Tutorial 8 Jane Lazar and Huang (4th Edition)Chapter 22-MFRS116
Question 1 page 468
Robin purchased an item of plant. The details are as follows: RM List price
RM 1,200,000
Trade discount
10%
Shipping and handling
16,000
Pre-production testing
25,000
Maintenance for four years
60,000
Site preparation Concrete reinforcement
12,000
Electrical cabling and wiring
34,000
Labour cost
36,000
Robin had specified wrong cables and the cost of correcting the error of RM12,000 is included in the electrical cabling costs. Robin settled the amount due to the vendor within the credit period and obtained a 2% early settlement discount on the purchase price. The plant is expected to last for five years, at the end of which Robin will incur compulsory dismantling costs of RM10,000 and site restoration cost of RM5,000. The present value of RM1 received in five years’ time is RM0.75, using a discount rate of 6%. The residual value of the plant is estimated at RM26,000. Required: a.
Calc Calcul ulat ate e the the amou amount nt tha thatt will will be be reco recogn gnis ised ed as as plan plant. t.
b.
Show Show the the extr extract act of the the sta statem temen entt of profi profitt or or loss loss and and other other comprehensive income of Robin.
c.
Show Show the the extr extract act of the stat stateme ement nt of fina financi ncial al positi position on at the end of year 1.
a.
Calc Calcul ulat ate e the the amo amoun untt tha thatt wil willl be be rec recog ogni nise sed d as as pla plant nt..
RM Purchase price 1,200,000 x 90% Site preparation= 12k + 34k + 36K -> dismantling costs = 10k -> restoration cost = 5k
1,080,000
Shipping Installation (82,000-12,000)
16,000 Correction error
Pre-production testing Dismantling costs (15,000 x0.75) Initial cost of machinery
70,000 25,000
Disc rate
11,250 1,202,250
b.
Show Show the the extr extract act of of the the stat statem ement ent of pro profit fit or loss loss and and othe otherr comp compre rehen hensiv sive e income of Robin RM Depreciation (1,202,250-26,000)/5
Prov. for dismantling & restoration
Finance cost (11,250 x 6%) Maintenance (60,000/4) Discount (1,200,000 x 90% x 2%)
c.
235,250 675 15,000 (21,600)
Show Show the the extr extract act of the the stat stateme ement nt of fina financi ncial al posi positio tion n at the end of year year 1 RM Property plant and equipment
1,202,250
Accumulated depreciation
(235,250) 967,000
Non-currentt liabilities: Non-curren Provision for dismantling and restoration restoration 11,250 + 675
11,925
Question 4 page 470 Tom cruise operates a low-cost air transport system. One of its aeroplanes was acquired on 1 January x2 for a total cost of RM400 million. The plane’s components are as follows: Component
Cost RM million
Useful life
Engine
120
3 years
Body
500
10 years
Furniture and fittings
120
5 years
On 1 January x4, it was discovered that there was an unexpected level of engine trouble and the company decided to replace the engine with a new engine at a cost of RM150 million. The expected life of the new engine was determined to be four years.
At the same time the company did a limited upgrade to its furniture and fittings at a cost of RM50 million. The remaining life of the furniture and fitting was revised to eight years as at 1 January x4. It completed repainting the aeroplane at a cost of RM5 million. Required: Calculate the depreciation charge for the year ended 31 December x4 and disclose the carrying amount of plane.
Engine (old) Engine (new)
120/3 150/4
RM m per annum
Depreciation for x4
Carrying amount on 31.12.x4 RM m
40 (old) 37.5 (new)
40 37.5
0 150-37.5=112.5
77.5 Body
500/10
50
50
500-150=350
Furniture and fittings
120/5
[(12048)+50]/8
15.25
120-48+50 –15.25 =106.75
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•
•
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Depreciation for x2 and x3 consider as accumulated depreciation The carrying amount of the old engine of RM40 million is derecognised. The new engine is depreciated over four years. The subsequent expenditure on upgrading the furniture and fittings is capitalised and the revised carrying amount is depreciated over 8 years. Change in the estimated useful life is a change in accounting estimate. The repainting does not meet the recognition criteria and so is written off as expense.
Question 7 page 471 Ray acquired a property on 1 January x2 at a cost of RM960,000. Expected useful life is 24 years. The company policy is to revalue its properties to their market values at the end of each year. Accumulated depreciation is eliminated and the property is restated to the revalued amount. Annual depreciation is calculated on the carrying amount at the beginning of the year. The market values of the property on 31 December x3 and x5 were RM1,100,000 and RM750,000, respectively. The existing balance on the revaluation reserve is RM200,000 which is related to some non-depreciable land whose value has not changes significantly significantly since 1 January x2. Required: Prepare extracts of the financial statements of Ray (including revaluation reserve) for the years x2 to x 6.
1.1.x2 31.12.x3
960,000/24 = RM40,000 pa Year x2 –x3 = 40k x 2
Carrying amount (960,000 – 80,000) Fair value Surplus on revaluation
RM 880,000 1,100,000 220,000
MV at 31/12/x3 = RM1,100,000
31.12.x4 Depreciation 1,100,000/22 = RM50,000 pa Transfer from revaluation reserve to retained earnings 220,000/22 = RM10,000 Balance on revaluation reserve - RM220,000 – RM10,000 = RM210,000 31.12.x5 Depreciation 1,100,000/22 = RM50,000 pa Transfer from revaluation reserve to retained earnings 220,000/22 = RM10,000 Balance on revaluation reserve – RM210,000 – RM10,000 = RM200,000
MV at 31/12/x5 = RM750,000
31.12.x5 Carrying amount (1,100,000 – 100,000) Fair value Deficit on revaluation Write off against revaluation reserve Charge in profit or loss
Statement of profit or loss and other comprehensive income x2 x3 RM RM Depreciation 40,000 40,000 Deficit on revaluation
RM 1,000,000 750,000 250,000 200,000 50,000
x4 RM 50,000
x5 RM 50,000 50,000
Statement of financial position
Property – cost/revalued cost/revalued Revaluation surplus Accumulated depreciation Deficit on revaluation
Accumulated depreciation As at 1.1 Depreciation Transferred -> due to revaluation As at 31.12 Carrying amount
x2 RM 960,000
x3 RM 960,000 220,000 (80,000)
x4 RM 1,100,000
X5 RM 1,100,000
920,000 960,000
1,100,000
1,100,000
(100,000) (250,000) 750,000
Nil 40,000 Nil 40,000 920,000
40,000 40,000 (80,000) Nil 1,100,000
Nil 50,000 Nil
50,000 1,050,00
50,000 50,000 (100,000) Nil 750,000
Revaluation reserve
As at 1.1 Surplus Transfer to retained earnings De ficit on revaluation As at 1.12
x3 RM Nil 220,000 Nil
x4 RM 220,000
x5 RM 210,000
(10,000)
220,000
210,000
(10,000) (200,000) 0
