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Gudpaper Bhd is a manufacturing company produces tissue products consist of facial tissue, toilet tissue, kitchen towel rolls and napkins. The company s factory located
Gudpaper Bhd is a manufacturing company produces tissue products consist of facial tissue, toilet tissue, kitchen towel rolls and napkins. The companys factory located at Kulim Hitech Park, Kedah. The company's accounting yearend is December every year and it uses revaluation model for subsequent measurement of its noncurrent assets. The company also prepares interim reports every six months. Accounting records of the company after yearend adjustments showed the following balances as of December :
Items RM
Noncurrent Assets:
Freehold Land
Factory Building
Less: Accumulated Depreciation
Machineries
Less: Accumulated Depreciation
Accumulated Impairment
Equity:
Retained Earnings
Unrealised Gain on Revaluation Land
Noncurrent Liabilities:
Note Payable
The evaluation by the consultant showed that the fair value of the land was RM million as of December On the other hand, the company depreciates its factory building at per annum using straightline method.
The company also tested their machineries for impairment. The machineries were bought in the early of year and have expected useful life of years with residual value of RM The market survey indicated that the fair value of the machineries at the end of year were RM The company continues to use straight line depreciation for the remaining years and expected residual value of the machineries remains the same.
Due to the increase in the demand of its products, the company decided to build a new factory building on the same site. The company agreed to appoint Binaterus Sdn Bhd to start the construction on February and expected to complete in two years. To finance the construction cost, Gudpaper Bhd borrowed RM at a annual interest rate on February payable annually on December for five years. The company made payments to the contractor as below:
Date of payment Amount paid RM
March
June
The company is preparing its halfyearly financial statement ended June During the first six months, a portion of proceeds from the borrowing that had not yet been expended in the construction were invested and earned RM in interest income.
REQUIRED: Show all workings and round the answers to the whole number.
a Prepare journal entries related to the revaluation of land at the end of the year
b Prepare journal entries in relation to impairment loss if any for machineries in year
c Determine the amount of borrowing cost to be capitalised in relation to the construction of the new building and prepare journal entries to record the capitalisation of interest and interest expenseincome if any for the sixmonth ended June
d Determine the depreciation for the building and machineries and prepare journal entries to record depreciation for those assets for the sixmonth ended June
e Discuss the difference between depreciation and impairment of assets in terms of:
i Meaning;
ii Reasons; and
iii. Accounting treatment.
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