Teja Bertuah Bhd which was incorporated in 2011, need two types of machinery to expand the business operation. The first machinery was bought from other company, however the second machinery was self-constructed by company.

Machinery 1

On 1 March 2020, Teja Bertuah Bhd places an order for a machinery from a company in New Zealand. The machinery was delivered on 29 March 2020 and the invoice price of machinery was RM100,000 with a cash discount of 2% if paid within 30 days. Payment was made during discount period. Import duties and taxes amount to RM20,000. The following costs were also incurred:

1. Delivery and transportation costs was RM12,500.
2. Installation and commissioning costs was RM12,000.
3. Administrative costs was RM2,500.
4. Start-up and pre-production costs was RM6,000.
5. Insurance on shipment was RM2,300.
6. Exchange currency loss from the transaction with New Zealand company was RM1,500.

Machinery 2

On August 2020, Teja Bertuah Bhd constructs the machinery for its own used in production.   The expenditures related to construct the machinery were:

1. Contractor costs to construct the machinery was RM21,000.
2. Direct labour and material used in the construction were RM17,000.
3. Engineering and technical overheads cost was RM5000.
4. Interest incurred to finance the construction was RM4,000.
5. Costs of testing the machinery was RM2,000.
6. General administrative costs allocated was RM3,200.
7. Advertising costs was RM1,000.

Of the direct material and labour used, RM3,000 is attributable to cost inefficiencies caused by a labour strike. During the testing of the machinery whether it is functioning properly, this company produce a sample from the machinery which has been sold at RM800.

Miss Mutti, a junior accountant in the company was uncertain about the accounting treatment for all the expenditure incurred and revenue earned (if any). Since you are a senior accountant in the company, she needs your advice related to this matter.

REQUIRED:

(CTPS question, refer rubric for marking):

1. Analyse the problem (s) faced by Miss Mutti by referring to related paragraph in the MFRS 116 Property, Plant and Equipment.

            (Problem analysis)