Question

The non-current asset section of Zara Berhad at 31 December 2017 is as follows:

Property, Plant and Equipment	RM
Land	65,000
Buildings (RM100,000 cost less RM2,000 depreciation)	98,000
Motor Vehicle (RM84,000 cost less RM28,800 depreciation)	55,200
Plant and Machineries (RM290,000 cost less RM134,800 depreciation)	155,200

Note:

The company uses the straight-line depreciation method for all depreciable assets. The company adopts the revaluation model for land and buildings and the cost model for motor vehicle and plant and machineries. It is the policy of the company to revalue its lands and buildings annually.

The following information is given at 1 January 2018:

An equipment, which was acquired on 1 January 2014, at a cost of RM200,000, was originally estimated to have a residual value of RM10,000 and an estimated life of 10 years. On 1 January 2018, the estimated residual value was revised to RM14,000 and the useful life was revised to a total of 8 years.

The following information may have affected the property, plant and equipment during 2018:

Date	Transactions
31 Jan	The company incurs RM30,000 to paint the exterior of its building and another RM25,000 to furnish the interior of its building. The painting and furnishing are done to improve the work environment as well as to improve the corporate image of the company. Payments are made by cash.
31 March	An equipment is sold on 31 March for RM26,000. The company purchased the equipment on 1 January 2011 for RM90,000 and estimated a RM6,000 residual value at the end of the equipment's 10-year useful life.
30 Sept	The company exchanges its old motor vehicle and RM24,000 for new motor vehicle. The old motor vehicle was purchased on 1 January 2016, for RM84,000 and was estimated to have RM12,000 residual value at the end of its 5-year life. It is estimated that the fair value of the new motor vehicle is RM63,000 on 30 September 2018. The useful life of the new motor vehicle is 5 years with RM3,000 of residual value expected at the end of its life.
31 Dec	Revaluation for the land and buildings are made as follows: i) The company revalues its land to its fair value of RM62,000. The land was bought on 1 January 2016 at a cost of RM60,000. The useful life of the land is expected to be indefinite. ii) The company chooses to revalue its buildings to its fair value of RM125,000. The buildings were bought on 1 January 2017 at a cost of RM100,000. The useful life of the buildings is expected to be 50 years. Upon revaluation, the accumulated depreciation is eliminated against the gross carrying value of the buildings.

Required:

Prepare journal entries to record the above transactions, including for the depreciation expenses on 31 December 2018 (if applicable).

Answer 1

Note 1 - Change in Estimate
Particulars	Original	Revised
Acquisition Cost - 1/1/2014	200,000	200,000
Residual Value	10,000	14,000
Useful life	10	8
Annual Depreciation	19,000	23,250
Accumulated Deprn until 1/1/2018	76,000	93,000
Additional Depreciation to be charged (76k-93k)		17,000

Journal Entry is

		Debit	Credit
Depreciation Account	PL	17,000
Plant & Machinery	BS		17,000

Note 2 - Painting and Interiors

Since the life of buildings is not affected, painting and furnishing is not capitalised

		Debit	Credit
Repairs & Maintenance	PL	55,000
Bank Account	BS		55,000

Note 3 - Sale of Equipment

Particulars	RM
Acquisition Cost - 1/1/2011	90,000
Residual Value	6,000
Useful life	10
Annual Depreciation	8,400
Accumulated Deprn until 31/3/2018	60,900
Book Value as of 1/1/2018	29,100
Sale Value	26,000
Loss on Sale	3,100

Journal entry will be

		Debit	Credit
Bank Account	BS	26,000
Loss on sale of Asset	PL	3,100
Depreciation account	PL	2,100
Plant & Machinery	BS		31,200

Note 4 - Exchange of Motor Vehicle

Particulars	RM
Acquisition Cost - 1/1/2016	84,000
Residual Value	12,000
Useful life	5
Annual Depreciation	14,400
Accumulated Deprn until 30/9/2018	39,600
Book Value as of 30/9/2018	44,400
Cash Paid	24,000
Exchange Value	63,000
Loss on Sale	5,400

Journal entry is

		Debit	Credit
Loss on exchange	PL	5,400
Depreciation account	PL	10,800
Vehicle account	BS	7,800
Bank Account	BS		24,000

Note 5 - Revaluation of Land

The original value of land was RM 60,000 but amount recorded in books as of 1/1/2018 is RM 65,000. So it is assumed that there was a revaluation surplus created in the prior years. Hence the revaluation loss of RM 3,000 incurred in the current year is adjusted against such prior year revaluation surplus of prior year. If there was no evidence of this surplus, then RM 3,000 should be taken into P&L.

		Debit	Credit
Revaluation Surplus	BS	3,000
Land Account	BS		3,000

Note 6 - Revaluation of buildings

Revaluation surplus of RM 27,000 is to be created. Out of this RM 2,000 is debited out of the Accumulated depreciation account.

		Debit	Credit
Buildings account	BS	25,000
Acc Deprn Buildings	BS	2,000
Revaluation Surplus	BS		27,000

Note 7 - Annual Depreciation for 2018

Land is not depreciated

Building is stated at fair value as of closing day, hence no further adjustment is made

Depreciation on Motor Vehicle for 3 months = (63,000 -3000)/60 months *3 months = RM 3,000

Depreciation on Plant & Equipment = RM 23,250 (Refer Note 1)

		Debit	Credit
Depreciation account	PL	26,250
Acc Deprn Vehicle	BS		3,000
Acc Deprn Plant & Eq	BS		23,250

Final Summary Table

Particulars	Land	Buildings	Motor Vehicle	Plant & Mach (1)	Plant & Mach (2)
Book value as of 1 Jan 2018	65,000	98,000	55,200	124,000	31,200
Adjustment -
Addln depreciation due to change in estimate				(17,000)
Increase due to exchange			7,800
Sale					(31,200)
Revlauation	(3,000)	27,000
Closing balance (before deprn)	62,000	125,000	63,000	107,000	-
Deprn	-	-	(3,000)	(23,250)
Closing balance (after deprn)	62,000	125,000	60,000	83,750	-