Question

QUESTION 1

Advance Energy Bhd (AEB) acquired a piece of land and a building on 1 January 2017 at the cost of RM6,000,000 and RM8,000,000 respectively. AEB decided that the acquisition of land is for long term capital appreciation. As for the building, it was planned to be rented out to its wholly subsidiary, Imperial Bhd. The fair value of land and building on 31 December 2017 was RM9,000,000 and RM6,000,000 respectively. On 31 August 2018, due to insufficient working space, AEB decided to terminate the rental agreement with its subsidiary and used the building for administrative use. The building was expected to have a remaining useful life of 10 years. The fair value of the building on 31 August 2018 was RM14,000,000. Unfortunately, due to liquidity issues, AEB sold both land and building on 30 April 2019 for RM15,500,000 and RM12,500,000 respectively. AEB adopted a fair value model for investment property and revaluation model for owner-occupied property. AEB depreciates its non-current assets using the straight-line method and closes its account on 31 December each year.

REQUIRED: (Round all numbers to the nearest RM)

(a) Prepare the journal entries for Advance Energy Bhd for its transaction in the year 2017 and 2018.

(b) Prepare the journal entries for Advance Energy Bhd when it sold both properties in the year 2019.

(c) In accordance with MFRS 140 Investment Property, discuss how Advance Energy Bhd consider the accounting treatment for the building that be rented out to Imperial Bhd.

(d) After the initial recognition, MFRS 140 Investment Property requires an entity to choose either the cost model or fair value model as its accounting policy. Briefly explain TWO (2) differences between these two models.

Answer 1

Journal Entries in the books of Advance Energy Bhd
Date	General Ledger	Debit	Credit
1/1/2017	Land---dr	6,000,000
	Building---Dr	8,000,000
	To Bank/ Payable		14,000,000
31/12/17	Land---Dr	3,000,000
	To gain on revaluation		1,000,000
	To Building		2,000,000
31/8/18	Building----Dr	8,000,000
	To gain on revaluation		8,000,000
31/12/18	Depreciation--Dr	1,400,000
	To Building		1,400,000
30/4/19	Depreciation--Dr	350,000
	To Building		350,000
30/4/19	Bank---Dr	28,000,000
	To Land		9,000,000
	To Building		12,250,000
	To gain on sales		6,750,000

(c) As per the standar, investment property is property (land or a building or part of a building or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both. since, the Company had leased out the building, it can capitalised as investment property.

(d) In the revaluation approach, a company revalues the investment property and records the gain or loss in the profit and loss. Further, the Company shall depreciate the revalued amount over the remaining useful life of the asset.

In the cost model, a company records the asset at purchase price plus transaction cost and this cost is depreciated over the useful life of the asset without any change in value recorded arising due to change in value.