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Korbu Berhad is a snacks manufacturer. Korbu Berhad measures all of its assets using the revaluation model. On 1 January 2019, an independent valuation of

Korbu Berhad is a snacks manufacturer. Korbu Berhad measures all of its assets using the revaluation model. On 1 January 2019, an independent valuation of all Korbu Berhad's assets was carried out. However, the new valuations have not been incorporated into Korbu Berhads financial statements for the year 2019. Relevant details are as per below.

Assets

carrying amount st 1 January

2019

Fair value at 1 January 2019

Estimated remaining useful life at 1 January

2019

Annual depreciation

charge as at 31 December 2018

Tanah/

Land

RM3,200,000

RM4,000, 000

Bangunan/

Buildings

RM7,624, 000

RM10,000,000

40 ears

RM 86,000

Mesin/

Machinery

RM3,262,800

RM1,800,000

8 years

RM485,200

Korbu Berhad has a evaluation surplus reserve of RM500, 000 in respect of revaluations of machinery.

Dikehendaki/Required.

  1. Explain why might a company choose not to use revaluation accounting for their assets?

(1 mark)

  1. Prepare the necessary journal entries to record revaluation for land, building and machinery on 1 January 2019.

(6 marks)

(total: 7marks )

Soalan/Question 3 (B)

The Board of Directors of Arif Berhad is considering whether to change from a Weighted Average Cost (WAC) basis of pricing inventories to a First-in, First-out (FIFO) inventory cost flow method. For the year ended 31 December 2018, the accounting records show the following data:

Details

Unit

RM (per unit)

Sales

40,000

60

Inventory at 1 January

12,000

30

Purchases

12,000

32

20,000

35

14,000

40

Inventori pada 31 Disember

Inventory at 31 December

18,000

Operating expenses

300.000

Required:

For the year ended 31 December 2018:

  1. With reference to MFRS 102 - Inventories, explain to the management of Arif Berhad as to why inventories shall be measured at the Lower of Cost and Net Realizable Value. What approaches may be employed in applying the Lower of Cost and Net Realizable Value procedure.

(2 marks)

Determine the ending inventory using each of the inventory cost flow methods below.

  1. Weighted Average Cost (WAC)

  1. First-in, First-out (FIFO)

(4 marks)

(2 marks)

  1. Prepare comparative condensed income statements for Arif Berhad for the year ended 31 December 2018, based on FIFO and WAC inventory cost //ow methods. (Hint. Candidates are required to prepare both income statements using one table in a columnar form).

(7 marks)

  1. Explain to directors of Arif Berhad, whether RM50,000 of good on consignment was included in its ending inventory balance.

(2 marks)

(Total 17 marks)

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