Question

ABC Ltd is a software producing entity, it recorded a software license in its books $5.65 million on 1 January 2017, it represented the development cost of software owned by it and generated revenue correspondingly. The price $3.5 million offered by interested buyer of the license is regarded as valid market price. Owing to the loss of customers and upgrading the software, it needs to prepare the cash flow projection for the software license in coming 4 years and calculate the recoverable amount at discount rate of 8%, the forecasted net cash inflows for the year ended 31 December 2017 up to 31 December 2020 were formulated as follows:

2

Question 1 part b (continued)

Year 2017 2018 2019 2020

Net cash inflow (in $000) 250
750
1,500
1,750

        

The expected disposal value of the software license is $800,000 as at 31 December 2020

Required
With reference to above information, determine whether the impairment losses were required to the software license on 1 January 2017 in accordance with HKAS 36. Prepare relevant journal entries if necessary.

Part c

GHI Ltd owned a building worth $1,386,000 purchased at 1 January 2016, estimated useful life for 30 years, and using straight line method for depreciation. After the usage of 4 years, at the beginning of 1 January 2020, GHI Ltd re-assessed the useful life of the building, after the professional valuer advise, the remaining useful life available should be 48 years.

Required
Calculate the depreciation expenses of above building as at 31 December 2020 and show the relevant journal entry. All workings must be shown

Answer 1

Answer

b. Calculation of Impaiment In case of InTangible Assets

Years	Estimated cash flows($000)	Present Value @8%	Present Value
2017	250	0.923	230.75
2018	750	0.857	652.50
2019	1500	0.794	1191
2020	1750	0.735	1286
Residual value	800	0.735	588

Total=$3.95 Millions

Recoverable Amount=$3.95 Millions

Market value=$3.5 millions

No impirement loss is Reconginsed in books

C.Calculation of Depreciation of Buliding when change in useful life

Buliding cost 2016=$1386000

Carrying value on 2020=$1386000-$1386000/30*4

=$1386000-$184800

=$1201200

Depreciation Expense for 31 st Dec=$1201200/48

=$25025

journal entries in the books Of GHL ltd

2016

Debit=Buliding A/c $1386000

Credit=Bank A/c $1386000

Dec 2016 Dep Expense per Year, same entry up to DEC 2019

Debit=Depreciation A/c $184800

Credit =Bulidings A/c $184800

In Dec 2020 dep Expenses

Debit=Depreciation A/c $25025

Credit =Bulidings A/c $25025