3a Far210 Topic 3 - Discussion of Tutorial Questions

TUTORIAL QUESTIONS
1) COMMON TEST MAY 2021
QUESTION 2
a. Discuss briefly whether the new lorry purchased can be classified as an item of property,
plant and equipment in accordance with MFRS 116 Property, Plant and Equipment.
The lorry should be classified as an item of PPE because its meet the definition of PPE as
tangible item (the lorry has a physical substance)√ that is held for use in the provision
transportation service√ and is expected to be used for more than one accounting period
which is 5 years√.
(3√= 3 marks)
b. Explain briefly TWO (2) factors that affect the calculation of depreciation.
Two factors that can affect the calculation of depreciation are:
i. Depreciable amount√ – the cost or revalued amount less the estimated residual value^.
ii. Estimated useful life√ - an accounting estimate of the number of years an asset (PPE) can be used to
generate revenue^ / the number of productions expected to be obtained from the asset^.
iii. Depreciation method√ – the systematic basis to allocate the depreciable amount of an asset (PPE) over
its useful life^.
(Any 2√^= 3 marks)
c. Assess the initial cost of the lorry to be recognised in the Statement of Financial Position.
Initial cost of the lorry should comprise of the purchase price√ and directly attributable costs to bring the
lorry to its present location and condition√. Directly attributable costs in this question are road tax,
insurance and cost of painting logos. Discount must be deducted from the purchase price of the lorry√.
(3√= 3 marks)
d. Compute the initial cost of the lorry - PLEASE REDO THIS QUESTION - TOLONG
MASUKKAN FIGURE DALAM TABLE YA. TQ
RM
Purchase price 180 000
Less :Trade discount (5% x RM 180 000) (9 000)
171 000
Road tax 1 800
Insurance 4 000
Cost of painting logo 2 000
TOTAL 178 800
e. Calculate the depreciation expense for lorry as at 31 December 2020

Depreciation
=
178,800of√-28,800√
X
6
√
5√
12
√
(6√ x ½ = 3 marks)
f. i. According to MFRS 116 Property, Plant and Equipment, PPE can be de-recognised when:
• it is disposed√
• when no future economic benefits are expected from its use or disposal√
In this case, the lorry can be derecognised from the company's book√ since it was involved in an accident
and damaged beyond repair√, thus there will be no more future economic benefits that can be expected
from its use or disposal√.
(5√= 5 marks)
ii. The lorry needs to be removed from the company's book. Hence, the carrying value of RM36,000√
(80,000 - [(2X16,000)+(16,000X(9/12)]) should be derecognised from the Statement of Financial
Position√. Then, the company needs to recognise the insurance money of RM16,000 as increase in bank√
and also loss on disposal of RM20,000√ (36,000-16,000) in Statement of Profit or Loss√.
Alternative solution:
• Step 1: Remove the Gross CA of the lorry (RM80,000) from the book of accounts√
• Step 2: Removed the acc. Depr. (RM44,000 =(2X16,000)+(16,000X9/12)) at derecognition date from
the book of accounts√.
• Step 3: Therefore, the Net CA of the PPE (RM36,000^ = RM80,000-RM44,000) is removed
from the SOFP^.
• Step 4: The insurance compensation/disposal proceeds received (RM16,000) increases the company’s
cash/bank amount√.
• Step 5: Loss on disposal (RM20,000^ = RM36,000-RM16,000) is recognised as Expense in
the SOPL^
(5√=5 marks)
(Total:25 marks)
COMMON TEST - DEC 2020
a. The building is an assets to Sammy Bhd because:

i. It is a physical resources controlled by entity (Sammy Bhd) and it is used at
company discretion to produce their products.√
ii. The building had been purchased by Sammy Bhd on 1 January 2010 (past
events)√.
iii. It will result in cash inflow to company since the building will be used for
business operation and administration.√
(3√ x 1 mark = 3 marks)
b. The building satisfies the definition of PPE in accordance with MFRS 116 because:
i. The building has physical structure (tangible items)√
ii. The building is held in the production of Sammy Bhd (held for business
operation and administration)√.
iii. The building is expected to be used for 30 years (more than one
accounting period)√.
iv. The cost of the asset can be measured reliably
(3√ x 1 mark = 3 marks)
a. Recognition and measurement:
i. Initial cost of the building as at 1 Jan 2010:
Cost/purchase price 30
0,
00
0
+ Electrical cabling 45,

and wiring 00
0√
+ Concrete 60,
reinforcement 00
0√
+ Inspection and 15,
testing costs 00
0√
TOTAL COSTS R
M
42
0,
00
0
i. Depreciation for the year ended 31 December 2019:
= RM420,000√ x 10%√ = RM42,000√ per annum
OR
RM420,000√/30 years√ = RM14,000√ per annum
i. Journal entries for depreciation expenses:
DR SOPL – depreciation expenses√ 42,000/14,000
CR accumulated depreciation√ 42,000/14000√
a. Disposal of building:
i. In accordance with MFRS116 for derecognition of PPE, the

carrying amount of an item of PPE shall be derecognized :
i. On disposal√, OR
ii. When no future economic benefits are expected
from its use or disposal√.
The building is disposed(sold) to third party. So there is no future economic

benefits expected to be received from the use of the building√. Hence, Sammry
Bhd can derecognize the building √.
i. The accounting treatment on disposal of the building:
The carrying amount of the building need to be removed from the company’s accounting
book. The carrying amount of RM280,000√ (RM420,000 – RM140,000√) will be
derecognized from the total assets in the accounting records (Statement of Financial
Position√) for the year ended 31 December 2020.
The proceeds from the sale of RM180,000 will increase the amount of cash of the
company.√
The loss from disposal of RM100,000 (RM280,000-RM180,000) will be recorded as

expenses in the Statement of Profit or loss√.
Dr Cash 180,0000
Dr Accumulated depn 140,000
Dr SOPL – Loss on disposal 100,000
Cr Building 420,000

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TUTORIAL QUESTIONS

1) COMMON TEST MAY 2021

Purchase price 180 000

Less :Trade discount (5% x RM 180 000) (9 000)

Road tax 1 800

Cost of painting logo 2 000

TOTAL 178 800

e. Calculate the depreciation expense for lorry as at 31 December 2020

COMMON TEST - DEC 2020

a. The building is an assets to Sammy Bhd because:

(3√ x 1 mark = 3 marks)

i. The building has physical structure (tangible items)√

iv. The cost of the asset can be measured reliably

(3√ x 1 mark = 3 marks)

a. Recognition and measurement:

i. Initial cost of the building as at 1 Jan 2010:

+ Electrical cabling 45,

i. Depreciation for the year ended 31 December 2019:

= RM420,000√ x 10%√ = RM42,000√ per annum

RM420,000√/30 years√ = RM14,000√ per annum

i. Journal entries for depreciation expenses:

DR SOPL – depreciation expenses√ 42,000/14,000

CR accumulated depreciation√ 42,000/14000√

i. In accordance with MFRS116 for derecognition of PPE, the

The building is disposed(sold) to third party. So there is no future economic

i. The accounting treatment on disposal of the building:

The loss from disposal of RM100,000 (RM280,000-RM180,000) will be recorded as

Dr Accumulated depn 140,000

Dr SOPL – Loss on disposal 100,000

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