QUESTION 1

A. NanoTech Bhd is a company that involved in manufacturing and biotechnology activities. Following is the list of assets acquired and constructed during 2020.

1. Transaction 1

NanoTech Bhd exchanged 24,000 of its ordinary shares for a piece of land held by Mono Bhd. The market value per share of NanoTech Bhd was RM48 on the date of exchange and NanoTech Bhd shares are actively traded. In addition, NanoTech Bhd paid RM4,000 for real estate agent commission and another RM15,000 for real estate taxes. After acquisition, the old building on that land was demolished at a cost of RM23,000. Part of salvaged material was sold for RM6,800. NanoTech Bhd also incurred cost of RM13,000 to clear the land. The costs of RM16,000 were paid for fences and another RM22,000 for parking lots. Both fences and parking lots have an estimated useful life of 10 years and the straight-line method is used to depreciate the asset.

2. Transaction 2

NanoTech Bhd engaged Coco Construction to design and construct a modern factory building. Construction began on 1 March 2020 and completed on 31 December 2020. NanoTech Bhd made the total payments of RM1,500,000 to Coco Construction during 2020. Other costs involved in the construction are factory permit fees of RM5,000, insurance during construction totalled RM20,000 and interest incurred to finance the project of RM80,000.

3. Transaction 3

A brand new machine that can facilitate the companys production process was bought at a quoted price of RM800,000, subject to terms of 1/20, n/60. In addition, the following expenditure were incurred and paid by NanoTech Bhd for the machine:

i. Delivery cost of RM1,500

ii. Installation cost of RM18,000

iii. Storage cost for the machine of RM200 as the machine was delivered before the factory is ready for installation.

iv. Insurance of RM50,000 were incurred as the management seeks to reduce the risk of fire. Out of this amount, 25% was meant to secure the machine while it was in transit.

v. Expense incurred to test the functionality of the installation amounting to RM6,000.

vi. Maintenance fee charge for one year from 1 October 2020 amounting to RM10,000.

vii. Small spare parts of RM3,500. viii. Technician training costs to handle the machine was RM12,000.

4. Transaction 4

NanoTech Bhd exchanged Building XY which has an appraised value of RM750,000, cost of RM1,265,000, and accumulated depreciation of RM600,000 with Building MZ owned by Xibo Bhd. Building MZ has an appraised value of RM700,000, cost of RM1,505,000, and accumulated depreciation of RM792,000. The correct amount of cash was also paid or received. Assume depreciation has already been updated and the exchange has commercial substance.

REQUIRED:

(a) Calculate the cost of land, land improvement, factory, machine and building based on MFRS 116 Property, Plant and Equipment. Please show your calculations.

(b) Prepare the journal entries to record the acquisition of land, land improvement, factory, machine and building in accordance to MFRS 116 Property, Plant and Equipment. Please show your calculations.

B. Optimal Health Bhd (OHB) is in the process of formulating a vaccine to curb the spread of COVID-19 starting from the beginning of year 2020. OHB will strictly comply to the requirements of The Ministry of Health (MoH) and the National Pharmaceutical Regulatory Agency (NPRA), to ensure that the vaccine approved to be registered and marketed in Malaysia is safe, of good quality and has optimum efficacy according to requirements set by the World Health Organisation (WHO). The vaccine should show a minimum level point estimate vaccine efficacy (VE) of 50% in clinical trials, although a point estimate of 70% is preferred. The vaccine should generate antibodies that can stay in a persons body for at least six (6) months. Currently, the research and development (R&D) process of OHB has reached the stage of VE of 50% in clinical trials, but the generate antibodies still could not scientifically be proved to stay in a persons body for at least six (6) months. However, OHB has a strong indication that the project will have a positive result in the next clinical test. To date, OHB has spent RM1.8 million this year, where 65% of it is under research costs.

REQUIRED:

(a) Discuss the accounting treatment for R&D process of Optimal Health Bhd according to MFRS 138 Intangible Assets.

(b) In your opinion, does Optimal Health Bhd has reached the economic viability point? Explain your answer and suggest the accounting treatment according to MFRS 138 Intangible Assets.

QUESTION 2

BrownCo Bhd is a merchandising company which newly engaged in trading of product AAA and it uses perpetual inventory system for maintaining inventory records. The company closes its account on every 31 December. The following transactions occurred during year 2020:

REQUIRED:

(a) Calculate the cost of inventory on hand on 31 December 2020 and the cost of sales for the year ends 31 December 2020 using: i. the FIFO cost method ii. the moving average cost method (round total cost amounts to the nearest RM).

(b) Suggest which cost flow assumptions (FIFO or average cost) is more relevant if BrownCo Bhd wants to attract more investors. Justify your answer.

(c) Assume that on 31 December 2020, a physical count indicates inventory of 1,150 units were actually on hand. Briefly explain the accounting treatment related to this issue.

Date Transaction 2 January Purchased 500 units of product AAA from Berkat Sdn Bhd at the cost of RM282 per unit. 19 February 24 February Purchased 5,500 units of product AAA from Meera Enterprise with a cost of RM294 per unit. 400 units of product AAA that were bought on 19 February were returned to Meera Enterprise. Sold 3,500 units of product AAA to Gama Sdn Bhd at a price of RM380 per unit. 10 March 22 April Purchased another 8,000 units of product AAA from Berkat Sdn Bhd with overall cost of RM2,400,000. 10 September Sold 9,000 units of product AAA to Setia Sdn Bhd with a selling price of RM390 per unit. 15 September Setia Sdn Bhd returned 100 units of product purchased on 10 September 2020. Date Transaction 2 January Purchased 500 units of product AAA from Berkat Sdn Bhd at the cost of RM282 per unit. 19 February 24 February Purchased 5,500 units of product AAA from Meera Enterprise with a cost of RM294 per unit. 400 units of product AAA that were bought on 19 February were returned to Meera Enterprise. Sold 3,500 units of product AAA to Gama Sdn Bhd at a price of RM380 per unit. 10 March 22 April Purchased another 8,000 units of product AAA from Berkat Sdn Bhd with overall cost of RM2,400,000. 10 September Sold 9,000 units of product AAA to Setia Sdn Bhd with a selling price of RM390 per unit. 15 September Setia Sdn Bhd returned 100 units of product purchased on 10 September 2020