InnerWorks Bhd (IWB) has financial year end 31 December. Following are four classes of its property, plant and equipment extracted from the company’s accounts.

Machinery

InnerWorks Bhd (IWB) operates in a very competitive field. To maintain its market position, IWB purchased two machines for cash on 6 January 2018. It had previously rented its machine. Machine A cost RM400,000 and Machine B cost RM1 million. Each machine was expected to have a useful life of 10 years and residual value of 5% of its purchase cost.

On 30 June 2019, IWB adopted the revaluation model to account for the class of machinery. On that date, the fair value of Machine A and Machine B were determined to be RM320,000 and RM900,000 respectively. The useful life and the residual value of Machine A were reassessed to 8 years and RM15,000. The useful life and the residual value of Machine B were reassessed to 8 years and RM40,000.

On 2 January 2020, extensive repairs were carried out on Machine B for RM263,750. IWB expected these repairs to extend Machine B’s useful life by 3.5 years, and estimated residual value to RM60,000.

Owing to technological advances, IWB decided to replace Machine A. It traded in Machine A on 31 March 2020 for a new Machine C, which cost RM640,000. A RM280,000 trade-in was allowed for Machine A, and the balance of Machine C’s cost was paid in cash. Transport and installation costs of RM10,000 were incurred for the acquisition of Machine C. It was expected to have a useful life of 8 years and residual value of RM80,000.

Equipment

On 4 January 2018, IWB exchanged an equipment with a carrying value of RM120,000 for similar equipment from Techno Hub Bhd (THB). The newly acquired equipment was recorded at carrying value of RM135,000 in the book of THB. Both equipment have similar capacity. IWB also made a payment of RM5,000.

Motor Vehicles

IWB also operates car rental services. New motor vehicles are used for rental for 5 years and later dispose as second-hand cars at IWB’s second-hand cars outlet. The motor vehicles include secondhand cars for sales at costs RM600,000 and accumulated depreciation of RM500,000. During 2020, IWB has sold RM200,000 of second-hand cars with gain on disposal of RM64,000.

Land

Included in the land account, is a piece of land that has a cost of RM1.3 million. Due to the economic recession, IWB cancel its plan to develop the land into an eco-tourism resort instead the land was made available for sale during the year 2020. Negotiations with a broker have concluded that a realistic selling price of this land will be RM1 million and the broker will charge commission of 5% of the selling price. The land has not been sold by the year end.

Required:

(a) Calculate the following for the machinery:

(i) Depreciation charges for 2018

(ii) Revaluation surplus and deficit at 30 June 2019

(iii) Carrying value of Machine B at 2 January 2020

(iv) Profit or loss on disposal at 31 March 2020

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(b) Prepare the journal entries for the machinery to record:

(i) the revaluation of Machine A AND Machine B

(ii) the disposal of Machine A AND acquisition of Machine C

.

(c) Determine the initial measure of the equipment AND provide justifications why it should be recorded at that value.

.

(d) Explain the accounting treatment in accordance with MFRS116 Property, Plant and Equipment for the following items, as at 31 December 2020:

(i) Motor Vehicle

(ii) Land

Answer rating: 100% (QA)

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