On 1 January 2014, KimBell Bhd acquired a bulk plant and equipment from Sun Bhd. The economic
Question:
On 1 January 2014, KimBell Bhd acquired a bulk plant and equipment from Sun Bhd. The economic life was estimated to be 20 years at a cost of RM4.8 million. In addition, at the date, KimBell Bhd also incurred import duties and freight charges amounting to RM300,000 as well as an installation cost of the plant and equipment of RM220,000. KimBell closes its account every 31 December. The plant and equipment was depreciated on a straight line basis. The following subsequent expenditures were incurred during the year ended 31 December 2019 by KimBell Bhd regarding the plant and equipment:
- Service cost of RM53,800 per annum to maintain the plant.
- On 1 January 2019, KimBell replaced one of the parts that were severely damaged. Although there was no change in production volume, the change has resulted in significant reduced of cost. The carrying amount of the old component as at that date was RM36,000. New part cost RM55,000.
- On 31 December 2019, an old component which has carrying amount of RM136,000 was replaced with the new component. The purchase of the new component worth RM 255,000.
Required:
Advice KimBell on appropriate accounting treatment for each of the subsequent expenditure stated above. You are also required to indicate the depreciation charged during the year ended 31 December 2019.
Applying International Financial Reporting Standards
ISBN: 978-0730302124
3rd edition
Authors: Keith Alfredson, Ken Leo, Ruth Picker, Paul Pacter, Jennie Radford Victoria Wise