BKAR2023 FINANCIAL ACCOUNTING AND REPORTING II (A222)

MINI CASE 1:
PROPERTY, PLANT AND EQUIPMENT

DUE DATE: 17 APRIL 2023, MONDAY

Guidelines for submission:

1) Please answer all questions.

2) Please write your name, matric number, group on the header and page number on
the bottom of your answer document.

3) The mini case is an individual task; however discussion is allowed, but copying other
student’s answer is forbidden.

4) Your answer should be handwritten and subsequently scanned with a scanner or

mobile scanner apps in a combined PDF file. The scanned document must be clear,
easily readable, and complete. Photo is not allowed.

5) Submit your scanned answer via Online Learning portal →

within the allotted time and period, before 12.00 mid night, 17 APRIL (MYT). Only
one submission will be accepted.

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 QUESTION 1

On 31 December 2020, Saat Ditunggu Bhd borrowed RM1,750,000 at 9% payable

annually to finance the construction of a new office building. In 2021, the company made
the following expenditures related to this office building: 1 February RM485,000; 30 June,
RM255,000; 1 September, RM550,000; 31 October 350,000; 1 December RM725,000.
Additional information is provided as follows:

(1) Other debt outstanding

7-year, 8% bond, 31 December 2017, interest payable annually RM3,000,000
9-year, 11% note, dated 31 December 2015, interest payable annually RM4,500,000
(2) 1 February 2021, expenditure included land costs of RM285,000
(3) Interest revenue RM27,500 earned in 2021 on funds are not related to specific
borrowing.

REQUIRED:
(Round your answer to the nearest RM)

(a) Determine the amount to be capitalized in 2021 in relation to the construction of the
office building.

(b) Prepare the journal entry to record the capitalization of interest and the recognition of
interest expense, if any, at 31 December 2021.

QUESTION 2
CutiePie Bhd manufactures and sells toys for babies and toddlers. The company operates in
Sungai Petani and has been operating a profitable business for many years. CutiePie Bhd
decided to expand its business to Bukit Kayu Hitam. CutiePie Bhd bought a piece of land
valued at RM800,000 on 1 February 2020 to construct a plant. The company also paid an
additional RM100,000 for the title fee and legal fee of the land. The land is expected to have
an indefinite useful life.

CutiePie Bhd borrowed a 5-year, RM1,200,000 term loan with a 6% interest rate specifically
for the construction of the plant on 31 January 2020. The details of the progress payments
made for the construction of the plant during the financial years (FY) 2020 and 2021 are as
follows:

Payment date Costs in RM

1 June 2020 200,000
4 September 2020 200,000
27 December 2020 300,000
30 April 2021 500,000

2
The construction of the plant was completed and ready for its intended use on 30 April 2021.
CutiePie Bhd earned an interest income of RM25,000 in FY2020 and RM3,500 in FY2021 on
the investment of the surplus fund from the term loan.

Upon completion of the plant, CutiePie Bhd found that it needed to purchase a new piece of
machinery. The directors discovered that the government was allocating grants to
manufacturing companies in Bukit Kayu Hitam. The directors applied for the grant and were
awarded a grant of RM180,000 to purchase the machinery on 1 September 2021. CutiePie
Bhd purchased a machinery at RM500,000 on the date of the grant approval. The useful life
of the machinery is expected to be six years. CutiePie Bhd does not expect to receive any
amount for the machinery at the end of its useful life.

The company also has another piece of land and factory situated at Sungai Petani, Kedah.
The land was acquired in January 2017 for RM400,000 and a factory was bought in April
2017 for RM600,000. The company will conduct an impairment test if there is an indication
of impairment for the non-current assets. The revalued amount of the land was RM300,000
and RM550,000 at the end of 2019 and 2021 respectively. In 2019, the factory fair value was
RM460,000 and the estimated selling cost was 6% of its fair value. The present value of
future cash flow from the factory was RM420,000.

Additional information:
1. Financial year end of CutiePie Bhd is on every 31 December.
2. The useful life of the factory in Sungai Petani is 15 years. The company uses straight-
line method to record the depreciation of the factory and machinery. The policy is to
record a full year depreciation if the assets are bought in the first 6 months and no
depreciation if the assets are bought in the last 6 months of the financial year.
3. CutiePie Bhd adopts revaluation model to account for its factory and land.

REQUIRED:
(Show all the workings and round your answer to the whole number)

(a) Calculate the amount of interest to be capitalised for the construction of the plant for
FY2020 and FY2021.

(b) Prepare all the journal entries related to the land, plant and interest capitalisation for
FY2020 and FY2021.

(c) Assuming that CutiePie Bhd’s policy is to present government grant as deferred
income, prepare all relevant journal entries related to the machinery and government
grant for FY2021.

(d) Prepare the journal entries to record the revaluation of land at Sungai Petani in the
year 2019 and 2021.

(e) Calculate the impairment loss (if any) for the factory at Sungai Petani in year 2019.
Prepare related journal entries.