Perotiga Bhd is a company involved in the automotive industry located in Southern Malaysia since 1998. Perotiga Bhd plans to expand its business by having another factory building in Northern Malaysia and the company has already identified Kuala Nerang as the location for its latest branch. Besides the factory building, the company needs to have a new office building to run the business at Kuala Nerang. Perotiga Bhd acquired the office building but the factory building needs to be constructed because it requires specific features.

Perotiga Bhd acquired the office building on 1 July 2018 and commenced the construction of the factory building on 1 January 2018. The construction would be completed and it is ready to be used on 1 December 2018. The following are the costs incurred to acquire the office building and to construct the factory building.

Items	Office building	Factory building
	RM	RM
Purchase price	36,000,000	-
Legal fees	250,000	-
Consultancy fees paid to Smart Click Sdn Bhd	470,000	400,000
General administrative cost per year	360,000	500,000
Maintenance cost per year	200,000	8,000,000
Construction cost:
Material cost	-	9,000,000
Labor cost	-	4,500,000
Contractor’s fee	-	12,000,000
Installation and technical cost	900,000	2,500,000

Perotiga Bhd received a 5% trade discount for the office budling. The consultancy fees paid to Smart Click Sdn Bhd consist of a consultation to PerotigaBhd for the acquisition of the office building amounting to RM470,000 and also consultation on the training of new factory workers which amounted to RM400,000.

The material cost included the excessive wastage of material of RM800,000 whilst the labor cost has already excluded the idle capacity of RM100,000.

The useful life of both office building and factory building is 50 years.

Required:

i. Identify the initial cost of the office building and the factory building in Kuala Nerang on 1 July 2018 and 1 December 2018, respectively.

Answer rating: 100% (QA)

The initial cost of the office building is RM36000000 and the factory building is RM22900000 ... View the full answer