However, Madam Rabiatul, Terrar Bhd's accountant had an argument with Mr. Zaman, senior accountant of the...

 

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However, Madam Rabiatul, Terrar Bhd's accountant had an argument with Mr. Zaman, senior accountant of the company regarding the method to be used to record the write down of the inventories. Madam Rabiatul wants to use the loss method to write down inventory because it is more clearly discloses the decline in the net realisable value and does not distort the cost of goods sold. But, Mr. Zaman prefers the cost-of-goods-sold method to write down because it does not call attention to the decline in net realizable value. On 31 December 2018, the Terrar Bhd recorded an intangible asset, patent, at a revalued amount of RM6,500,000. The patent is related to a new sustainable technology in the motor engine, which was developed by the R&D team of the company. The patent was initially recorded at RM8,000,000 on 1 January 2016. The management of the company expected that the estimated future benefits from the patent would be consumed evenly for the next eight (8) years. In 2019, due to the new competition in the market, the company revalued the patent to market value of RM4,000,000. Due to this latest development the company revalued the remaining useful life of the patent to be three (3) years. Beside the patent, other intangible assets of Terrar Bhd consist of: i. A customer list purchased on 1 April 2017 at a cost of RM680,000. The company expected that 40% of the estimated future benefits from the customer list will flow into the company in 2017 and the rest will be generated evenly in the next three (3) years. The company acquired a legal title to a leading motor brand on 1 June 2018 for RM500,000. The legal life of the brand is five years but is renewable every five years at little cost. The company ii. intends to renew it continuously. One of the company's directors believes that the brand should be amortised and an impairment test should only be carried out when the brand is renewed. In 2019, there is unexpected competition and the company may lose 30% of the market share. However, it has evidence that the brand product will generate positive cash inflows indefinitely. What is the issue facing Madam Rabiatul and Mr Zaman? Is there any possible ethical issue involved? (CTPS) (a) Would the method suggest by Mr Zaman affect Terrar Bhd's stakeholder (s)? (СТPS) (b) However, Madam Rabiatul, Terrar Bhd's accountant had an argument with Mr. Zaman, senior accountant of the company regarding the method to be used to record the write down of the inventories. Madam Rabiatul wants to use the loss method to write down inventory because it is more clearly discloses the decline in the net realisable value and does not distort the cost of goods sold. But, Mr. Zaman prefers the cost-of-goods-sold method to write down because it does not call attention to the decline in net realizable value. On 31 December 2018, the Terrar Bhd recorded an intangible asset, patent, at a revalued amount of RM6,500,000. The patent is related to a new sustainable technology in the motor engine, which was developed by the R&D team of the company. The patent was initially recorded at RM8,000,000 on 1 January 2016. The management of the company expected that the estimated future benefits from the patent would be consumed evenly for the next eight (8) years. In 2019, due to the new competition in the market, the company revalued the patent to market value of RM4,000,000. Due to this latest development the company revalued the remaining useful life of the patent to be three (3) years. Beside the patent, other intangible assets of Terrar Bhd consist of: i. A customer list purchased on 1 April 2017 at a cost of RM680,000. The company expected that 40% of the estimated future benefits from the customer list will flow into the company in 2017 and the rest will be generated evenly in the next three (3) years. The company acquired a legal title to a leading motor brand on 1 June 2018 for RM500,000. The legal life of the brand is five years but is renewable every five years at little cost. The company ii. intends to renew it continuously. One of the company's directors believes that the brand should be amortised and an impairment test should only be carried out when the brand is renewed. In 2019, there is unexpected competition and the company may lose 30% of the market share. However, it has evidence that the brand product will generate positive cash inflows indefinitely. What is the issue facing Madam Rabiatul and Mr Zaman? Is there any possible ethical issue involved? (CTPS) (a) Would the method suggest by Mr Zaman affect Terrar Bhd's stakeholder (s)? (СТPS) (b)

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a When the Net realisable value of Inventory has been declined it needs to be recorded in books for ... View the full answer