Reference no: EM132567528
Ms Lim is an accountant of DGHK Sdn Bhd. She is currently preparing the financial statement for the company for the year ended 31 December 2015. In the process, she finds the following events that require her attention. Assume that the tax rate is 25% where applicable.
i. During the course of finalizing the financial statement for the year ended 31 December 2015, Ms Lim discovered that goods sold in year 2014 of RM 20,000 were included in the closing inventory of year 2014. The opening inventory of year 2015 included this inventory.
ii. On 1 January 2011, an office equipment costing RM 600,000 was purchased and it was estimated that the economic life was 10 years. On 1 January 2015, it was determined that the economic life was 8 years. The depreciation expense for 2015 had yet to be accounted for.
iii. DGHK acquired a large asset for RM16 million. Effective for the financial year ended 31 December, 2015, the revised accounting standard requires the cost of the asset to be allocated to its various components and depreciated accordingly. DGHK has lost the records and is unable to assign the costs to the various components.
iv. DGHK has not depreciated its hotel building as it maintains it very well. The hotel building was constructed at a cost of RM110 million in 1 January 2014 and its scrap value was estimated at RM10 million. The hotel useful life is 10 years.
v. DGHK entered into a contract to lease a plant on 1 January 2013 on the following terms: the rental of RM 200,000 per annum is payable at the beginning of the year for five years. The Fair Value of the asset is RM1.2 million. When finalizing the financial statements for year ended 31 December 2015, it was discovered that it is a finance lease and not operating lease. The entity had accounted for the rental payment as an expense. Assuming the discount rate was 5% and the useful life of the asset is 10 years. There is no reasonable certainty that DGHK will obtain the ownership of the plant at the end of the lease term.
vi. At 1 January 2014, DGHK entered into a contract to sell its timber costing RM2 million for RM2.72 million and promised to buy it back at 31 December, 2015 for RM3 million. In year 2014, the sale of timber was recognized as revenue and cost of timber as cost of sales. Currently, DGHK is finalizing the financial statement for 2015. The discount rate is 5% throughout the period.
vii. DGHK acquired a property for RM25 million in 1 January 2014. The asset is depreciated at 2% on cost. It had adopted the cost model. At 31 December 2015, DGHK wants to adopt the revaluation model. The fair value of the property at 31 December 2014 and 2015 was 26 million and 25 million respectively.
Required:
Question 1: For each scenario above, discuss the accounting treatment for the independent events and transactions. Your answers should be supported with relevant journal adjustment if any.