Transaction $3$

Penaga Indah purchased new equipment. The cost includes purchase price RM$2,300,000,$ sales

and services tax RM$138,000,$ insurance in transit RM$2,000,$ delivery cost RM$10,000,$ installation

cost RM$15,000,$ and the first year maintenance cost RM$5,000.$ The equipment is expected to be

used in $10$ years, and the estimated residual value is RM$8,000.$

Required:

a$)$ Penaga Indah capitalized all costs as equipment consistent with MFRS$116$ Property, Plant

and Equipment. Explain whether you agree or not with the accounting treatment.

b$)$ Prepare the journal entry to record the depreciation expense for the first year.

i$)$ Assumes that Penaga Indah uses a straight$-$line method.

ii$)$ Assumes that Penaga Indah uses a double$-$declining$-$balance method.

c$)$ Explain the effect of the different methods used in $($b$)$ on the net profit.