Reference no: EM132782610
At the end of 2016, Green Energy Bhd successfully developed a green and sustainable engine, which is called CCO5 engine that runs on extract from coconut oil. In order to protect the technology of the engine, the company acquired a patent at a cost of RM600,000 on 1 January 2017. The legal life of the patent is six years while the economic useful life of the patent is five years. On 31 December 2017, due to adverse press reports on the new technology, the patent was deemed to have a recoverable amount of RM440,000. The recoverable amount of the patent was RM350,000 on 31 December 2018.
Meanwhile, as part of its diversification strategy, on 1 January 2018, Green Energy Bhd acquired a small and medium technology company, ZTECH Sdn Bhd. Green Energy Bhd paid RM2,350,000 to acquire all of the ordinary shares of the ZTECH Sdn Bhd. This company was then became a division (cash generating unit) of Green Energy Bhd. It was determined that at the date of the purchase the fair value of the identifiable net assets of ZTECH Sdn Bhd was RM2,100,000. Over the next 10 months of the operations, the newly purchased division experienced operating losses. In addition, it was appeared that it will generate substantial losses for the foreseeable future.
At 31 December 2018, ZTECH division reported the following in statement of financial position:
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RM
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Current assets
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630,000
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Non-current assets (including goodwill recognised in purchase)
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2,200,000
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Current liabilities
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(300,000)
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Non-current liabilities
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(700,000)
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Net assets
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RM1,830,000
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On the same date, it was determined that the present value of expected future cash flows of the ZTECH division was RM1,935,000.
REQUIRED:
Problem (a) Prepare the relevant journal entries related to the patent on the following dates:
(i) 31 December 2017
(ii) 31 December 2018
Problem (b) Determine the impairment loss (if any) of ZTECH division on 31 December 2018 and prepare the journal entry (if any) to record the impairment loss.
Problem (c) Assume that the value in use of ZTECH division on 31 December 2018 was RM1,740,000. Determine the impairment loss (if any) on 31 December 2018 and prepare the journal entry (if any) to record the impairment loss.