Reference no: EM132787256

Clean Bhd is a cleaning local company located in Permatang Pauh, Seberang Perai. It is the company's policy to measure its intangible assets using the cost model under Malaysia Financial Reporting Standard. On 1 January 2020, Clean Bhd signed an agreement to operate as a franchisee of Shining Bhd for an initial franchise fee of RM70,000. Upon acquiring the franchise, the company needs to incur RM5,000 of legal cost and a down payment of RM20,000. The fees were paid by cheque when the agreement was signed between the two companies. The agreement provides that the down payment is not refundable and no future services are required from the franchisor. Clean Bhd estimates the useful life of the franchise to be 10 years and will be amortized on a straight-line basis. Revenue from the franchise for 2020 was RM360,000.

Due to Covid19, the demand for sanitising services increase and Clean Bhd claimed that this lead to increase in its own company's image and goodwill. Clean Bhd wishes to incorporate goodwill in its accounting record at RM100,000.

Problem 1: What is the initial cost for the intangible assets owned by Clean Bhd as at year ended 31 December 2020?

a) RM65,000

b) RM70,000

c) RM75,000

d) RM170,000

Problem 2: How should the intangible asset should be recognized in the financial statements?

a) The franchise should be amortized over a period of 10 years and the amortization expenses of RM7,500 per year should be charged to the statement of profit or loss.

b) The franchise should be amortized over a period of 10 years and the amortization expenses of RM6,000 per year should be charged to the statement of profit or loss.

c) The franchise should be amortized over a period of 10 years and the amortization expenses of RM9,500 per year should be charged to the statement of profit or loss.

d) The franchise should not be amortized over a period of 10 years because its valuation is based on fair value for the subsequent measurement.

Problem 3: How should the intangible asset with a finite useful life should be measured using cost model according to MFRS 138 Intangible Assets?

a) Under the cost model, an intangible asset that has a finite useful life will be carried at cost less accumulated amortization. The intangible asset is amortized systematically over the finite useful life.

b) Under the cost model, an intangible asset that has a finite useful life will be measured at cost less accumulated amortization and any accumulated impairment losses. The intangible asset is amortized systematically over the finite useful life.

c) The intangible asset should be amortized over its useful life with a residual value equal to the present value at the date it was acquired.

d) Under the cost model, an intangible asset that has an infinite useful life will be measured at present value less accumulated amortization and any accumulated impairment.

Problem 4: What is the circumstances that development cost COULD NOT be capitalized as an intangible asset?

a) The technical feasibility of completing the intangible asset so that it will be available for use or sale.

b) The intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.

c) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.

d) Expenditures that arising from research, or in the research phase of an internal project.

Problem 5: MFRS 138 stated that internally generated goodwill shall not be recognised as an asset. Why?

a) This is because it is not an identifiable resource controlled by the entity and it cannot be measured reliably at cost.

b) This is because it can be control, future economic benefits (can generate income from the franchise).

c) This is because there is an active market for the goodwill and residual value can be determined by reference to that market.

d) This is because the good name arises from the acquisition of the franchise. Since the franchise is recognised as an intangible asset as it is identifiable (purchased), can be control (has right to use licence), future economic benefits (can generate income from the mining gold).