Tutorial 6 Non-Current Assets 1 LTJ 2018

Tutorial 6 – Accounting for Non-current assets Salary (7 staff) RM140,000

Estimate salary for 10 staff: RM60,000 EXTRA SALARY EXPENSE
Section A: CHARGED TO SPL
Bryan hired an engineer to install the machine within the factory. The
1 (a) Describe capital expenditure and revenue expenditure. How are engineer told Bryan that in the event Bryan wishes to dismantle the machine
they to be treated in the accounts? in the future, it would cost him RM700. After the installation was
(b) What is depreciation? Explain. completed, the engineer billed him at RM1000.
2 (a)What are the common methods of depreciation? Explain.
(b) Compare depreciation with accumulated depreciation. Explain Bryan plans to use the machine for 6 years. Every year, the machine would
how they are treated in the accounts. be maintained at a cost of RM350. In year 7, the machine will be dismantled
and sold off as scrap for RM5,000.
3. State whether each of the following statements is True or False: Maintenance cost : RM 350 every years

a. When as a business has an accumulated depreciation account of For every of his assets, Bryan adopts the policy to make full year
RM4,000 for a particular non-current assets, it means the business depreciation in the year of purchase.
has accumulated, or set aside this amount of cash for replacement
later. TRUE Required:
b. Depreciation is the fall in value of non-current assets. TRUE
c. The straight line method is the depreciation method where (a) Calculate the cost of the machine.
decreasing amounts of depreciation are being charged to the Cost of machine includes:
Statement of Profit or Loss over the years. fALSE Purchase prise of machine 120000
d. Net book value is the estimated value of non-current assets after Trabsport cost 3000
deducting accumulated depreciation. TRUE Insurance on transport 1200
e. Capital expenditure is incurred when a business spends money to Custom duty/import duty(required 3000
buy or increase the value of non-current asset. TRUE tax)/indirect tax
Installation fees/costs 1000
Dismantling cost (future,estimate) 700
Question 4 (allowed by ACC Std
128900
Bryan operates a candy factory in Rawang. The machines in his factory are
purchased overseas. On 1 Jan 2012, he purchased a machine from Korea (b) Compute the annual depreciation for the years ended 31 Dec 2012,
costing RM120,000. The machine was delivered to Malaysia on freight. The 2013, 2014, 2015, 2016 and 2017 using the following depreciation
transportation cost of RM3,000 and freight insurance of RM1,200 was borne basis:
by Bryan. When the machine landed in Malaysia, Bryan paid custom duty of
RM3,000. (i) straight line
‘Initial Expenses: Make item ready to use (ii) reducing balance basis at the rate of 42% per annum
Tutorial 6 Non-Current Assets 2 LTJ 2018

Section B: Extra exercise questions (for students’ own practice)

(c) With your answer in (b) (ii) above, prepare for the years ended 31 Dec
2014, 2015 and 2016: Question 1

(i) Machinery account Genesis Trading currently has a problem in finalizing the depreciation
(ii) Depreciation account charges for the non-current assets. The bookkeeper has provided the
(iii) Accumulated depreciation account following information as at 1 Jan 2016:
(iv) Statement of Profit or Loss (extract)
(v) Statement of Financial Position (extract) Non-current Accum Dep Deprecation policy
assets Cost (RM) (RM)
(d) Show the journal entries to record the depreciation charge for the year Land 800,000 - -
ended 31 Dec 2012 and 2013 using the reducing balance method. Motor vehicles 250,000 25,000 10% on cost
Furniture Fittings 90,000 4,500 5% using reducing
balance method

New purchases of non-current assets during the year 2016 and 2017:
2016 2017
New Land at cost RM50,000 1. Furniture & fittings at cost
Asset RM8,000
Purchase 2. Motor vehicles at cost
d RM45,000

Depreciation is to be calculated on assets in existence at the end of each

year, giving full year’s depreciation in the year of acquisition.

Required:

(a) Prepare the following accounts for the year ended 31 Dec
2016 and 2017:
(i) Land account
(ii) Motor vehicle account
(iii) Furniture & Fittings account
(iv) Accumulated depreciation – Motor vehicles account; and
(v) Accumulated depreciation – furniture & fittings accounts (no
decimal, round up to the nearest RM)
Tutorial 6 Non-Current Assets 3 LTJ 2018

(b) Prepare the Statement of Financial Position (extract) as at

31 December 2016 and 2017 showing the non-current assets.

Question 2:

A car cost RM96,000. It will be kept for 3 years, and then sold for an
estimated value of RM24,000.

Required:
Calculate depreciation for each year using:

(c) Straight line method

(d) Reducing balance method, with depreciation rate of 37%