ABC Ltd is a software producing entity, it recorded a software license in its books $5.65 million on 1 January 2017, it represented the development cost of software owned by it and generated revenue correspondingly. The price $3.5 million offered by interested buyer of the license is regarded as valid market price. Owing to the loss of customers and upgrading the software, it needs to prepare the cash flow projection for the software license in coming 4 years and calculate the recoverable amount at discount rate of 8%, the forecasted net cash inflows for the year ended 31 December 2017 up to 31 December 2020 were formulated as follows:

2

Question 1 part b (continued)

Year 2017 2018 2019 2020

Net cash inflow (in $000) 250 750 1,500 1,750

The expected disposal value of the software license is $800,000 as at 31 December 2020

Required With reference to above information, determine whether the impairment losses were required to the software license on 1 January 2017 in accordance with HKAS 36. Prepare relevant journal entries if necessary. (8 marks)

Part c

GHI Ltd owned a building worth $1,386,000 purchased at 1 January 2016, estimated useful life for 30 years, and using straight line method for depreciation. After the usage of 4 years, at the beginning of 1 January 2020, GHI Ltd re-assessed the useful life of the building, after the professional valuer advise, the remaining useful life available should be 48 years.

Required Calculate the depreciation expenses of above building as at 31 December 2020 and show the relevant journal entry. All workings must be shown (7 marks)