FINANCIAL ACCOUNTING & REPORTING III

UDE1009
SEMESTER 3 2019/2020
MIDTERM TEST

Question 1

Adona Bhd is a company that fabricates electronic board and conductors. The financial year-
end for the company ends on 31 December every year. The company decided to build its own
factory site that can locate and store more raw materials and finished goods. The cost incurred
as follow:

RM
Purchase price for land 6,000,000
Direct material and labour for building 3,900,000
Technical overheads (Land and building) 850,000
General administrative overheads (Land and building) 450,000
Municipal fees (Land and building) 500,000
Demolition of the vacant building 55,000
Sell of the scrapped material from demolition 25,000
Property tax and legal fees for land and building 60,000
(on 1 December 2015)
Loan obtain to construct the building, 15% interest 7,000,000
Legal fees (Land and building) 130,000

The construction started on 1 January 2014 completed on 31 March 2015. The expected fair
value of the land will be RM 6,500,000 while the building will be RM 4,200,000. After the
construction has completed, on 1 July 2015, Adona Bhd bought a new conductor machine that
cost RM135,000. The machine will be used in production to fasten the production process. The
estimated useful life of the machine is estimated to be 10 years with RM 5,000 scrapped value.
On 30 December 2017, the company decided to upgrade the conductor machine and trade the
existing machine. The fair value for the machine was not clear enough. In addition to the trade,
Adona Bhd paid RM30,000 by cash.

REQUIRED:

a) Can the building, land and conductor machine considered as an item under Property,
Plant and Equipment? Provide justifications.

Answer:

Yes √, MFRS116 √
• It is probable that future economic benefits associated with the item will flow to
the entity √
• The cost of the item can be reliably measured √
 Or

Yes √, MFRS116 √
• the building satisfies the definition of an item of PPE. It has physical form √ (it is
tangible);
• it is used to house those who administer the company’s operations (for
administrative purpose) and is expected to be used for 50 years (more than one
reporting period √).

b) Determine the cost of building and land.

Answer:

Ratio for land

6,500,000 / 10,700,000 =
0.61√ or
6.5/10.7 √

Ratio for building

4,200,000 / 10,700,000 =
0.39√
Or
4.2/10.7 √

Cost of Land Or
Purchase price 6,000,000 √ 6,000,000 √
Technical overheads 518,500 √ 516,355 √
Municipal fees 305,000 √ 303,738 √
Demolition of vacant building 55,000 √ 55,000 √
Less: Scrapped material (25,000) √ (25,000) √
Legal fees 79,300 √ 78,972 √
6,932,800 √ 6,929,065 √

Cost of Building Or
Direct material and labour 3,900,000 √ 3,900,000 √
Technical overheads 331,500 √ 333,645 √
Municipal fees 195,000 √ 196,262 √
Interest capitalized 1,312,500 √√ 1,312,500 √√
Legal fees 50,700 √ 51,028 √
5,789,700 √ 5,789,700 √
 Interest capitalized
2014 12 months 1,050,000
2015 3 months 262,500
1,312,500

c) Provide the journal entries to record the transaction related to the acquisition of the new
conductor machine.

Answer:

2018 Dr (RM) Cr (RM)

Conductor machine (New) √ 132,500 √
Accumulated depreciation (2
years and 6 months) √ 32,500 √
Conductor machine (Old)
√ 135,000 √
Cash √ 30,000 √

Question 2
Farhana Bhd acquired a building (fair value of RM10,000,000) from Island & Peninsular Bhd on
1 January 2017 to administer the company’s business. The building would place the accounting,
human resources, and other administrative staff. Farhana Bhd made immediate payment by
cheque and expects to use the building for about 30 years.

Required:

Is the building consider as an item under Property, Plant and Equipment? Give justifications
and state the relevant MFRS.

Answer:
Yes √, MFRS116 √
It is probable that future economic benefits associated with the item will flow to
the entity √
• The cost of the item can be reliably measured √

Or

Yes √, MFRS116 √
• the building satisfies the definition of an item of PPE. It has physical form √ (it is
tangible);
 • it is used to house those who administer the company’s operations (for
administrative purpose) and is expected to be used for 50 years (more than one
reporting period √).

Question 3
According to Malaysian Financial Reporting Standard (MFRS) 116, asset consider as an item
that uses in production, being stored less than 12 months, and can be classified into 3
categories. (F)

Question 4
Subsidiaries also being called as accounts receivable. According to Malaysian Financial
Reporting Standard (MFRS) 132, account receivable categorise as a financial asset. Financial
asset existed after two entities create a mutual consent in agreeing to the stated terms involving
purchasing and selling activity. (T)

Question 5
Machines is a company involved in selling phones. The model that they are selling is Euw-
phone. The beginning balance of inventory and purchases made by the company during July
2019 are given below:

· 1 July: Beginning inventory, 30 units @ RM150,000.

· 2 July: Sold 4 units.

· 5 July: Sold 5 units.

· 9 July: Inventory purchased, 10 units @ RM52,000.

· 10 July: Sold 6 units.

· 11 July: Inventory purchased, 25 units @ RM127,500.

· 13 July: Return 2 unit of inventory purchased on 11 July.

· 15 July: Sold 10 units.

· 17 July: Sold 3 units.

· 18 July: Inventory purchased, 15 units @ RM82,500.

· 20 July: Sold 7 units.

· 21 July: Sold 3 units.

· 23 July: Inventory purchased, 20 units @ RM106,000.

· 25 July: Inventory purchased, 5 units @ RM27,000.

· 27 July: Sold 15 units.

The sales price per unit is RM6,000.

Based on the above information, according to Malaysian Financial Reporting Standard (MFRS
102), Machines should derecognise their assets totaling 55 units for July. (T)

Question 6
Property, plant, and equipment are subjected to Malaysian Financial Reporting Standard
(MFRS) 116. According to the standard, insurance cost on transporting the asset from supplier
to factory or company can be considered in the asset price. (T)

Question 7
Malaysian Financial Reporting Standard (MFRS) 102 stated that a company should only
recognise their reporting on inventory based on the net realizable value starting the year 2013.
(F)