QUESTION 3

PART A

The whole world was facing an epidemic, COVID-19 in the year 2020. On March 15, the

Malaysian government announced a special grant to purchase equipment for those who are

willing to manufacture a special suits for the frontliners fighting the disease. YY Sdn Bhd

applied for the grant and received the approval for RM30,000 to purchase the equipment

on 20 March 2020. The equipment cost RM70,000 and YY began manufacturing the suits

beginning 1 April 2020. The grant was received on 15 April 2020. The equipment was

expected to have a useful life of 3 years with a scrap value of RM10,000. YY uses the

writeoff against asset method.

YY's year end is 30 June. They depreciate their equipment on a straight line basis.

Required:

Prepare the journal entries to record the purchase of the equipment, the grant and the

depreciation for the year ended 30 June 2020.

PART B

Dermaga Bhd is a luxury resort in Langkawi and leased a bayside plot of land to build a

wharf for yachts belonging to its customers. The lease was for 20 years beginning the year

2001. Dermaga did an extensive development of the wharf and expected it to have a useful

life of 40 years at a cost of RM10 million. They were fully expecting to have their lease

renewed for another 20 years. The wharf was depreciated on a straightline basis with zero

residual value. Dermaga's financial year end is on 31 December.

Unfortunately, they have just received news that the district office will only renew their

lease for another 2 years and they were told that the lease will not be renewed any further

as the government wishes to takeover the wharf as a public facility. They will be

compensated with RM2 million for all buildings as well as any fixtures and fittings at the

end of 2022.

Required:

Illustrate the accounting treatment for the year ending 31 December 2020..