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 RM
List price 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. Calculate the amount that will be recognised as plant.
b. Show the extract of the statement of profit or loss and other
comprehensive income of Robin.
c. Show the extract of the statement of financial position at the end
of year 1.
 a. Calculate the amount that will be recognised as plant.

RM
Purchase price 1,200,000 x 90% 1,080,000

Site Shipping 16,000

preparation=
12k + 34k + Installation (82,000-12,000) Correction error 70,000
36K Pre-production testing 25,000
-> dismantling costs = 10k Dismantling costs (15,000 x0.75) Disc rate 11,250
-> restoration cost = 5k
Initial cost of machinery 1,202,250
b. Show the extract of the statement of profit or loss and other comprehensive
income of Robin

RM

Depreciation (1,202,250-26,000)/5 235,250

Prov. for dismantling
& restoration Finance cost (11,250 x 6%) 675

Maintenance (60,000/4) 15,000

Discount (1,200,000 x 90% x 2%) (21,600)

c. Show the extract of the statement of financial position at the end of year 1
RM
Property plant and equipment 1,202,250
Accumulated depreciation (235,250)
967,000

Non-current liabilities:
Provision for dismantling and 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 planes
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.
 RM m per Depreciation Carrying amount on
annum for x4 31.12.x4 RM m
Engine (old) 120/3 40 (old) 40 0
Engine (new) 150/4 37.5 (new) 37.5 150-37.5=112.5
77.5
Body 500/10 50 50 500-150=350
Furniture and 120/5 [(120- 15.25 120-48+5015.25
fittings 48)+50]/8 =106.75

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 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 960,000/24 = RM40,000 pa

31.12.x3
Year x2 x3 = 40k x 2 RM
Carrying amount (960,000 80,000) 880,000 MV at 31/12/x3 =
Fair value 1,100,000 RM1,100,000
Surplus on revaluation 220,000

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
RM
Carrying amount (1,100,000 100,000) 1,000,000
Fair value 750,000
Deficit on revaluation 250,000
Write off against revaluation reserve 200,000
Charge in profit or loss 50,000

Statement of profit or loss and other comprehensive income

x2 x3 x4 x5
RM RM RM RM
Depreciation 40,000 40,000 50,000 50,000
Deficit on revaluation 50,000
Statement of financial position
x2 x3 x4 X5
RM RM RM RM
Property cost/revalued 960,000 960,000 1,100,000 1,100,000
Revaluation surplus 220,000
Accumulated depreciation (80,000) (100,000)
Deficit on revaluation (250,000)
920,000
960,000 1,100,000 1,100,000 750,000

Accumulated depreciation
As at 1.1 Nil 40,000 Nil 50,000
Depreciation 40,000 40,000 50,000 50,000
Transferred -> due to revaluation Nil (80,000) Nil (100,000)
As at 31.12 40,000 Nil 50,000 Nil
Carrying amount 920,000 1,100,000 1,050,00 750,000

Revaluation reserve
x3 x4 x5
RM RM RM
As at 1.1 Nil 220,000 210,000
Surplus 220,000
Transfer to retained earnings Nil (10,000) (10,000)
De ficit on revaluation (200,000)
As at 1.12 220,000 210,000 0