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Accounting Treatment for Intangible Assets

The document provides examples of accounting treatments for intangible assets, detailing expenditures and their recognition as assets based on specific criteria. It includes calculations for amortization expenses related to a patent and discusses impairment losses and revaluation surpluses. Each example illustrates the necessary journal entries and financial disclosures required for accurate reporting.

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10 views2 pages

Accounting Treatment for Intangible Assets

The document provides examples of accounting treatments for intangible assets, detailing expenditures and their recognition as assets based on specific criteria. It includes calculations for amortization expenses related to a patent and discusses impairment losses and revaluation surpluses. Each example illustrates the necessary journal entries and financial disclosures required for accurate reporting.

Uploaded by

narmatha1729zq
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

EXAMPLES QUESTIONS

Example 1

An entity is developing a new computer software. During the year 2024, the
expenditure incurred was RM120,000 of which RM100,000 was incurred before 1
October 2024, and the balance was incurred from October to December 2024.

Only on 1 October was the entity able to demonstrate that the project can meet all
the criteria for recognition as an intangible asset.

In year 2025, the cost incurred was RM60,000. At the end of 2025, the recoverable
amount was RM75,000.

Discuss the accounting treatment.

Answer:

The RM100,000 incurred before 1 October 2024 is written off as expense. The
RM20,000 incurred after 1 October 2024 is recognized as an asset.

The year 2025, expenditure of RM60,000 is recognized and the carrying amount of
the asset is RM80,000.

Since the recoverable amount is RM75,000, there is an impairment loss of RM5,000


which is charged in the statement of profit or loss.

The amount disclosed in the statement of financial statement is RM75,000.

Example 2

Hans carried out a development project that met the criteria for recognition as an
asset on 1 April 2024. Costs incurred till April 2024 were RM4.5 million and RM3
million was incurred from April 2024 till the completion of the project on the 31 May
2025. The fair value development cost as at 31 December 2025 was RM5.2 million.
The economic life of the asset is indefinite.

Discuss the accounting treatment of the intangible asset.


Answer:

The intangible asset will be recognized at RM3 million only. The sum of RM4.5
million would be written off in 2024.

At 31 December 2025, the asset can be disclosed at RM5.2 million. The difference
RM5.2 million and RM3 million of RM2.2 million will be recognized in equity as
surplus on revaluation

Example 3

On 1 July 2023, Ronald Sdn. Bhd. acquired a patent for RM 60,000. The patent has
a legal life of 10 years but is expected to be useful for 6 years. The company uses
the straight-line method of amortization.

i. Compute the amortization expense for the year 2023 (assuming it is the first
year of amortization).

Computation of Amortization Expense for 2023:

Cost of Patent = RM 60,000

Useful Life = 6 years

Amortization Expense = (Cost - Residual Value) / Useful Life

Amortization Expense = RM 60,000 / 6 = RM 10,000 per year.

Since the patent was acquired on 1 July 2023, the amortization for the year 2023 will
be for 6 months.

Amortization for 2023 = RM 10,000 x (6/12) = RM 5,000

ii. Prepare the journal entry for amortization of the patent for 2023.

31 Dec 2023 DR Amortization Expense (P/L) 5,000

CR Accumulated Amortization 5,000

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