QUESTION 1

Borneo Development Sdn Bhd is a property developer operated in Lahad Datu. The company was incorporated on 1 January 2015 and closes its accounts every 31 December. In 2018, the company was awarded with the Excellence Award from Construction Industry Development Board (CIDB) because the company manages to complete the construction projects within time frame. Consequently, Dato Izzat, the director, is very happy with the performance of the company and decides to construct its own office building.

The following is the costs incurred by the company.

	RM
Architect fee	50,000
Engineers fee	70,000
Direct material	350,000
Direct labour	400,000
Overhead	250,000
Wiring and cabling	80,000
Supervisor salary	10,000
Depreciation of machines	45,000
Rental of excavator	20,000

The architect is a friend of Dato Izzat. Dato Izzat manages to get 5% discount of the architect fee. One of the materials are wrongly ordered by the purchasing department. The cost of this wrongly ordered materials is RM10,000 was included in the direct material cost. It is decided that 40 percent of the overhead incurred was for the construction of the building. The supervisor was assigned specifically to monitor the progress of the construction. The machines were used to do multiple tasks during the construction period. The excavator was used to clear the land for the construction purpose.

The construction was completed on 1 June 2019. The construction was partly financed by 5% bank loan amounting to RM500,000. The bank loan was received on 2^nd January 2019. Because the office building is qualifying asset, the interest is to be capitalized.

The useful life of the building is estimated to be 50 years based on period of ownership.

Required:

1. Explain whether the office building can be recognized under MFRS116 Property, plant and equipment.
2. Calculate the initial cost of the office building.
3. Prepare Statement of Profit or Loss (extract) and Statement of Financial Position (extract) as at 31 December 2019 for the office building.