INSTRUCTIONS $($ANSWER ALL THE QUESTIONS$)$:

Briefly explain to Mr$.$ Lohan on the borrowing cost related to the construction of the

building, whether should be capitalise or expense. Support your explanations with the

related Malaysian accounting standard.

With regards to the argument on the impairment of the assets between Mr$.$ Lohan and

Madam Kay:

$($a$)$ What is the issue facing Mr$.$ Lohan and Madam Kay? $($CTPS $1)$

$($b$)$ Would the suggestion by Mr$.$ Lohan affect THB