On 1 January 2020, Gendana Sdn Bhd (GSB), a manufacturer of consumer product, has purchased a...

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On 1 January 2020, Gendana Sdn Bhd (GSB), a manufacturer of consumer product, has purchased a trademark for a product that has been a leading consumer product in the market for the past 5 years at a cost of RM3,600,000. The trademark has a remaining useful life of 5 years. The trademark is, however, renewable every 10 years at little cost. An analysis of the product life cycle and competitive conditions indicates that there were sufficient brand extension opportunities to continue generating net cash inflows for an indefinite period. As such no amortization was provided by GSB in the previous years. The market assessment was made on 1 July 2020 and found that the value of the trademark had declined. The reason was due to the unforeseen competition with an international company which entered the market. As a result, the present value of expected cash flows declines to RM2,880,000and the expected useful life of the trademark is 4 years. GSB adopts the straight-line methods in amortizing the intangible assets on monthly basis. No adjustment has been made for this new development. Required: a. Explain the accounting treatment of the above trademark for the following events (support your answers with computation and journal entries): i. The impairment of the trademark on 1 July 2020. (6 marks) ii. Adjustment on the value of trademark after the impairment for the year ended 31 December 2020. (6 marks) On 1 January 2020, Gendana Sdn Bhd (GSB), a manufacturer of consumer product, has purchased a trademark for a product that has been a leading consumer product in the market for the past 5 years at a cost of RM3,600,000. The trademark has a remaining useful life of 5 years. The trademark is, however, renewable every 10 years at little cost. An analysis of the product life cycle and competitive conditions indicates that there were sufficient brand extension opportunities to continue generating net cash inflows for an indefinite period. As such no amortization was provided by GSB in the previous years. The market assessment was made on 1 July 2020 and found that the value of the trademark had declined. The reason was due to the unforeseen competition with an international company which entered the market. As a result, the present value of expected cash flows declines to RM2,880,000and the expected useful life of the trademark is 4 years. GSB adopts the straight-line methods in amortizing the intangible assets on monthly basis. No adjustment has been made for this new development. Required: a. Explain the accounting treatment of the above trademark for the following events (support your answers with computation and journal entries): i. The impairment of the trademark on 1 July 2020. (6 marks) ii. Adjustment on the value of trademark after the impairment for the year ended 31 December 2020. (6 marks)

Answer rating: 100% (QA)

Since value of the trademark has declined impairment loss has to be recognised Further earlier life ... View the full answer