FAR210: Depreciation on motor vehicles is treated as selling and distribution expenses while depreciation for other property, plant and equipment to be treated as administrative expenses.
1. The information related to the property, plant and equipment of the company is as follows:
a. The depreciation policy of the company is as follows:
- Building is depreciated on straight-line method over 50 years with no residual value on a yearly basis.
- Plant and equipment are depreciated on a reducing balance method on 10% per annum on a yearly basis.
- Motor vehicles are depreciated on straight-line method on 20% per annum monthly basis.
- Land is not depreciated.
Note: Depreciation on motor vehicles is treated as selling and distribution expenses while depreciation for other property, plant and equipment to be treated as administrative expenses.
b. On 20 December 2022, a lorry was purchased on credit. The following costs were incurred for acquisition of the lorry:
No record was made in the company’s book in relation to this acquisition.
c. On 1 October 2022, one piece of equipment was disposed of at a loss of RM25,000. At the date of disposal, the equipment had a cost of RM350,000 and a carrying amount of RM100,000. However, only the equipment’s selling proceeds were recorded and classified as other income.
d. On 1 January 2022, the building was revalued for the first time to the fair value of RM1,750,000. As at 31 December, no record was made in the company’s book. On that date, the remaining useful life of the building was 20 years.
Required:
i. Explain the components of initial cost of self-constructed property, plant and equipment in accordance with MFRS 116 property, plant and equipment.
ii. Compute the initial cost for the asset acquired by the company during the year.
iii. Calculate the current year’s depreciation charges for the property,plant and requipment of the company.
iv. Recommend the company on the accounting treatment on derecognition of the equipment.
