CONFI NDE NTIAL AC/MAY 2024/FAR460
UNIVERSITI TEKNOLOGI MARA
COMMON TEST
COURSE : FINANCIAL ACCOUNTING AND REPORTING 2
COURSE CODE : FAR460
EXAMINATION : MAY 2024
TIME : 1 HOUR 30 MINUTES
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of TWO (2) questions.
2. Answer ALL questions in English. Start each answer on a new page.
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
This question paper consists of three (3) pages including the cover page.
1
CONFI NDE NTIAL AC/MAY 2024/FAR460
QUESTION 1
Tanjung Village Bhd is a company manufacturing various types and sizes of plastic bottles for
the local market. On 1 January 2020, the company purchased a machinery for RM2,120,000
with a useful life of 10 years for its operation.
On 1 January 2022, the company spent RM380,000 on the purchase of a new component to
replace the old component of the machinery. It is expected that the machinery's production
capacity will rise along with the quality of the final product. The cost of the old component was
RM250,000.
Part of the company warehouse was burned due to a short circuit and caused the damages
to the machinery. On 31 December 2023, an impairment test was carried out on the
machinery. On the date, the value in use is RM1,380,000, and its fair value less cost to sell is
RM1,200,000.
The company adopts the cost model for its subsequent measurement of its machinery, and
the accounting year ends on 31 December annually.
Required:
a) Explain whether the machinery is a property, plant and equipment in accordance to
MFRS 116 Property, Plant and Equipment.
(4 marks)
b) Discuss the appropriate accounting treatment for the replacement of the old component
on 1 January 2022.
(4 marks)
c) Prepare the relevant journal entries on 1 January 2022.
(6 marks)
d) Calculate the impairment loss (if any) of the machinery as at 31 December 2023.
(6 marks)
(Total: 20 marks)
QUESTION 2
Melur Bhd is a company involved in producing and distributing carpets located in Melaka. The
company had been established since 1988 and still expanding their business. Below are two
properties owned by Melur Bhd:
Property 1
The business currently has a four-storey building located in Jalan Hang Tuah, Melaka. The
first floor of the building is currently occupied for administrative work, while the second and
third floor is rented out to its employees. The fourth floor was rented out to independent parties.
The building cannot be sold separately.
2
CONFI NDE NTIAL AC/MAY 2024/FAR460
Property 2
On 1 January 2021, the company purchased a new property in Lendu, Melaka for investment
purposes. The purchase price of the property was RM10,000,000. The company also incurred
legal fees and stamp duty of RM150,000, professional fees in valuing the property of
RM50,000, and transfer taxes RM50,000. Additionally, the company also incurred RM5,000
for property agent’s commission in finding a suitable tenant. The property is rented out the
property to several tenants with rental income amounting to RM350,000 per month. The
estimated useful life of the building is 50 years.
On 31 December 2023, the company decided to occupy the property in Lendu as an
administrative office and training center. The fair value of the property on the date of transfer
RM9,500,000.
The company adopted the fair value model to accounts for its investment property and
revaluation model for its property under property, plant, and equipment.
Required:
a) Briefly explain whether Property 1 can be classified under MFRS140 Investment
Property.
(4 marks)
b) Compute the initial measurement of Property 2.
(4 marks)
c) Explain the appropriate accounting treatment for Property 2 in relation to the above
scenario on 31 December 2023.
(6 marks)
d) Prepare the relevant journal entries for the year ended 31 December 2023 related to
Property 2.
(6 marks)
(Total: 20 marks)
END OF QUESTION
