Reference no: EM132558072

Question 1: The following situations are independent of each other and related to the activities and events of Global Jupiter in the year 2018. The financial year end for the company is 31 December.

(i) In the past, the company expensed borrowing costs on construction of its factory. The company has changed its policy this year and now capitalises as it is incurred. In 2017 accounts, borrowing costs expensed was RM2,500,000 and this year's borrowing costs incurred was RM3,800,000. The factory is still under construction.

(ii) A posting errors has been found in the accounts for the year 2017 whereby RM200,000 proceed from the sales of two delivery trucks has been credited to sales.

Required: For each situation, identify the type of accounting changes and discuss the proper accounting treatment!

Question 2: Mars Inc. is in the process of finalising the financial statements for the year ended 31 December 2018 and came across the following issues. Its profit after tax before the following adjustments is RM 1.65 million. The authorisation date for the financial statements is 31 March 2019.

(i) The tax rate applicable to the company has been changed from 26% to 25% on 15 January 2019. This new rate is announced to be applied starting for financial year 2019.

(ii) Major fire broke out in one of its factories on 15 February 2019 and destroyed the inventory valuing RM50,000, the sale value of which is now nil.

(iii) A debtor that owes the company RM30,000 was declared bankrupt by the Insolvency Department on 6 January 2019. (iv) The fair value of investment property held by the company at the reporting date was RM1.2 million. However, a major flood on 5 January 2019 has been affecting the value of this investment property. On 28 March 2019, an independent property valuer estimated that the fair value now has decreased to RM900,000.

Required:

(i) For each case, discuss the accounting treatment.

(ii) Determine the amount profit of Mars. Inc for the year ended 31 December 2018.