Question $4$

Question $4$a$,$ b$,$ c and d are mutually exclusive and independent of each other. Answer each

part according to the given scenario.

Question $4$a

Kiwi Pte Ltd $($KPL$)$ acquired the trademark of a product from Company A for $$200,000.$

The trademark can still be used for $4$ years before renewal and the trademark is renewable

every $15$ years at insignificant cost. KPL intends to renew the trademark continuously and

evidence supports its ability to do so$.$ From the market survey of its product life cycle,

market and environment trends, the product will generate net cash inflows for an indefinite

period. Explain and show how the trademark should be accounted for under the relevant

accounting standards.

$(7$ marks$)$

Question $4$b

Tim Bakery previously calculated depreciation on its baking equipment using the straight$-$

line method @ $10\%.$ However, in light of significant reduction of revenue generated in the

past $18$ months, the management has decided to depreciate the baking equipment by using

the reducing balance method @$20\%$ which shall more accurately reflect the allocation of

the expenses of the baking equipment over the useful life. Explain and recommend how

the change should be accounted for under the relevant accounting standard.

$(7$ marks$)$

Question $4$c

Audio Quest Enterprise $($AQE$)$ sells handmade hifi audio amplifiers and gives a year's

warranty with all amplifiers sold during the year. Sales for the year amounted to $$1$ million.

Past experience shows that AQE needs to do no repairs on $90\%$ of the amplifiers. On

average, $8\%$ need minor repairs, and $2\%$ need major repairs. AQE has calculated that if

minor repairs were needed on all amplifiers, it would cost $$60,000$ and major repairs on all

amplifiers would cost $$150,000.$ Examine and explain how AQE should account for the

warranty of the amplifiers under the relevant accounting standard.