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Terpaling Hitech Berhad ( THB ) was established in year 1 9 9 9 and listed on the Bursa Malaysia on its fifteen years anniversary.
Terpaling Hitech Berhad THB was established in year 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 as follows:
Included in the additional cost to the building were RM interest capitalised from the loan
taken specifically to finance the construction of the building. The loan was obtained in July
and the final repayment of the loan is in June The construction has completed in
September
The company depreciates all its assets using the straightline 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 December
Cost to complete per unit is estimated based on the for completion cost per unit as at
December
Intangible assets
On December THB recorded an intangible asset, patent, at a revalued amount of
RM 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 on January The management of the company
expected that the estimated future benefits from the patent would be consumed evenly for the
next eight years. In due to advancement of new technology, the company revalued
the patent to market value of RM and revalued the remaining useful life of the patent
to be two years. Beside the patent, other intangible assets of THB consist of:
i A customer list purchased on April at a cost of RM The company
expected that of the estimated future benefits from the customer list will flow
into the company in and the rest will be generated evenly in the next three
years.
ii The company acquired a legal title to an industrial equipment brand on June
for RM 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 due to covid
pandemic the company is expected to lose 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 uptodate.
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 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
b Would the suggestion by Mr Lohan affect THB
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