Question

(15 Marks) QUESTION 2 The following is an independent events and transactions a) The entity has not depreciated its hotel buildings as it maintains it very well. The hotel building was constructed at a cost of RM200 million in 2002 and its scrap value was estimated at RM20,000 with 30 years useful life (3 marks) b) An entity was depreciating its plant on a straight line basis In year 2018, it changes its depreciation method to reducing balance method. (3 marks) c) On 1 January 2015, Amin Setia Berhad acquired a plant costing RM40,000. The economic life was estimated to be eight years with no remaining scrap value. On 1 January 2018, the remaining life as changed to be two years while the scrap value was estimated to be RM2,000 (3 marks) Karisma Berhad acquired a piece of land for RM1 million on 1 January 2010. The land was estimated to be an investment property and measured using the cost model. On 1 January 2019m Karisma changed its accounting policy to fair value measurement for the land. It was able to derive the fair value of the land from 31 December 2018 which was RMI 3million. The fair value of the land on 31 December 2019 was RM1.4million (3 marks) On 1 January 2013, WRK Berhad acquired a brand costing RM10 million. The useful life was determined as indefinite. On 1 January 2019, WRK Berhad reviewed the economic life and determine it as 10 years. (3 marks) Required: Determine the type of accounting treatment and disclosure for each of the following independent events and transactions according of MFRS 108, Accounting Policies, Changes in Accounting estimates and errors

Answer 1

The following are the type of accounting treatments and the disclosures to be made for each independent event

1. It is not the point how the building has been maintained , but after a period of time it gets depreciated . Following the SLM method the depreciation has to be depreciated =>( 200,000,000-20,000/30)= 66,66,000 p.a. Also the fact should be dislosed in the Financial Statements .
2. Disclosure should be made for the same that the entity has changed their method of accounting depreciation . From Accounting point of view , Retrospective effect have to be given for the previous years through reducing balance method .
3. For 3 years, the depreciation has been charged already i.e., upto 31/12/2017 . Since the Life of the asset has been changed therefore the asset has to be amortised for the next 2 years fully . The disclosure has to be made accordingly.
4. Since the land has been treated as an investment and accounted at Cost , it is correct. Further if the land is to be treated at fair value then it must taken as Current asset . The same will be disclosed in the FS. The Asset has to be valued at cost or Fair value whichever is higher . Therefore the asset will be taken for value as on 31 Dec 2018 .
5. Since the brand was costing 10 million and was for indefinite period but later it was measured for 10 years therfore the brand has to be amortised for the next 10 years taking the life of the brand into consideration.