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Prepare all related journal entries to record the franchise

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Question - Medhealth Bhd is a company located in Penang and has many branches nationwide. The company involves in trading pharmaceutical products. On 5 September 2019, the company acquired a new pharmacy franchise for RM1,800,000. The legal life of the franchise is six (6) years while the economic useful life is five (5) years. On 30 June 2020, the franchise was revalued at RM2,000,000. Due to the Covid-19 outbreak, the demand of pharmaceutical products is increasing and the value of the franchise at 30 June 2021was RM2,500,000. The company adopts the revaluation model to record the franchise.

The company also has legal title to a type of supplement brand which was acquired on 1 July 2020 at RM520,000. The supplement brand is expected to generate cash inflow indefinitely. However, there is no active market available for this type of supplement. On 30 June 2021, impairment test conducted showed the recoverable amount of the brand was RM450,000. The financial year end of the company is on 30 June.

Required -

(a) Prepare all related journal entries to record the franchise of Medhealth Bhd for the year ended 30 June 2020 and 30 June 2021.

(b) Explain the accounting treatment for the supplement brand of Medhealth a Bhd on 30 June 2021.

Reference no: EM133177620

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