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A manufacturing company commissioned the building of a new factory. The costs associated were as follows: Site selection Site purchase Architect's fees Engineer's fees
A manufacturing company commissioned the building of a new factory. The costs associated were as follows: Site selection Site purchase Architect's fees Engineer's fees Legal fees Construction costs Testing & checking of machinery Administration costs RM 30,000 1,000,000 50,000 150,000 50,000 1,500,000 250,000 500,000 The plant was available for use on 31st March 2024 and reached normal production levels by 31st October 2025. Extra notes: Included in the architect's fees is abnormal loss of RM10,000. Included in testing and checking of machinery costs was /50,000 in connection with a six-monthly diagnostic check of machinery. Required, Calculate the cost of the factory to be included in Non-current assets in accordance with MFRS116, Property Plant and Equipment. Abby Ltd is a manufacturing company located in Nilai, Negeri Sembilan. The records of Abby Limited include the following balances as at 1 January 2023: Accumulated Depreciation Depreciation policy E/E Cost E/E EX Property 1,450,000 348,000 4% p.a. Straight line Plant and machinery 980,000 422,000 5% p.a. Reducing balance Fixtures and fittings 1,340,000 389,000 7.5% p.a. Straight line During the year ended 31 December 2023 the following events occurred: 1 March 2023 A new piece of machinery costing RM116,500 was purchased. The new machine is expected to have a residual value of RM20,000 and a shorter useful life than the existing plant and machinery and accordingly should be depreciated at a rate of 8% p.a. reducing balance. 1 July 2023 Fixtures and fittings, that cost RM360,000, and had a net book value of RM115,000 on 1 January 2023, were sold for RM130,000. 1 October 2023 An extension to the company's property was completed. The following costs were incurred: Site preparation Materials Labour Architect fees General administration Re-design costs RM 67,500 234,700 421,300 22,680 26,450 17,800 Cost of borrowing funds to finance extension 27,980 It is the company's policy to charge a full year's depreciation in the year of acquisition and no depreciation in the year of disposal. Depreciation has not yet been provided for and no entries have been made to record the above events. Requirement (a) Prepare the following ledger accounts for Abby Limited, as at 31 December 2023, to record the above events for both plant and machinery and fixtures and fittings: i. Cost ii. Accumulated depreciation iii. Disposal (only relevant for fixtures and fittings (17 marks) (b) Use your understanding of MFRS116 Property, Plant and Equipment to answer the following questions: i. Define the cost of an asset. (4 marks) ii. What conditions must be met before the cost of an asset can be recognised in the financial statements of a business? (2 marks) iii. How should costs which are disallowed under MFRS116 be treated in the financial statements of a business? (2 marks) 3/3 iv. Which costs incurred during the construction of the company's property extension, completed on 1 October 2023 and noted above, can be capitalised? (5 marks) [
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