BKAR1013 FINANCIAL ACCOUNTING AND REPORTING 1 (A172)

MINI CASE 3

Property, Plant and Equipment

DUE DATE:

QUESTION 1

A.
Distinguish between current assets and non-current assets. Give TWO (2) examples of each
type of asset.

B.
The list below shows the expenditure related to land, land improvement and buildings
acquired by Paduan Bhd.

1 Money borrowed to pay building contractor (signed a note) RM 560,000

2 Payment for construction from note proceeds 560,000
3 Cost of land fill and clearing 50,000
4 Premium on 6-month insurance policy during construction 60,000
5 Refund of 1-month insurance premium because construction 10,000
completed early
6 Architect’s fee on building 48,000
7 Cost of real estate purchased as a plant site (land RM250,000 315,000
and building RM65,000)
8 Installation of fences around property 60,000
9 Cost of razing and removing old building 40,000
10 Proceeds from residual value of demolished building 30,000
11 Interest paid during construction on money borrowed for 20,000
construction
12 Cost of parking lots and driveways 28,000
13 Excavation costs for new building 10,000

Required:
Identify each item by number and list the items in columnar form using the headings shown
below

Item Land Land Buildings Other accounts

improvement
1 RM560,000
(Note payable)
QUESTION 2

On 1 January 2014 Samudera Sdn. Bhd. constructed machine PQ for its business operation.
The construction phase for Machine PQ has been completed on 15 December 2014 and a trial
run was successfully conducted on 1 December 2014. Machine PQ begins its operation on 5
January 2015. The following information relate to the costs involved in constructing Machine
PQ:

Costs RM
1 Cost of material to construct PQ machine 100,000

2 Labour cost to construct PQ machine 50,000

3 Allocated overhead costs (electricity, factory, space, etc.) 25,000

4 Allocated financing costs, recognised to be capitalised 16,000

5 Cost of installation 20,000

6 Takaful coverage for 2015 24,000

7 Profit saved by self-construction 25,000

8 Safety inspection costs prior to use 4,000

9 Employee training cost for Machine PQ after installation period. 25,000

REQUIRED:

Determine the cost of Machine PQ.

QUESTION 3

Langlang Bhd purchased the following assets during 2015.

1. Machinery A and Equipment A were purchased as a lump sum for RM104,000 cash.
The details are as follows:
Book value Market value
Machinery A 50,000 90,000
Equipment A 50,000 30,000

2. Equipment B was acquired by issuing 10,000 shares of RM1 par value ordinary
shares. The shares have a market price of RM25,000

3. Equipment C with a list price of RM15, 000 was acquired on credit term 2/10, n/30
and has been paid 8 days after the purchase date.
 4. Machinery B was bought by issuing 5 years note payable total RM200,000. Langlang
Bhd paid RM50,000 for down payment and instalment of RM48,778 each year.
PVOA = 3.605. (Hint: Present value of instalments = PVOA x instalment)

Required:

Prepare journal entries to record the acquisition of the assets

QUESTION 4

EPIC Bhd is a construction company incorporated in 2000. During 2016, the following
transactions occurred.

February 2016 A piece of land is acquired with a building for RM560, 000. The closing
statement indicated that the land value was RM400, 000 and the building
value was RM160, 000. Shortly after the acquisition, the building was
demolished at a cost of RM43, 000. A new building was constructed and
the expenditures were as follows:

RM
Proceed from the sale of old building 56,000
Cost of land clearing 37,500
Excavation fees 52,100
Architectural design fees 77,900
Building permit fees 4,600
Cost of construction 430,400
Temporary house for workers 25,000
Parking lots, streets and side walks 36,700
Fences around the building 50,000
General expenses 209,000
Trees and other landscaping (permanent in nature) 34,000

General expenses included CEO salary amounting to RM150,000, 6-month

superintendent salary guarding the construction site totaling RM25,000 and
advertising expenses related to shop lots in the building of RM34,000.

April 2016 Acquired a specialized machine and an equipment at the price of RM80,
000. The market value of the machine and the equipment is RM78, 750 and
RM11, 250. To acquire these assets, EPIC Bhd issued 34,000 ordinary
shares. The market price of the shares is RM2.50 per share. Other costs paid
related to the machine were as follows.

Installation cost RM 18,000

Safety inspection cost prior to use 9,000
Employee training cost for the machine 12,000

June 2016 Acquired a new crane that has a list price of RM210, 000 in exchange for
an old crane which EPIC Bhd purchased on 1 July 2008 for RM181,000. It
 was estimated that the old crane has a useful life of 10 years and a residual
value of RM15, 000. EPIC Bhd uses straight line depreciation method and
depreciation expense until June 2016 has been recorded. Based on current
survey from second hand market, the fair value of the old crane is RM56,
000. EPIC Bhd need to pay RM154,000 in cash for this exchange (Assume
that the exchange has commercial substance).

Required:

(a) Determine the cost of

(i) Land
(ii) Building
(iii) Land improvement (if any)

(b) Calculate the cost of specialized machine and equipment purchased in April 2016 and
prepare the journal entries.

(c) Prepare the journal entries to record the acquisition of new crane in June 2016.

QUESTION 5

MFRS 116 Property, Plant and Equipment makes a number of recognition, measurement and
disclosure requirements with regard to tangible non-current assets. The information given
below relates to Property, Plant and Equipment of three companies.

Infinity Bhd
Infinity Bhd bought a factory machine on 30 June 2017 and paid a total of RM454,000. The
supplier’s invoice showed that this sum was made up of the following items:

RM
Manufacturer’s list price 380,000
Less: Trade discount 38,000
342,000
Delivery charge 6,800
Installation costs 29,600
Maintenance fee charge for one year from 30 June 2017 27,000
Pre-payment of insurance cost for 1 July – 31 Dec 2017 19,000
Start-up and related pre-production costs 15,000
Small spare parts 14,600
454,000

B-Lite Bhd
On 1 January 2017, B-Lite Bhd bought a land that will be used to build a new factory for
RM2.8 million. The company incurred legal costs of RM200,000, costs of demolition of the
old buildings of RM150,000 and cost of permanent trees planting of RM50,000. Additionally,
B-Lite paid RM12,000 to an engineering firm for a land survey, RM80,000 for drawing the
new factory plans and RM10,000 for building permit fees. The land survey had to be made
before definitive plans could be drawn. The insurance on the title of the land cost RM24,000
and a liability insurance premium paid during construction was RM13,000. The contractor
charge for the construction of the new building was RM1.5 million.

Big Mach Bhd

Big Mach Bhd conducts its business in its own building which is recorded at the historical
cost of RM15 million with an accumulated depreciation of RM3.5million in Kuala Lumpur.
On 1 January 2017, it shifts its operation to a rented building in Putrajaya. On 31 May 2017,
Big-Mach Bhd and the landlord enter into an agreement to exchange their respective
buildings. The market value of Big Mach Bhd’s building on that date is RM20 million and its
landlord building is RM25 million. In the exchange agreement, Big Mach Bhd is required to
pay a cash amount of RM5 million to the landlord. Assume that the transfer has commercial
substance.

REQUIRED:
(a) In accordance with the rules of MFRS 116, calculate the acquisition cost of the machine
bought by Infinity Bhd. Explain the correct accounting treatment of THREE (3)
components of the RM454,000 expenditure which cannot be treated as part of the
machine's cost.

(b) Determine the cost of the land and the cost of the building for B-Lite Bhd. Assume that
the land survey is for the building.

(c) Determine the cost of the new building for Big Mach Bhd using the fair value basis.
Prepare the journal entries to record the transactions for Big Mach Bhd.