QUESTION 3 (DEC 2014)

A. On 3 January 2014, Saga Auto Bhd purchased a car carrier trailer from Japan. The
trailer is used to transport the imported cars for sale. This is to replace an old trailer
purchased in 2005. The cost of the old trailer as at 1 January 2014 was RM800,000 and
accumulated depreciation was RM500,000. The old trailer was sold for RM280,000.
Details of the new trailer are as follows:
Cost of the trailer
Custom duties
Transportation costs
Insurance on purchase
Documentation on purchase

RM
1,200,000
4,500
12,400
3,540
500

On 5 January 2014, printing of the companys name and logo on the new trailer
amounted to RM1,500. On 17 January 2014, the trailer was used for the first time to
transport imported cars from Port Klang to the companys location. The trailer driver
filled up the trailer with fuel amounting to RM150. On 30 January 2014, the trailer was
sent for first service. The cost incurred for the first service was RM650. The trailer is
expected to have a useful life of 10 years.
Required:
1. Explain briefly why information regarding the purchase of the trailer would be useful
to investors.
The trailer are tangible item that:
a) are held for use in the production or supply of goods or services, for rental to others,
or for administrative purpose and
b) are expected to be used during more than one period.

2. Identify whether or not the trailer is an asset of the company.

The trailer is an asset of the company because it is probable that future economic
benefits associated with the item will flow to the entity and the cost of the item can be
measured reliably.

3. Describe whether or not the trailer is an item of property, plant and equipment in
accordance with MFRS 116 Property, Plant and Equipment.

4. Explain briefly the initial cost of the new trailer to be recognized in the Statement of
Financial Position as at 31 January 2014.

5. Compute the amount of depreciation expense for the new trailer for the month of
January 2014.

6. Show journal entries to record the derecognition of the old trailer on 05 January 2014.

QUESTION 3 (DEC 2014)

B. The following information relates to total number of imported cars for Saga Auto Bhd
as at 31 January 2014.
Item

No. of
units

Cost per
unit

Net realisable value

per unit

Citroen

RM300,000

RM350,000

Audi

15

RM250,000

RM280,000

BMW

10

RM450,000

RM500,000

Required:
1. Describe whether or not the imported cars are items of inventory in accordance with
MFRS 102 Inventories or items of property, plant and equipment in accordance with
MFRS 116.

2. Determine the value of the imported cars as at 31 January 2014 on an item-by-item

basis.

3. On 1 February 2014, the company took one Citroen car for the executive directors
use. Explain briefly the accounting treatment for this transaction.