Question 1

Describe what it means to capitalise an expenditure. What is the general rule for determining which costs are capitalized when property, plant and equipment is acquired?   

Question 2

Mangkuk Tingkat Inc. adopts a revaluation model for their property, plant and equipment measurement. They have two properties in Kuala Lumpur as shown below with their costs and fair value for the year ended.

	Freehold Land in Bangsar RM ‘000	Leasehold Building Land in Cheras RM ‘000
Cost as at 31 December 2016	11,000	13,100
Fair value as at 31 December 2016	11,200	11,800
Fair value as at 31 December 2017	10,000	12,200

The leasehold building was acquired in 2010 and has a 2 percent depreciation rate per annum.

On September 2017, Mangkuk Tingkat Inc. exchanged equipment with Paku Besi Co. Paku Besi paid Mangkuk Tingkat RM5,000 in cash for the exchange. The information on the exchange are as follows:

	Mangkuk Tingkat Inc.	Paku Besi Co.
Original cost	RM 120,000	RM 140,000
Accumulated depreciation	55,000	63,000
Fair value	75,000	70,000

The exchange has commercial substance for both companies.   

Required:

a) Show the relevant journal entries to record the adjustments required on the revaluation for the year ended 31 December 2016 and 2017.   

b) Show the extract of Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2016 and 2017.   

c) Record the exchange for Mangkuk Tingkat Inc. and Paku Besi Co.

Answer rating: 100% (QA)

Answer 1 Capitalize an expenditure is when the expenditure is recognized as a part of the fixed assets instead of charging it under the expense in the ... View the full answer