Question

Required: State clearly how you would treat the expenditures and determine the amount of development expenditure that should be capitalized by Dariah Bhd. at 31 December 2016 7 The intangible assets section of Glomac Berhad at 31 December 2015 is as follows Intangible Assets RM 54,000 Patents (RM60,000 cost less RM6,000 amortization) Franchises (RM48,000 cost less RM19,200 amortization) 28,800 40,000 Trademarks (RM50,000 cost less RM10,000 amortization) Note: The patent was acquired in January 2015, while the franchise and the trademark were acquired in January 2012. There are no additional costs incurred after the date of acquisition and the company uses straight-line method to amortize intangible assets. The following information is given at 1 January 2016: The trademark, which was acquired in January 2012, remaining useful life of only eight years determined to ha is now owing cash transactions may have affected the intangible assets in 2016 Paid RM3,600 legal fees to successfully defend the patent, that wa ecquired in January 2015, against infringement by another compan Because of the changes in the company's core business, the franchis was acquired in January 2012 was sold to a competitor for RM35,00gt A research and development project for a new product,'Zelwee250 completed on 30 June 2016 with a total cost of RM300,000. The com was able to demonstrate that the production process met the criteria recognition as an intangible asset on 31 December 2015. Out of this to costs, RM180,000 was spent in 2015 before the recognition criteria was met. Meanwhile, the cost of RM120,000 was incurred evenly during the six-month period in 2016. The development costs are to be amortized ove a 10-year useful life Made an expenditure of RM30,000 to acquire a patent on an established product. The patent has a remaining legal life of 10 years, but the company expects to produce and sell the product for only six more years 2 January 30 June Ja January to June Rec or 1 August To Required: Prepare journal entries to record the transactions, including the amortization expense on 31 December 2016 (if applicable).

Answer 1

Journal entries on the basis of IAS 38- Intangible Assets

Jan 2 Statement of profit and loss Dr RM 3600

To Legal Fees on Patent RM 3600

(Legal fees is subsequent expense which is expensed)

June 30 Amortization of Franchise Dr RM 2400

Bank Dr RM 35000

To Franchise RM 28800

To Profit on sale of Franchise RM 8600

(Being Franchise sold after charging amortization for 6 months. (19200/4)/2= RM 2400)

Jan to June Intangible asset under development Dr RM 20000

each month To Bank RM 20000

entry (Intangible asset has passed recognition criteria on 31st December 2015. Hence all development expense after that will be capitalized as Intangible asset under development until fully developed.This entry will be passed each month from January to June.Accumulated balance of Intangible asset under development on June 30 will be 20000*6=RM 120000)

June 30 Intangible Asset ( Zelwee 250) Dr RM 120000

To Intangible asset under development RM 120000

(process of development has completed.therefore all the development expense has been capitalized as Intangible asset)

August 1 New Patent A/c Dr RM 30000

To Bank RM 30000

( Being Patent recognized)

December 31 Amortization On Intangible Asset RM 19083

To Old Patent RM 6000

To New Patent RM 2083

To Trademark RM 5000

Intangible Asset ( Zelwee 250) RM 6000

( Amortization on different Intangible asset is calculated as follows:

1. Old patent 60000/10=RM 6000

2. New patent useful life is 6 years while legal life is 10 years.It will be amortized on the bases of useful life or legal life whichever is lower i.e, 6 years. Amortization to be charged on 31 Dec 2016 will be for 5 months [(30000/6)/12]*5= RM 2083

3. Trademark useful life has now been reduced to 8. therefore amortization amount this year is

Amortization for 31 Dec 2016= 40000/8=RM 5000

4. Intangible asset (Zelwee 250) will be charged for 6 months i.e, (120000/10)*6= RM 6000 )