Glasgow Bhd entered into a contract acquiring a franchise from Shake Restaurant for RM4.5 million on 1
Question:
Glasgow Bhd entered into a contract acquiring a franchise from Shake Restaurant for RM4.5 million on 1 January 2014. The company is allowed to use the Shake Restaurant’s recipe for the next 15 years. At the same time, the company has to buy equipment and furniture from the franchisor for RM2 million. Additional costs of RM580,000 and RM93,000 were also incurred for advertising and staff recruitments, respectively. The company adopts the revaluation model for its intangible assets. On 31 December 2016 and 2017, the fair value of the franchise was RM6 million and RM6.5 million respectively.
The company decided to open several outlets in order to expand the business. The management has also agreed to fully utilize its internally generated list of customers which was valued at RM80,000 to assist the marketing team in promoting the new outlets. The list is expected to be valid and valuable for 5 years.
It is a policy of the company to amortize the intangible assets over the useful life on a yearly basis.
Required:
Discuss whether the franchise meets the definitions of Asset and Intangible Asset.
Discuss whether the internally generated list of customers meet the definitions of Asset and
Discuss the accounting treatment of the franchise on 31 December 2016.
Prepare relevant journal entries for the franchise on 31 December 2017.
Dynamic Business Law The Essentials
ISBN: 978-0073524979
2nd edition
Authors: Nancy Kubasek, Neil Browne, Daniel Herron