PPE – TUTORIAL QUESTION 2

DD Bhd is a biscuit manufacturing company located in Kuching. DD Bhd has two machines
being use for the production of goods in a rented factory building. These machines were
purchased at RM200,000 each on 30 June 2007 with the useful life of 20 years. Due to
rapid expansion of its operations and the high demand for its product, DD Bhd ordered a
new high-technology machine on 28 May 2017 from a company in Kuala Lumpur to increase
the production capacity of the factory. The machine was received on 29 June 2017 and the
invoice price was RM400,000 with a trade discount of 1%. The machine has a useful life of
10 years. The following costs were also incurred:

RM
Delivery and transport costs from Kuala Lumpur to the factory 3,000
Installation and testing costs 12,000
Administrative costs incurred in processing and inspection 5,000
Start-up and pre-production costs 10,000
Lubricants on machine yearly 6,000
Salary for machine technician per year 12,000

One of the older machines was exchanged as part of the payment for the acquisition of the
new high-technology machine. For the year ended 30 June 2018, DD Bhd also incurred
RM2,000 for maintenance cost.

Required:

a. i. State whether the two machines and the factory building meet the
definition of ‘Property, plant and equipment’.
(5 marks)

ii. Explain whether the asset recognition criteria of the new high-technology
machine is satisfied.
(3 marks)

iii. Discuss the initial measurement and the possible subsequent measurement
for the new high-technology machine.
(7 marks)

b. i. Explain the accounting treatment on the old machine exchanged in the

acquisition of the new high-technology machine including relevant journal
entries.
(4 marks)

ii. Compute the carrying amount of the machines as at 30 June 2018.

(6 marks)
(Total: 25 marks)