QUESTION 1 (20 MARKS)

Advance Energy Bhd (AEB) acquired a piece of land and a building on 1 January 2017 at the cost of RM6,000,000 and RM8,000,000 respectively. AEB decided that the acquisition of land is for long term capital appreciation. As for the building, it was planned to be rented out to its wholly subsidiary, Imperial Bhd. The fair value of land and building on 31 December 2017 was RM9,000,000 and RM6,000,000 respectively.

On 31 August 2018, due to insufficient working space, AEB decided to terminate the rental agreement with its subsidiary and used the building for administrative use. The building was expected to have a remaining useful life of 10 years. The fair value of the building on 31 August 2018 was RM14,000,000. Unfortunately, due to liquidity issues, AEB sold both land and building on 30 April 2019 for RM15,500,000 and RM12,500,000 respectively. AEB adopted a fair value model for investment property and revaluation model for owner-occupied property. AEB depreciates its non-current assets using the straight-line method and closes its account on 31 December each year.

REQUIRED:

(Round all numbers to the nearest RM)

(a) Prepare the journal entries for Advance Energy Bhd for its transaction in the year 2017 and 2018.

(8 Marks)

(b) Prepare the journal entries for Advance Energy Bhd when it sold both properties in the year 2019.

(8 Marks)

(c) In accordance with MFRS 140 Investment Property, discuss how Advance Energy Bhd consider the accounting treatment for the building that be rented out to Imperial Bhd.

(2 Marks)

(d) After the initial recognition, MFRS 140 Investment Property requires an entity to choose either the cost model or fair value model as its accounting policy. Briefly explain TWO (2) differences between these two models.

(2 Marks)

QUESTION 2 (15 MARKS)

The declaration by the World Health Organization (WHO) that the coronavirus, or COVID-19, a global pandemic, affecting many companies including TaraTera Bhd (TTB). TTB is in poultry farming of Brahma chicken since the year 2015 with financial year ending in June. Due to the fall in demand, chicken prices drop, and the poultry industry affected. As a result, starting from 31 December 2019, chicken price is available at their net value of RM5.00 per unit in retail compared with RM12.00 per unit earlier before the outbreak. However, the market value for chicks remains the same. Earlier, on 31 October 2019, all chickens from the opening record were entirely sold at RM15 per unit. TTB only sell chicken above one year old to retailers.

On 1 July 2019, TTB had the following poultry stocks:

Quantity Fair value per Cost to sell unit (RM) per unit (RM) Chicks (below 1 year old)* 20,000 10 Chicken (above 1 year old) 40,000 15 Literally, the chicks will become chicken at the date of reporting 2020Date Transactions 5 January 2018 Suffi Bhd purchased RM5,000,000 of 12% bonds for RM5.250,000. The bonds provide the bondholders with a yield of 11% market rate. The interest is paid at the end of the year. The company holds the bonds to collect contractual cash flows. 30 September 2018 Suffi Bhd acquired 20,000 shares of Gemilang Bhd at RM3.50 per share and the transaction cost incurred was RM8,500. Suffi Bhd intended to sell the shares of Gemilang Bhd in the middle of 2019 to take advantage of the changes in the share prices. 7 October 2018 Suffi Bhd acquired 30,000 shares of Harmoni Bhd at RM2.00 per share. The brokerage fee incurred was RM6,000. Kukuh Bhd intended to establish these shares as a long term investment. 15 June 2019 Suffi Bhd sold 50% shares of Gemilang Bhd at the selling price of RM4.00 per share