On 1 January 2018, LFC Bhd acquired a fast food franchise for RM300,000. The legal life of the franchise is seven (7) years while the economic useful life is six (6) years. On 31 December 2018, the franchise was revalued at RM340,000. Due to the outbreak of the COVID-19 at the end of year 2019, sale of fast food from the franchise is declining. Impairment test conducted showed that the fair value of the franchise was RM250,000. At this date the current trend of the outbreak indicates further sale declining in the next six (6) months. The company adopts the revaluation model to record the franchise. The company also has legal title to a soft drink brand which was acquired on 1 January 2019 at RM350,000
On 1 January 2018, LFC Bhd acquired a fast food franchise for RM300,000. The legal life of the franchise is seven (7) years while the economic useful life is six (6) years. On 31 December 2018, the franchise was revalued at RM340,000. Due to the outbreak of the COVID-19 at the end of year 2019, sale of fast food from the franchise is declining. Impairment test conducted showed that the fair value of the franchise was RM250,000. At this date the current trend of the outbreak indicates further sale declining in the next six (6) months. The company adopts the revaluation model to record the franchise.
The company also has legal title to a soft drink brand which was acquired on 1 January 2019 at RM350,000. The brand product is expected to generate
Financial year end for the company is 31 December.
REQUIRED:
(a) Prepare
(b) Explain the accounting treatment for the soft drink brand of LFC Bhd on 31 December 2019.
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