Lampu Terang Bhd is one of the largest electrical and electronic distributors in Malaysia that was established in 1975s. The company has been listed in the Bursa Malaysia in the beginning of year 2019. Besides conventional way of selling goods via its outlets throughout the nation, Lampu Terang Bhd also sell its goods online through its website. Mr Johan joined the company as a new Accountant on 30 June 2020. The previous head of accountant has left the company at the end of 2019.

PART 1

Currently, Lampu Terang Bhd is employing periodic inventory system in managing and recording its inventory. Mr Johan is not happy with the current system because the latest amount of inventory and cost of goods sold is not available at any point of time. The perpetual system able to verify inventory balances in real-time and it can be used to monitor trends in the usage patterns and alter procurement plans accordingly. However, Mr. Johan is concerned about the upfront costs associated with implementing a new system. Mr Johan is thinking whether it should change its old inventory system to perpetual inventory system.

Lampu Terang Bhd was just recently listed in Bursa Malaysia. Mr Johan have to make sure that the company remain attractive to investors. Therefore, he aimed to report a higher amount of profit. Mr. Johan also noticed that the purchase cost for merchandise is keep increasing and he believed that this scenario will affect the amount of profit for LampuTerang Bhd. He also realised that the choice of inventory cost flow assumption will also affect the companys profit. Mr Johan was in a dilemma whether it should change its inventory cost flow assumptions from average cost basis to First-in-First-out (FIFO). Mr Johan asked Miss Meena to advise him on that matter.

The following information has been extracted from the records of Lampu Terang Bhd about one of its new products; Moderna Vacuum for the month of January 2020.

1 January	Purchased 5,000 units from a supplier at the total cost of RM150,000. The purchase was made by cash.
3 January	Sold 2,500 units to Hotel Meera Sdn Bhd by credit at a price of RM45 per unit.
11 January	Purchased 2,000 units from a BangGo Enterperise at a price of RM32 per unit. The purchase was made by cash.
20 January	Received full payment from Hotel Meera Sdn Bhd.
23 January	Sold 4,000 units to CleaningKu Bhd by credit at a price of RM45.
28 January	Purchased 1,500 units from VacuumTop Sdn Bhd at the total cost of RM52,500. The credit terms given was 2/10, n/45.

PART 2

Mr Johan have reviewed the draft account for 2020 and noticed that the company was in financial difficulties at the beginning of the year. Therefore, the company used its account receivables as a means of obtaining cash to continue its operations. The following is information related to selected activities for the month of January until March 2020.

15 Jan The clients Terbaik Bhd forwarded a notice to Lampu Terang Bhd asking for longer credit period. The sales amounting RM290,000 is for previous month sales. Lampu Terang Bhd agreed to extend the credit period and convert the remaining balance of account receivable to 10%, 120-day Note Receivable.

1 Feb Lampu Terang Bhd factored with recourse RM150,000 of account receivable for a cash proceed of RM140,000 to the Adawiyah Bank Berhad. Adawiyah Bank Berhad withheld 8% of account receivable as protection against sales return and allowance. The difference between factored account receivable and cash proceed is considered as a finance charge.

29 Feb Adawiyah Bank Berhad manage to collect RM136,000 of the factored account receivable, which include sales return and allowance of RM5,500. The remaining balance of account receivable is uncollectible. Settlement of factored accounts receivable was done on this date.

1 March Lampu Terang Bhd assigned RM90,000 of its account receivable as collateral on a RM70,000, 12% loan from Adawiyah Bank Berhad. A commission of 6% on the face amount of loan was charged.

30 March Collect RM74,000 of account receivable assigned and remitted it to Adawiyah Bank Berhad.

Mr Johan retraced the recording of the above transactions and he finds out that the related transactions are properly recorded. Mr Johan also performed extensive review on the notes to account. After reviewed the notes to accounts for Trade and Other Receivables, Mr Johan noticed that the allowance for bad debts expenses for 2020 remained the same as previous years. It provides clues to possible error in recording. For the past few years, 2% of account receivables are estimated to be uncollectible and the company uses the percentage of receivables method to estimate the bad debt expense. The following is the notes to the accounts for trade and other receivables.

Trade and Other Receivables	2020	2019
	RM	RM
Trade receivables	1,650,000	1,400,000
Less: allowance for bad debt expenses	28,000	28,000
	1,622,000	1,372,000
Other receivables, deposits and prepayment	88,440	111,386
Total	1,710,440	1,483,386

PART 3

Mr. Johan recalled from the companys book related to the acquisition of major assets for the company. He wants to let his staff analyse the following transactions related to the companys operation:

Date	Events
Year 2017
1 June	Acquired a piece of land with an old factory building. Lampu Terang Bhd paid RM100,000 cash and the balance is to be paid by signing a 5-year, non-interest bearing note with a present value of RM526,000. Lampu Terang Bhd intended to scrap the old building and construct a new one.
5 June	Paid RM1,000 for real estate taxes, RM2000 real estate agent commission fees and RM1,500 for title expenses.
10 June	Paid RM 10,000 for the cost of clearing the land.
20 June	Paid RM5,000 for the razing and excavation cost for the new factory building.
25 June	Received RM10,000 from residual value of demolished building.
1 July	Paid RM15,000 for the first payment on architect fees.
1 December	Paid RM25,000 for installation of electricity, telephone and water supplies for the building.
15 December	Paid RM30,000 for the final payment on architect fees. Paid RM20,000 for installation fees and construction of fences around the property.
Year 2018
1 January	Purchased on account ten (10) heavy duty fully embroidery industrial sewing machines with FOB shipping point. The list price for each machine is RM25,000 and a trade discount of 20 percent was approved. Total freight and insurance cost while in transit was RM10,000.
3 January	Paid RM 20,000 for title expenses, moving and installing the new sewing machines.
4 January	Paid RM1,000 each for 5 technicians to inspect and test the newly acquired sewing machines.
5 January	Paid RM15,000 for the first year insurance premium for the sewing machines.
7 January	Purchased a truck with a list price of RM200,000 and received a discount of 5 percent.
7 January	Paid RM6,000 for title transferred and related costs for the truck.
30 June	Paid RM2,000 for repair and maintenance costs for sewing machines.

Additional information:

1. Total cost of materials, labour and overhead costs for the construction of the new factory were RM 250,000, RM100,000 and RM50,000 respectively.
2. The cost of parking lots and driveways were RM65,000.
3. Interest cost to be capitalised for the borrowing costs for the construction of the building were RM10,000.
4. The factory building was fully equipped and is used on 1 January 2018.

QUESTION

PART 3

8. Determine how many TYPES of assets do Lampu Terang Bhd has. Can these assets be considered as Property Plant and Equipment? Discuss your answer in relation to the conceptual framework, elements of financial statement and MFRS 116 Property Plant and Equipment.

9. What are the recognition criteria for property, plant, and equipment in accordance with MFRS 116 Property Plant and Equipment?

10. Determine the initial cost for each of Lampu Terang Bhd assets classified as Property Plant and Equipment (PPE).

11. Determine which of the PPE assets can be depreciated.

12. Determine the appropriate depreciation expense for Lampu Terang Bhds assets assuming that the useful life of truck and sewing machines are estimated to be 10 years while other tangible noncurrent assets are 50 years.