On 1 July 2021, Iriz Bhd (IB) purchased a piece of land with an existing old building for RM2,000,000. IB demolished the building and constructed a new building as headquarters on the site. The new building and land improvement are expected to last for 50 years with no residual value and the construction was fully completed by 30 June 2022.

The following represents various expenses related to the purchase of land and construction of new building during 2021 and 2022: 

Items	RM
Lawyer’s fee to close the purchase deal	20,000
Cost of land fill and clearing	15,000
Architect’s fee	150,000
Fencing around the land	100,000
Cost of demolishing existing building	50,000
Interest on financing of construction paid during construction	250,000
Receipts from sale of demolition scraps	25,000
Construction costs	1,200,000
Landscaping (trees and shrubs), permanent in nature.	40,000
Parking lots and concrete walks on the property	200,000
Insurance premium on building for 2-year periods (50% during construction period)	30,000
Moving costs from old headquarters to new headquarters	150,000

To accommodate the mission of improving productivity and efficiency, the company also bought a new special equipment and made the following payments.

Items	RM
Manufacturer’s list price	4,500,000
Discount term, IB paid within discount period	2/10, n 60
Delivery charge	75,000
Installation charge	50,000
Additional components to increase capacity to achieve intended quality	100,250
Storage cost RM5,000 (it was delivered before the factory is ready for installation	6,000
Service and maintenance	24,500
Replacement parts	17,000
Test runs	16,500
Small spare parts	2,600

During the test runs, some samples were produced and sold. The proceeds from these samples amounted to RM25,000.

On 1 January 2022, IB exchanged its old truck with a new truck to Rosken Bhd. The old truck was bought on 1 January 2020 at RM200,000 and annual depreciation rate was 20%. The fair value of the old truck at the date of exchange was RM100,000. In addition to the old truck, IB paid RM50,000 cash to Rosken Bhd. The exchange of the equipment has commercial substance.

REQUIRED:

1. Calculate the cost of property, plant and equipment below based on MFRS 116 Property, Plant and Equipment. Show all calculations.

(i)      Land

(ii)     Land Improvement

(iii)    Building

(iv)    Equipment

1. Prepare the journal entries to record the transaction related to the exchange of truck by Iriz Bhd.

Answer rating: 100% (QA)

Solution i Land Cost of land RM2000000 ii Land Improvement Cost of land fill and clearing RM15000 Fe... View the full answer