Question

Q1. Firoz Corp. obtained a trade name in January 2010, incurring legal costs of SAR15,000. The company amortizes the trade name over 8 years. Moon successfully defended its trade name in January 2011, incurring SAR 4,900 in legal fees. At the beginning of 2012, based on new marketing research, Moon determines that the recoverable amount of the trade name is SAR 12,000.

            Prepare the necessary journal entries for the years ending December 31, 2010, 2011, and 2012.

Answer 1

Date	Journal entries	Debit	Credit
Dec. 31, 2010	Amortization Expense - Trade Name A/c…..............Dr	1,875
	To Trade Ac…........Cr		1,875
	[Being company amortizes the trade name over 8 years]
	(15000 Devided by 8 Years)
Dec. 31, 2011	Amortization Expense - Trade Name A/c…..............Dr	1,875
	To Trade Ac…........Cr		1,875
	[Being company amortizes the trade name over 7 years]
	(15,000 - 1,875 + 4,900) ÷7 years]
Dec. 31, 2012	Loss on Impairment A/c…......Dr	3,450
	To Trade Ac…........Cr		3,450
	(Being to record impairment loss)
	Carrying value = 15,000 - 1,875 + 4,900 - 2,575 = 15,450
	Carrying value = 15,450 Recoverable amount - 12,000 Loss on impairment = 3,450
Dec. 31, 2012	Amortization Expense - Trade Name A/c…..............Dr	2,000
	To Trade Ac…........Cr		2,000
	(Being to record amortization expense)
	(12000 Devided by 6 Years)
	TOTAL	9,200	9,200