Zeta Bio Tech Ltd (Zeta) is engaged in manufacturing of biotechnology products with

the below non-current assets as at 30 November 2019:

Land and buildings Plant and equipment

$000

$000

Cost/revalued amount

54,000

21,000

Accumulated depreciation

(825)

(10,710)

Carrying amount

53,175

10,290

Zeta's depreciation policy is 50 years straight-line with no residual value for building

and warehouse and 30% reducing balance for plant and equipment. It adopts

revaluation model for land and buildings and warehouse; and cost model for plant and

equipment in accordance with HKAS 16 Property, Plant and Equipment. Zeta opts for

transfer from revaluation reserves to retained earnings only upon derecognition. It is

also Zetas policy to revalue the land and buildings on every two years basis. The end

of its reporting period is 30 November.

During the year ended 30 November 2020, Zeta has the following movement on non

current assets.

(1) The carrying amount of land and buildings should be revalued on 30 November

2020 to $52.5 million (including $24 million in respect of the land). The land and

buildings as at 1 December 2019 were all purchased on 1 December 2008 and were

last revalued on 30 November 2018 to $54 million (including $21 million in

respect of the land). Up to 1 December 2019, accumulated revaluation deficit for

land is $2.25 million and accumulated revaluation surplus for buildings is $3

million. No land or buildings were disposed of during the year ended 30

November 2020.

(2) On 1 December 2019, Zeta commenced the construction of a new warehouse

facility on a piece of land it owns. Costs incurred were as follows:

$000

Architect's fees

600

Construction materials

3,600

Salaries of internal staff involved in construction

540

Allocation of company overheads (head office costs)

66

Cost of opening the new warehouse

45

The construction was completed on 31 May 2020 and the warehouse came into

use the following day. The construction materials cost was incurred on 1 December

2019 and the construction activities began on the same date.

Construction was partly financed by a new 2-year $3 million loan borrowed

specifically from a local bank at an annual rate of 4%, issued on 1 December 2019.

Interest is paid in arrears on 30 November with an effective interest rate of 6% per

year.

There is a legal requirement to dismantle warehouse in 50 years time from 31 May

2020 and the expected cost of dismantling the warehouse is about $7.5 million on

31 May 2070. Zeta discounts dismantling costs at 5% per annum. The present

value of $1 over 50 years at 5% is 0.0872.

The director of Zeta is not certain how to measure the cost of the warehouse.3

(3) On 1 June 2020, Zeta disposed of a specific machinery (under the category of plant

and equipment) with a carrying amount of $2.573 million at 1 December 2019

(original cost $5.25 million) for $1.65 million by cheque.

Other than the above buildings classified under HKAS 16, Zeta also has a portfolio of

buildings (or part of the buildings) treated as investment properties as at 30 November

2020. They are as follows:

(i) Building being self-constructed for future use as investment property

(ii) An unused flat let out to directors of Zeta

(iii) Former warehouse, unoccupied and no longer required as a warehouse future

use to be determined

The newly appointed accounting manager of Zeta is not certain about the accounting

classification of the above three buildings.

Required:

Round all figures to the nearest $000

(a) Prepare journal entries to record the transactions for Zeta for the year to 30

November 2020 with regards to land and building.

(8 marks)

(b) Show description of items that make up the cost of warehouse as at 31 May 2020

with detail breakdown of each costs. You need to give explanation for item that

cannot capitalize as part of the warehouse.

(6 marks)

(c) Prepare journal entries to record the transactions for Zeta from 1 December 2019

up to 1 June 2020 with regards to the disposal of a specific machinery.

(6 marks)

(d) Discuss the accounting classification regarding the three investment properties

in the statement of financial position of Zeta. In your answer, you are not

required to provide any calculation but you need to make reference to relevant

HKFRSs in your discussion.

(5 marks)