QUESTION 3 On 1 January 2006, Lepok Bhd acquired a piece of land and commenced construction of factory on the land. The following expenditure was incurred: RM'000 500,000 25,000 10,000 12,000 Purchase price of the land Legal fees for the land purchased Cost of demolishing an old building on the land Cost of clearing and levelling the land Architect's fees for the factory Cost of construction of factory Demolishing quarters for the workers constructing the factory Proceeds from salvage construction material sold 15,000 600,000 8,000 11,000 The factory building was completed and used for operation on 1 January 2008. The estimated useful life of the factory is 30 years. It is the company's policy to provide depreciation based on straight-line method, calculated on monthly basis on its non-current assets. On 1 October 2010, the factory building underwent an extensive renovation to accommodate the company's expansion programmes. The renovation cost the company RM1,200,000,000. The renovation work was completed on 1 January 2013 Lepok Bhd adopted the revaluation model as subsequent measurement to account for its land and building. The following is the open market value related to the land and factory building: Date of Valuation Land RM'000 800,000 Factory RM'000 1,715,000 1 July 2013 Required: a. Discuss why information about the company's land and factory is useful to the investors and lenders. (5 marks) b. Explain whether the factory is a property, plant and equipment as per MERS 116 Property, Plant and Equipment or an investment property as per MERS 140 Investment Property (5 marks) C. Explain which of the costs incurred may be part of the cost of the factory at the initial recognition (5 marks) d. Describe the accounting treatment of the renovation cost incurred in 2010. (5 marks) e. Determine the carrying amount of the land and building as at 30 June 2014. (5 marks) (Total: 25 marks) 3