Client 3: Sutra Bhd

Sutra Bhd is a listed company that engages in trading of silverwares. In its first year of operation, the financial year of 2016, the company purchased a land worth of RM10 million and plant and equipment with the value of RM10.5 million. The plant and equipment was estimated to a have useful life of 10 years with no salvage value. The company used cost model and the straight-line depreciation method for its plant and equipment.

On 1 January 2019, a new freehold land with the value of RM12 million was purchased by Sutra Bhd. An independent appraisal was asked to revalue the plant and equipment. The fair value of the plant and equipment on that date was RM11.5 million. The company decided to adopt revaluation model to account for the plant and equipment subsequently. The remaining useful life of the plant and equipment remained unchanged after the revaluation. The company's net profit for the financial year 2019 was RM750 million.

A summary of the property, plant and equipement (PPE), revaluation reserve and retained earnings for the financial year ended 31 December 2019 and its comparative figures was prepared based on the cost model as follows:

	2019	2018
	(RM' 000)	(RM' 000)
Freehold land	22,000	10,000
Plant and equipment	10,500	10,500
Accumulated depreciation	(4,200)	(3,150)
	28,300	17,350
Revaluation reserve	3,500	3,500
Retained earnings	6,250	5,500

The financial statements for the year ended 31 December 2019 are authorised for issue on 1 April 2020. The following events occurred between 1 January 2020 and 1 April 2020.

1. Megat Bhd who owed Sutra Bhd RM200,000 at year-end was in financial difficulties since early 2018. This information was conveyed to Sutra Bhd in November 2019, and Sutra Bhd processed a doubtful debt adjustment of RM100,000 against the account. In January 2020, Megat Bhd's lawyer announced that it would be paying 40% of all debts.

2. The inventory carried at RM300,000 at year-end was sold for RM200,000 in January 2020 as it had been damaged in flood during September 2019.

3. The rental revenue of RM25,000 for the month of August 2019 had been incorrectly debited in the rental expense in 2019.

4. Sutra Bhd announced in January 2020 that cash dividend of RM1.5 million would be paid to the investors on 15 February 2020.

5. There was a burglary at the premise of Sutra Bhd on 1 January 2020. Cash of RM10,000 was stolen from the vault.

REQUIRED:

1. Discuss the accounting treatment of Sutra Bhds fixed assets in accordance to MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors.

2. Prepare a partial Comparative Statement of Financial Position as at 31 December 2019 for Sutra Bhd, by accounting for the changes in question 8.

3. Explain whether the events occurred between 1 January 2020 and 1 April 2020 should be adjusted by Sutra Bhd when it is finalising its financial statements for the year ended 31 December 2019 in accordance to MFRS 110 Events after the Reporting Period. If the event is an adjusting event, provide the relevant journal entries.

Malaysian system (MFRS)