QUESTION 1 Abdullah, Z et al (2019), Topic 1, Revision Q1, pg 44 QUESTION 2 Oppocot Bhd is a business that manufactures mobile phone located in Kulim, Kedah The following information is related to the property, plant and equipment (PPE) of the company as at 31 December 2017 RM Land (at revalued amount) 2,500,000 Unrealized gain on revaluation land 500,000 Machinery (at cost) 580,000 Accumulated depreciation machinery 180,000 Equipment (at cost) 140,000 Accumulated depreciation equipment 36,000 Additional information The land, which was bought on 1 April 2010, is estimated to have an indefinite useful economic life It is companys policy to revalue the land every two years At end of financial year 2018, the land is revalued down to RM1,800,000 At the end of financial year 2018, the company conducted an impairment test for all its PPE and found that there is an indication of impairment on its assembling machine The machine was acquired on 1 July 2015 at a cost of RM125,000 with an estimated residual value of RM5,000 and useful life of 6 years It is expected that the machine will be used extensively in its earlier years Given that the present value of future net cash flows from this machine is estimated to be RM50,000 and its fair value less cost to sell is estimated to be RM52,000 On 20 May 2018, the company bought a new equipment at a cost of RM100,000 to replace an old equipment The cost and accumulated depreciation of the old equipment was RM90,000 and RM25,000, respectively The company paid RM60,000 for the replacement The board of directors of the company has approved a project to build its own factory building in the year 2018 to accommodate more production activities in the future The construction project began on 1 January 2018 and is estimated to complete on 31 December 2018 To finance the construction activity, the company made a 5 year term loan of RM300,000 with 10 interest rate from ABBA Bank Bhd on 1 March 2018 The following expenditure were incurred during the construction period Date RM 11 Jan 2018 5,000 3 Mar 2018 90,000 9 May 2018 240,000 28 July 2018 180,000 2 Dec 2018 250,000 In addition to the specific loan, the company also had other debts outstanding throughout 2018 a 10 year term loan of RM2,000,000 with 8 annual interest rate and a 3 year term loan of RM50,000 with 10 annual interest rate It is the companys policy to depreciate all its PPE (except land) using a straight line method regardless of the pattern of consumption of the future economic benefits embodied in the assets REQUIRED (Round your answer to the whole number) Prepare the journal entries to record the revaluation of land in year 2018 Determine whether the assembling machine is impaired during year 2018 Prepare the journal entry (if any) to record the impairment on 31 December 2018 Prepare the journal entry to record the replacement of equipment on 20 May 2018 Determine the interest capitalized on building Prepare the journal entries related to the interest capitalization for the year 2018 Determine the carrying amount of the assembling machine on 31 December 2019 Assume that the recoverable amount of the assembling machine is RM32,200 on 31 December 2019, prepare the journal entry to record any recovery of impairment loss on that date Discuss the appropriateness of the companys policy regarding the depreciation method applied on the assembling machine QUESTION 3 Fisheries Bhd is a small listed company involves in fishing and selling fish to the public via retail outlets The company owns a building that was acquired in early September 2014 for RM1,200,000, with an estimated useful life of 20 years It also possesses two boats, with details as below Mirabella Boat that was purchased for RM600,000 on 8 February 2015 and Fleur Boat, a qualifying asset under MFRS 123 Borrowing Costs , constructed by Fisheries Bhd from 1 March 2016 to 30 November 2016 The company had the following outstanding loans as at 31 December 2016 Bank Loan amount (RM) Interest rate ( ) Date loan raised Status of loan General loan TZ Bank 400,000 12 1 January 2015 Date loan settled 25 July 2016 ZE Bank 450,000 15 1 October 2015 Ongoing Construction loan TZ Bank 500,000 12 1 April 2016 Ongoing Construction costs of the boat include Detail Amount (RM) Payment date Purchase of materials 570,000 1 March 2016 Cost of labour 240,000 5 June 2016 Other expenditures 270,000 20 July 2016 On 31 December 2018, the financial year end (FYE) of Fisheries Bhd, Mirabella Boat collided with other boats in Blue Sea The boat market value dropped to RM230,000, before taking into account the expected selling cost of RM30,000 After the collusion, it is estimated that the net present value from the use of the damaged boat is RM200,000 and an estimated net present value from the sale of the damaged boat is RM10,000 When finalising the accounts for the FYE 2018, the accountant received a memo from the management that the building was revalued to RM1 5 million by Wembley Appraisal on 31 December 2018 Fisheries Bhd adopts the revaluation model to account for the building subsequently The estimated useful life of the building remains the same, and the company transfers the accumulated other comprehensive income to retained earnings as the asset is used On the other hand, the accounting policy relating to boat remains unchanged and is as follows The boat is carried at cost less accumulated depreciation and accumulated impairment losses Depreciation is provided at 15 per annum on a straight line basis The elements of the financial statements are fully recognised for a month if the transactions related to those elements occur more than 14 days in the month REQUIRED (Round your answer to the whole number) Calculate the interest to be capitalised for the construction of Fleur Boat Prepare the journal entries related to the interest capitalisation for the year 2016 Calculate the recoverable amount and impairment loss for Mirabella Boat, if any, on 31 December 2018 and prepare the relevant journal entries, if any Prepare the necessary journal entries related to the revaluation of the building for the years 2018 and 2019 After a few years of using Fleur Boat, the boat was repaired during the FYE 2019 at the cost of RM50,000 The repair includes removing the old fibreglass skin with a new fibreglass and painting of the peeling paint Fisheries Bhd would obtain future economic benefits after the repair Explain the accounting treatment for the repair of the boat

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QUESTION 1 Abdullah, Z. et al (2019), Topic 1, Revision Q1, pg. 44 QUESTION 2 Oppocot Bhd is a business that manufactures mobile phone located

QUESTION 1

Abdullah, Z. et al (2019), Topic 1, Revision Q1, pg. 44

QUESTION 2

Oppocot Bhd is a business that manufactures mobile phone located in Kulim, Kedah. The following information is related to the property, plant and equipment (PPE) of the company as at 31 December 2017:

	RM
Land (at revalued amount)	2,500,000
Unrealized gain on revaluation- land	500,000
Machinery (at cost)	580,000
Accumulated depreciation-machinery	180,000
Equipment (at cost)	140,000
Accumulated depreciation-equipment	36,000

Additional information:

The land, which was bought on 1 April 2010, is estimated to have an indefinite useful economic life. It is companys policy to revalue the land every two years. At end of financial year 2018, the land is revalued down to RM1,800,000.

At the end of financial year 2018, the company conducted an impairment test for all its PPE and found that there is an indication of impairment on its assembling machine. The machine was acquired on 1 July 2015 at a cost of RM125,000 with an estimated residual value of RM5,000 and useful life of 6 years. It is expected that the machine will be used extensively in its earlier years. Given that the present value of future net cash flows from this machine is estimated to be RM50,000 and its fair value less cost to sell is estimated to be RM52,000.

On 20 May 2018, the company bought a new equipment at a cost of RM100,000 to replace an old equipment. The cost and accumulated depreciation of the old equipment was RM90,000 and RM25,000, respectively. The company paid RM60,000 for the replacement.

The board of directors of the company has approved a project to build its own factory building in the year 2018 to accommodate more production activities in the future. The construction project began on 1 January 2018 and is estimated to complete on 31 December 2018. To finance the construction activity, the company made a 5-year term loan of RM300,000 with 10% interest rate from ABBA Bank Bhd on 1 March 2018. The following expenditure were incurred during the construction period:

Date RM

11 Jan 2018 5,000

3 Mar 2018 90,000

9 May 2018 240,000

28 July 2018 180,000

2 Dec 2018 250,000

In addition to the specific loan, the company also had other debts outstanding throughout 2018: a 10-year term loan of RM2,000,000 with 8% annual interest rate and a 3-year term loan of RM50,000 with 10% annual interest rate.

It is the companys policy to depreciate all its PPE (except land) using a straight-line method regardless of the pattern of consumption of the future economic benefits embodied in the assets.

REQUIRED:

(Round your answer to the whole number)

Prepare the journal entries to record the revaluation of land in year 2018.

Determine whether the assembling machine is impaired during year 2018. Prepare the journal entry (if any) to record the impairment on 31 December 2018.

Prepare the journal entry to record the replacement of equipment on 20 May 2018.

Determine the interest capitalized on building. Prepare the journal entries related to the interest capitalization for the year 2018.

Determine the carrying amount of the assembling machine on 31 December 2019. Assume that the recoverable amount of the assembling machine is RM32,200 on 31 December 2019, prepare the journal entry to record any recovery of impairment loss on that date.

Discuss the appropriateness of the companys policy regarding the depreciation method applied on the assembling machine.

QUESTION 3

Fisheries Bhd is a small listed company involves in fishing and selling fish to the public via retail outlets. The company owns a building that was acquired in early September 2014 for RM1,200,000, with an estimated useful life of 20 years. It also possesses two boats, with details as below:

Mirabella Boat that was purchased for RM600,000 on 8 February 2015; and
Fleur Boat, a qualifying asset under MFRS 123 Borrowing Costs, constructed by Fisheries Bhd from 1 March 2016 to 30 November 2016.

The company had the following outstanding loans as at 31 December 2016:

Bank	Loan amount (RM)	Interest rate (%)	Date loan raised	Status of loan
General loan: TZ Bank	400,000	12	1 January 2015	Date loan settled: 25 July 2016
ZE Bank	450,000	15	1 October 2015	Ongoing
Construction loan: TZ Bank	500,000	12	1 April 2016	Ongoing

Construction costs of the boat include:

Detail	Amount (RM)	Payment date
Purchase of materials	570,000	1 March 2016
Cost of labour	240,000	5 June 2016
Other expenditures	270,000	20 July 2016

On 31 December 2018, the financial year-end (FYE) of Fisheries Bhd, Mirabella Boat collided with other boats in Blue Sea. The boat market value dropped to RM230,000, before taking into account the expected selling cost of RM30,000. After the collusion, it is estimated that the net present value from the use of the damaged boat is RM200,000 and an estimated net present value from the sale of the damaged boat is RM10,000.

When finalising the accounts for the FYE 2018, the accountant received a memo from the management that the building was revalued to RM1.5 million by Wembley Appraisal on 31 December 2018. Fisheries Bhd adopts the revaluation model to account for the building subsequently. The estimated useful life of the building remains the same, and the company transfers the accumulated other comprehensive income to retained earnings as the asset is used. On the other hand, the accounting policy relating to boat remains unchanged and is as follows:

The boat is carried at cost less accumulated depreciation and accumulated impairment losses. Depreciation is provided at 15% per annum on a straight-line basis.

The elements of the financial statements are fully recognised for a month if the transactions related to those elements occur more than 14 days in the month.

REQUIRED:

(Round your answer to the whole number)

Calculate the interest to be capitalised for the construction of Fleur Boat. Prepare the journal entries related to the interest capitalisation for the year 2016.

Calculate the recoverable amount and impairment loss for Mirabella Boat, if any, on 31 December 2018 and prepare the relevant journal entries, if any.

Prepare the necessary journal entries related to the revaluation of the building for the years 2018 and 2019.

After a few years of using Fleur Boat, the boat was repaired during the FYE 2019 at the cost of RM50,000. The repair includes removing the old fibreglass skin with a new fibreglass and painting of the peeling paint. Fisheries Bhd would obtain future economic benefits after the repair. Explain the accounting treatment for the repair of the boat.