Reference no: EM133168868

Question - On 1 January 2019, Reena Berhad purchased a plant for RM880,000 from Arman Berhad. Import duties and freight charges totalled RM25,000 and installation cost incurred was RM15,000. The plant is depreciated on a straight line basis over 20 years.

The following subsequent expenditures were incurred:

1. Service cost to maintain the plant is RM12,000 per annum.

2. On 1 January 2022, one of the component of the plant was damaged and had to be replaced at a cost of RM20,000. The production capacity of the plant remains unchanged. The carrying amount of the old component replaced was RM17,000.

3. The company spent RM100,000 for the purchase of a new component on 1 January 2023 to replace another old component. It is expected that the new component will increase the production capacity of the plant. The carrying amount of the old component replaced was RM88,000.

Required - In accordance to the requirements of MERS1 16 Property, Plant and Equipment:

a) Illustrate the accounting treatment for each of the subsequent expenditure above.

b) Compute the cost of plant that should be recognized by the company on date of acquisition, 1 January 2019.

c) Compute the amount of depreciation to be recognized for the year ended 31 December 2022.