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:

1. 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.

2. 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.

3. 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.

4. 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.

5. 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)

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

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

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

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

5. 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.

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