Question

Question Ref. No: 3242

Boatan Company is a middle size manufacturing company located at Jalan Kelang. The company just purchased an intelligent robot for its manufacturing line for RM570000 from Germany. The RM570000 inclusive of the transportation cost of RM50000 and import duty cost of RM100000. Since the robot is unique in its capabilities, the company has to pay RM30000 to an expert to specially train its staff on how to operate the robot. In addition the company spends RM16000 per year in the maintenance and operation of the robot. The robot is expected to be used for 5 years with an estimated salvage value of RM110000 at the end of its useful life.

a) Determine the cost basis of the robot purchased.	Format : 800000
b) Straight Line depreciation method. Determine the DEPRECIATION at Year 3	Format : 25000
c) Straight Line depreciation method. Determine the BOOK VALUE at Year 3	Format : 204000
d) 150% Declining Balance method. Determine the DEPRECIATION expense at Year 3	Format : 72200
e) 150% Declining Balance method. Determine the BOOK VALUE at Year 3	Format : 704800

Answer 1

1. Purchase price
2. Import duty paid
3. Transportation costs
4. The cost incurred in advertising features of the components
5. Installation charges
6. The cost incurred in providing electricity to the machines
7. All expenses, except “The cost incurred in advertising features of the components” and “The cost incurred in providing electricity to the machines”, will determine the original acquisition cost.

Total cost of 570000

Estiamted useful life 5 years

Salvage 110000

As per IAS16 an item of property, plant and equipment should initially be recorded at cost. [IAS16.15] Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site.

Costs that do not provide future economic benefits are expensed in the period incurred. The initial training costs are not necessary to get the asset ready for use. Rather, the training costs are necessary to get the employees ready to use the asset. Thus, the training costs are immediately expensed. NO, these expenses will not be capitalized.

The 150% reducing balance method divides 150 percent by the service life years. That percentage will be multiplied by the net book value of the asset to determine the depreciation amount for the year

1. Total Cost of robot = 570000

2. Straight line depreciation = Cost of asset- salvage value/useful life of asset

570000-110000/5= 92000

3. Book value at 3 year = 294000

4. Caluculation of depreciation for year 1 = 570000-110000*30%= 138000 Cost at end= 432000

Calculation of depreciation for year 2 = 432000*30%= 129600 Cost at end= 432000-129600=302400

Calculation of depreciation for year 3 = 302400*30%=90720 Cost at end= 302400-90720=211680

Yearly depreciation percentage 30%