Question

ls outlined LU-Borrowing Costs mpany purchased a piece of land and a buildin Triang d the following expenditures in relation to the purchase of the land an at the heart of the' oalmine Com 2 Coalm in or RM20 million. Apart from the purchase price and RM 6,000 12,000 25,000 7,000 Legal fees to draft the contract Title insurance Property taxes for the period after acquisition (pro-rated) Municipal Council transfer fees are estimated by an independent valuer to worth approx RM2.2 million and RM1.1 million respectively if purchased separately. Vt Osial the acquisition, Coalmine Company spent RM170,000 to build a parking lot andas Not long Required: ) Determine the initial measurement of: (i) the land and (i) the building As above, but this time, assume that soon after acquisition, Coalmine ComDan mpan molished the building at the cost of RM42,000 and the scrapped materials were for RM8,000 cash. Apart from this cost, Coalmine Company also in RM73,000 for clearing and restoring the land in preparation for the constractin the new building. (c) Explain the rationale to youeswers in part (a) and (b) by referring to the sp ecessary requirements of MFRS 116,

Answer 1

1. Computation of initial valuation of each asset Coalmine acquired:

Land and Building                                 RM 20,000,000

Legal Fees                                               RM            6,000

Title Insurance                                      RM           12,000

Municipal Council transfer fees       RM              7,000

                                                             RM 20,025,000

Land = RM 20,025,000 * (2.2/3.3)   = RM 13,350,000

Building = RM 20,025,000 * (1.1/3.3) = RM 6,675,000

Land Improvement: Parking Lot = RM 170,000

                              Interior Design =   RM 35,000

2. Computation of initial valuation of each asset acquisition:

Acquisition Cost                              RM 20,025,000

Add: demolition cost                     RM         42,000

Clearing and restoring                   RM         73,000

Less: salvage                                 RM            8,000

Cost of land                                      RM 20,132,000

Land Improvement: Parking Lot = RM 170,000

                              Interior Design   = RM 35,000