Reference no: EM132787255

On 1 July 2018, ARR Bhd moves out from its present head office in Pontian to a new office in Johor Bahru. The building in Pontian was then rented out to Itchy Bhd. The building in Pontian was acquired on 1 July 2014 at a purchase price of RM4,000,000 and the company also incurred legal cost of RM250,000. It was depreciated on a straight-line basis over 40 years. The fair value of the building on 1 July 2018 was RM4,000,000.

Due to its business expansion strategy, ARR Bhd purchased a 5-storey building in Segamat for RM1,000,000 on 1 October 2020. Four stories are occupied for the company's business operation. The fifth floor is rented out to an independent third party. The floors cannot be sold separately.

ARR Bhd adopts the revaluation model for its building under MFRS 116 Property, Plant and Equipment and fair value model for its building under MFRS 140 Investment Property. The company's financial year ends on 30 June.

Problem 1: What is the initial cost of building in Pontian on 1 July 2014?

a) RM4,000,000

b) RM250,000

c) RM4,250,000

d) RM3,750,000

Problem 2: What is the accumulated depreciation of building in Pontian as at 30 June 2016?

a) RM106,250

b) RM100,000

c) RM212,500

d) RM200,000

Problem 3:  Calculate the surplus / deficit due to the transfer or change in use of the building in Pontian as at 1 July 2018.

a) Surplus RM175,000

b) Deficit RM175,000

c) Surplus RM400,000

d) Deficit RM400,000

Problem 4: Classify the building in Segamat based on relevant Malaysian Financial Reporting Standard.

a) The entire building shall be classified as leased property based on MFRS16.

b) The entire building shall be classified as property, plant and equipment based on MFRS116.

c) The entire building shall be classified as an investment property based on MFRS140.

d) The one floor shall be recognized as an investment property based on MFRS140 and the remaining floors shall be recognized as property, plant and equipment based on MFRS116.