Exercises - MFRS 116 Property, Plant and Equipment

QUESTION 1

    On 2 April 2018, Nazuwa Fashion Bhd purchased 2 units of machines at a total cost of RM150,000. In addition, the company incurred installation cost of RM15,000, insurance cost of RM12,000 and transportation cost of RM8,000 for both machines. Both machines have a eight-year economic life and a total salvage value of RM25,000. The company uses straight line of depreciation on monthly basis. Nazuwa Fashion Bhd closes its book on 31 December each year.

                                        

Required:

1. Explain according to MFRS 116 Property, Plant and Equipment, the initial cost of the machines to be recognized in the Statement of Financial Position.  
2. Compute the initial cost of the machines.                                          
3. Calculate the depreciation expense for both machines as at 31 December 2018.

QUESTION 2

A. Balqis Sdn Bhd acquired two machines costing RM60,000 each on 4 March 2019. The transportation cost of RM2,000 was charged for the delivery of both machine whereas installation cost was RM4,000 for each machine. The machines are expected to be used for 10 years.

Balqis’s depreciation policy for the machine are 25% per annum based on a straight line method, monthly basis. The company’s financial year end is on 31 December each year.

Required:

a.  Identify whether the machine acquired by Balqis Sdn Bhd can be considered as assets of the company in accordance with MFRS 116 Property, Plant and Equipment.                                                          

b.    Calculate the initial cost of the machines.                                     

c. Explain the differences between straight line method and reducing balance method.                                                                                 

d.    Calculate the depreciation expense for the machines as at 31 December 2019.