Question

QUESTION 1

Diandra Bhd is a manufacturer and supplier of men and women apparel. It operates in one district in northern area of Kedah. The company closes its account on every 31 December.​ The company owns a factory and a piece of land on which the factory stands. The land was acquired in 2013 for RM500,000 and the factory was built in early 2014 at a cost of RM950,000.

In recent years, there has been a boom of demand for both men and women apparel which require Diandra Bhd to store enough apparel to meet the demand. Due to that, Diandra Bhd has constructed a new warehouse next to the existing factory. It is expected that the cost of the new warehouse is RM1,000,000. On 28 February 2018, the company paid RM30,000 for the architect fees. In addition, the company paid RM20,000 to city council for the building permit on 5 March 2018. The construction of warehouse began on 8 March 2018 and the following expenditures were occurred during 2018:

Date                            Expenditure (RM)

1 April                                     270,000

7 June                                      280,000

20 July                                     120,000

1 October                                100,000

30 November                            30,000

The construction of the warehouse was completed on 31 January 2019. To finance the construction of the warehouse, Diandra Bhd borrowed with Xandra Bank RM450,000 on 1 April 2018 at the interest of 8% per annum. Other loan outstanding by Diandra Bhd are 10 %, RM400,000 bond payable and notes payable of RM300,000 with an interest rate of 12% per annum.

Diandra Bhd adopted revaluation model to account for its factory and used to revalue its factory every three year. The revalued amount of factory for the year ended 2016 was RM550,000. The company also conduct an impairment test every year if there is an indication of impairment. For 2015, the factory fair value less cost to sell is RM600,000 and value in use is RM670,000. The useful life of the factory building is 10 years and Diandra Bhd uses the sum-of-the-years digits method to account for the depreciation.

As an incentive from the government, Diandra Bhd also received RM250,000 grant in 2018 to buy a new sewing machine with modern technology which can boost its apparel production. The new sewing machine cost is RM500,000 with a useful life of 8 years. Due to shortage of power supply caused by lightning in December 2018, the machine broke down and the company spent RM50,000 to repair the machine. The repair involved an installation of a new software that is expected to increase the efficiency of the machine and able to produce more quantity of apparel.

REQUIRED:

(Round your answer to the whole number)

(a)     Calculate interest to be capitalised for the construction of the warehouse during 2018 and 2019.

(b)    Prepare journal entries to record interest capitalization for 2018 and 2019.

(c)     Assume that there was no impairment loss recognised in 2014. Determine the amount of impairment loss for factory for the year ended 2015 (if any) and prepare the relevant journal entry (if any).

(d)    Prepare the journal entries to record depreciation and revaluation of factory in 2016.

(e)     Briefly explain government grants and discuss the accounting treatment for government grants in accordance with MFRS120 Accounting for Government Grants.

(f)     Based on the amount of government grant received by Diandra Bhd, explain the effect of each accounting treatment to company’s financial statement.

(g)     Explain the accounting treatment for the repair of sewing machine.

Answer 1

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