FAF TUTORIAL 3

Question 1
Journal entries Dr Cr
RM000 RM000
2006 Land 20,000
July 1 Bank 20,000
(Acquisition of land)

2010 Land 12,000

Dec 31 Revaluation reserve 12,000
(Land was revalued from RM20m to RM32m)

2014 Revaluation reserve 7,000

Dec 31 Land 7,000
(Land was revalued from RM32m to RM25m)

2015 Bank 28,000

Land 25,000
IS: Gain on disposal 3,000
(Disposal of land at a profit)

Revaluation reserve [12000 7000] 5,000

Retained profits 5,000
(Revaluation reserve realised)
FAF TUTORIAL 3

Question 2(a)
Journal entries Dr Cr
RM000 RM000
(Unlike Q1, journal entries for acquisition of land not
required)
2014
Dec Statement of profit or loss 150
31 Land 150
(Land was revalued from RM750,000 to RM600,000)

2015 Land (975 600) 375

Statement of profit or loss 150
Revaluation reserve (375 150) 225
(Land was revalued from RM600,000 to RM975,000)

Explanation:
Decrease in value RM150,000 in year 2014 was recognized as an expense in
the statement of profit or loss

As for the increase in value RM375,000 in year 2015,

i) Increase of RM150,000 should first be recognised as income so as to
reverse a previous decrease which was recognised as an expense
ii) Only then, the excess increase of RM225,000 is credited to the
revaluation reserve
FAF TUTORIAL 3

Question 2(b)
Journal entries Dr Cr
2014 RM000 RM000
Dec Land 300
31 Revaluation reserve 300
(Land was revalued from RM750,000 to RM1,050,000)

2015 Revaluation reserve 300

Statement of profit or loss (375 300) 75
Land (1050 675) 375
(Land was revalued from RM1,050,000 to RM675,000)

Explanation:
Increase in value RM300,000 in year 2014 was credited to revaluation
reserve

As for the decrease in value RM375,000 in year 2015

i) Decrease of RM300,000 should first set-off against revaluation
reserve. This is to reverse a previous increase which was recognised in
revaluation reserve
ii) Only then, the excess decrease of RM75,000 is charged as expense in
the statement of profit or loss
FAF TUTORIAL 3

Question 3

(a) Fundamental objective of depreciation

Objective/purpose of depreciation is to spread the cost or valuation of a
tangible non-current asset over the accounting periods which will
benefit from its use
It is an application of matching concept where a charge is made
against operating profit to reflect the cost of use of all tangible assets
with finite useful economic lives

(b) land & building

Normally not necessary to depreciate land, unless it is subject to
depletion (example: quarry)
Buildings should be depreciated so as to allocate (spread) their
depreciable amount (cost or valuation) over their useful economic
life.

(c) Two methods of depreciation

(i) Straight line: Depreciable amount of an asset, less any residual value, is
written off in equally over its estimated useful economic life
Annual depreciation = Cost [or valuation] residual value
Useful life

(ii) Reducing balance: depreciation is calculated as a percentage of the

opening net book value of the asset of each period

Note: Other valid answers are acceptable

FAF TUTORIAL 3

Question 4 (a) Same answer as Q3 (a)

Question 4 (b) Note to financial statements

Freehold Building Plant & Motor Total

Land Machinery vehicles
RM000 RM000 RM000 RM000 RM000
Costs
At 1 Jan 2014 3,500 1,500 1,200 500 6,700
Revaluation 300 (N2) - - - 300
Additions - 100 (N2) 250 (N1) 60 (N3) 410
Disposals - - - (90) (N3) (90)
At 31 Dec 2014 3,800 1,600 1,450 470 7,320

Accumulated depreciation
At 1 Jan 2014 - 270 520 150 940
Current year charge - 32 (W1) 140 (W2) 94 (W3) 266
Disposals - - - (36) (W4) (36)
At 31 Dec 2014 - 302 660 208 1,170

NBV
At 1 Jan 2014 3,500 1,230 680 350 5,760
At 31 Dec 2014 3,800 1,298 790 262 6,150

Workings: depreciation charge for the year:

(W1) Building = 1,600 x 2% = 32
(W2) Plant and machinery = (1,450 520) x 15% = 140
(W3) Motor vehicles = 470 x 20% = 94
(W4) Acc depreciation for MV disposed = 90 x 20% x 2 years = 36

No depreciation in yr of disposal 2011 (N3) - Yr 2009 & 2010

FAF TUTORIAL 3

Question 5 Revaluation at the end of accounting period

Land (cost/valuation)
RM000 RM000
2004 2004
1 Jan Bal b/d (N1) 400 30 Sep Disposal (N3) 100
30 June Cash (N2) 200
31 Dec Revaluation 300 31 Dec Bal c/d (N5) 800
reserve
900 900

Buildings (cost/valuation)
RM000 RM000
2004 2004
1 Jan Bal b/d (N1) 800 30 Sep Disposal (N3) 100
30 June Cash (N2) 500
31 Dec Revaluation 200 31 Dec Bal c/d (N5) 1400
reserve
1,500 1,500

Buildings (accumulated depreciation)

RM000 RM000
2004 2004
30 Sep Disposal (N3) 20 1 Jan Bal b/d (N1) 200
31 Revaluation 204 31 Dec SPL (dep) (N4) 24
Dec reserve 2% x (800+500-100)
224 224

Disposal A/c
RM000 RM000
2004 building 2004 Building (acc
30 Sep (cost) (N3) 100 30 Sep dep) (N3) 20
30 Sep building 100 Cash (N3) 500
(cost) (N3)
31 Dec SPL (profit 320
on disposal)
520 520
FAF TUTORIAL 3

Revaluation reserve (not required by Q)

2004 RM000 2004 RM000
31 Dec Land 300
31 Dec Bldg (cost) 200
31 Dec Bal c/d 704 31 Dec Bldg (acc 204
dep)
704 704

Alternative solution for Q5 : Accumulated depreciation at the date of

revaluation transfer to cost

Buildings (cost/valuation)
RM000 RM000
2004 2004
1 Jan Bal b/d 800 30 Sep Disposal 100
30 June Cash 500 31 Dec Acc Dep 204
31 Dec Revaluation 404 31 Dec Bal c/d 1400
reserve
1,704 1,704

Buildings (accumulated depreciation)

RM000 RM000
2004 2004
30 Sep Disposal 20 1 Jan Bal b/d 200
31 Dec Buildings 204 31 Dec SPL (dep) 24
(cost) 2% x 1,200
224 224

Revaluation reserve (not required by Q)

RM000 RM000
2004 2004
1 Jan Bal b/d 0
31 Dec Land 300
31 Dec Bal c/d 704 31 Dec Bldg (cost) 404
FAF TUTORIAL 3

704 704
Question 6: Revaluation at the beginning of accounting period
Office Buildings (cost/valuation)
RM000 RM000
2002 2003
1 July Bal b/d 1600
1 July Revaluation 400 30 Bal c/d 2000
reserve June
2000 2000

Office Buildings (accumulated depreciation)

RM000 RM000
2002 2002
1 July Revaluation 320 1 July Bal b/d 320
reserve
2003 Bal c/d 50 2003 SPL (dep) 2mil div 50
30 30 by (50- 10)yrs
June June
370 370

Revaluation reserve
RM000 RM000
2003 2002 Office Bldg 400
1 Jan (cost)
30 June Bal c/d 720 1 Jan Office Bldg 320
(acc dep)
720 720
FAF TUTORIAL 3

Question 6:
Alternative solution: Accumulated depreciation at the date of
revaluation transfer to cost
Buildings (cost/valuation)
RM000 RM000
2002 2002
1 July Bal b/d 1600 1 July Acc Dep 320
1 July Revaluation 720 31 Dec Bal c/d 2000
reserve
2,320 2,320

Buildings (accumulated depreciation)

RM000 RM000
2002 Buildings 2002
1 July (cost) 320 1 July Bal b/d 320
2003 2003
30 Jun Bal c/d 50 30 Jun SPL (dep) 50
370 370

Revaluation reserve
RM000 RM000
2003 2002
1 July Bal b/d 0
30 June Bal c/d 720 1 July Bldg (cost) 720
720 720
FAF TUTORIAL 3

Question 6:
P&M (cost)
RM000 RM000
2002 2003
1 July Bal b/d 840 1 Apr Disposal 240
1 Oct Cash 200 30 June Bal c/d 800
1,040 1,040

P&M (accumulated depreciation)

RM000 RM000
2003 2002
1 apr Disposal 180 1 July Bal b/d 306
30 June Bal c/d 326 2003 SPL (dep) 200
30 June (25% x 800)
506 506

P&M (Disposal A/c)

RM000 RM000
2003 P&M 2003 P&M
1Apr (cost) 240 1Apr (acc dep) 180
SPL (profit 10 Cash (N3) 70
on disposal)
250 250
FAF TUTORIAL 3