Reference no: EM132694681

Dermaga Bhd is a luxury resort in Langkawi and leased a bayside plot of land to build a wharf for yachts belonging to its customers. The lease was for 20 years beginning the year 2001. Dermaga did an extensive development of the wharf and expected it to have a useful life of 40 years at a cost of RM10 million. They were fully expecting to have their lease renewed for another 20 years. The wharf was depreciated on a straightline basis with zero residual value. Dermaga's financial year end is on 31 December.

Unfortunately, they have just received news that the district office will only renew their lease for another 2 years and they were told that the lease will not be renewed any further as the government wishes to takeover the wharf as a public facility. They will be compensated with RM2 million for all buildings as well as any fixtures and fittings at the end of 2022.

Required:

Problem 1: Illustrate the accounting treatment for the year ending 31 December 2020