7/25/2019 Tutorial Question MFRS116
1/1
TUTORIAL QUESTION
FAR320
Topic: Property, Plant and Equipm ent MFRS116
QUESTION 1Sinar Jernih Bhd acquired a piece of land on 1 January
2008 and commenced construction of
the factory on the land. The following costs were incurred:
RM000Purchase price of the land 80,000Cost of demolishing and
old building on the land 9,000Legal fees for the land purchased
3,000Demolishing quarters for the workers constructing the factory
800Proceeds from salvage construction material sold 1,000Cost of
clearing and levelling the land 4,500Cost of construction of
factory 100,000Architects fees for the factory 12,000
The factory building was completed and used for production of
goods on 1 January 2010. The
factory is depreciated on straight line method over an estimated
useful life of 50 years with a
nil residual value.
On 1 July 2013, the factory building underwent an extensive
renovation to accommodate the
companys enlargement programmes. The renovation work
wascompleted on 1 January 2014
at a cost of RM5,000,000.
On subsequent measurement, Sinar Jernih Bhd adopted the
revaluation model to account for
its property, plant and equipment. On 1 July 2014, the market
value of the land and factorywere RM150,000,000 and RM200,000,000
respectively. The company closed its account on
30 June every year.
Required:
a. Explain whether the factory is a property, plant and
equipment as per MFRS 116
Property, Plant and Equipment.
b. Explain which of the cost incurred may be part of the cost of
factory on initial
recognition.
c. Describe the accounting treatment of the renovation cost
incurred in 2013.
d. Explain the carrying amount of the land and building as at 30
June 2015.
