Reference no: EM133187583

Question - MyBaBy Bhd manufactures and sells toys for babies and toddlers. The company operates in Napoh and has been operating a profitable business for many years. Due to the baby boom since the outbreak of Covid-19, MyBaBy Bhd decided to expand its business to Bukit Kayu Hitam. MyBaBy Bhd bought a piece of land valued at RM800,000 on 1 February 2020 to construct a plant. The company also paid an additional RM100,000 for the title fee and legal fee of the land.

The land is expected to have an indefinite useful life. The land was excavated and levelled for construction of the plant immediately after the purchase. MyBaby Bhd borrowed a 5-year, RM1,200,000 term loan with a 6% interest rate specifically for the construction of the plant on 31 January 2020. The details of the progress payments made for the construction of the plant during the financial years (FY) 2020 and 2021 are as follows:

Payment date Costs in RM

1 June 2020 200,000

4 September 2020 200,000

27 December 2020 300,000

30 April 2021 500,000

The construction of the plant was completed and ready for its intended use on 30 April 2021. MyBaby Bhd earned an interest income of RM25,000 in FY2020 and RM3,500 in FY2021 on the investment of the surplus fund from the term loan.

Upon completion of the plant, MyBaby Bhd found that it needed to purchase a new piece of machinery. The directors discovered that the government was allocating grants to manufacturing companies in Bukit Kayu Hitam. The directors applied for the grant and were awarded a grant of RM180,000 to purchase the machinery on 1 September 2021. MyBaby Bhd purchased machinery at RM500,000 on the date of the grant approval. The useful life of the machinery is expected to be six years. MyBaby Bhd does not expect to receive any amount for the machinery at the end of its useful life.

The company also has another piece of land and factory situated at Napoh, Kedah. The land was acquired in January 2017 for RM400,000 and a factory was bought in April 2017 for RM600,000.

The company will conduct an impairment test if there is any indication of impairment for the noncurrent assets. The revalued amount of the land was RM300,000 and RM550,000 at the end of 2019 and 2021 respectively. In 2019, the factory fair value was RM460,000 and the estimated selling cost was 6% of its fair value. The present value of future cash flow from the factory was RM420,000.

Additional information:

1. Financial year-end of MyBaby Bhd is on every 31 December.

2. The useful life of the factory in Napoh is 15 years. The company uses the straight-line method to record the depreciation of the factory and machinery. The policy is to record a full-year depreciation if the assets are bought in the first 6 months and no depreciation if the assets are bought in the last 6 months of the financial year.

3. MyBaby Bhd adopts a revaluation model to account for its factory and land.

Required -

(a) Calculate the amount of interest to be capitalised for the construction of the plant for FY2020 and FY2021.

(b) Prepare all the journal entries related to the land, plant, and interest capitalisation for FY2020 and FY2021.

(c) Assuming that MyBaby Bhd's policy is to present government grants as deferred income, prepare all relevant journal entries related to the machinery and government grant for FY2021.

(d) Prepare the journal entries to record the revaluation of land at Napoh in the years 2019 and 2021.

(e) Calculate the impairment loss (if any) for the factory at Napoh in the year 2019. Prepare related journal entries.