Reference no: EM133168259
Question - MXM Animation Bhd is one of the largest film production and distribution companies in Malaysia. Films produced by MXM Animation consist of drama, action, comedy, science fiction and musical genre. In producing and distributing these films MXM Animation relies upon a number of intangible assets. One of these intangible assets was acquired on 31 December 2018 at a cost of RM2,600,000. The intangible asset is expected to generate cash flows for the company for over 10 years and has a legal life of 12 years. It will be derecognized after the ten years of service. Meanwhile, the asset's economic benefits are expected to be consumed evenly throughout its estimated useful life. The management of MXM Animation estimated the intangible asset's residual value is RM200,000. Nevertheless, there is a remote possibility of an active market for this type of asset to be existed at the end of its useful life. On 31 December 2019 the market value of this intangible asset was RM2,500,000. However, due to adverse effect of COVID-19 pandemic to the business in general, on 31 December 2020, the market value of the intangible asset decreased by RM1,000,000 from the previous year market value. The accounting year of MXM Animation ends on 31 December.
Required -
(a) Determine the appropriate amortization period for the intangible asset.
(b) Prepare relevant journal entries for the intangible asset in 2019 and 2020.
(c) Assume that there will a commitment by a third party to buy the intangible asset at the end of its useful life. Discuss how this will affect the accounting treatment of the intangible asset.
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