Reference no: EM132745888

MTy Bhd operates a fast food restaurant in Changlun, Kedah since year 2015. The classes of property, plant and equipment in MTy Bhd accounts are building, machinery, furniture and fittings and office equipment. In year 2015, MTy Bhd purchased machinery for the operation of the business at cost of RM3,250,000 with useful life of 10 year and residual value of RM100,000. The company retained earnings as follows:

Retained Earnings

2017 RM 2,827,421

2016 RM 2,134,356

The newly appointed auditor of the company Encik Salim identified that no depreciation was provided for the machinery in year 2015 nonetheless the asset was in used to generate revenue. Encik Salim has reported the errors incurred in year 2015 where the depreciation for machinery was computed for only 2 years since year 2016 instead of three years to the Chief Executive Officer (CEO) of the MTy Bhd. Thus, for year 2017 Encik Salim has advised the necessary accounting treatment required for the missing depreciation amount to MTy Bhd. Assume the tax rate is 25%.

REQUIRED:

Problem (a) Define errors in accordance with MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors.

Problem (b) State THREE (3) disclosure for correction of errors in accordance with MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors.

Problem (c) Demonstrate the accounting treatment for the missing depreciation amount and the impact to retained earnings in year 2017.