Question

Wayne operates a candy factory in Seremban. The machines in his factory are purchased overseas. On 1 Jan 2015, he purchased a machine from Japan costing RM120,000. The machine was delivered to Malaysia on freight. The transportation cost of RM3,000 and freight insurance of RM1,200 was borne
by Wayne. When the machine landed in Malaysia, Wayne paid custom duty of RM3,000. Wayne hired an engineer to install the machine within the factory. The engineer told Wayne that in the event Wayne wishes to dismantle the machine in the future, it would cost him RM700. After the installation was completed, the engineer billed him at RM1000. Wayne plans to use the machine for 6 years. Every year, the machine would be maintained at a cost of RM350. At the end of year 6, the machine will be dismantled and sold off as scrap for RM5,000. For every of his assets, Wayne adopts the policy to make full year depreciation in the year of purchase
and no depreciation in the year of disposal.

required:
a) Compute the annual depreciation for the years ended 31 Dec 2015, 2016, 2017, 2018 and 2019
using the following depreciation basis:
(i) straight line
(ii) reducing balance basis at the rate of 42% per annum.

b)With your answer in (a) (ii) above, prepare for the years ended 31 Dec 2017, 2018 and 2019:
(i) Machinery account
(ii) Depreciation account
(iii) Accumulated depreciation account
(iv) Statement of Profit or Loss (extract)
(v) Statement of Financial Position (extract)

Answer 1

Solution:

(a)

Computation of the Acquisition Cost of Machinery:

Calculation of Acquisition Cost of Machine Particulars RM Cost of Purchase Transportation cost Freight Insurance Custom Duty Cost of Engineer 1,20,000 3,000 1,200 3,000 1,000 Total 1,28,200

(i) Computation of Depreciation using the Straight Line Method

(2.1) COMPUTATION OF ANNUAL DEPRECIATION Straight Line Method (Amounts in RM) Acquisition Annual Accumulated Book Year Cost Depreciation Depreciation Value 2015 1,28,200 20,650 20,650 1,07,550 2016 1,28,200 20.650 41,300 86,900 2017 1,28,200 20,650 61,950 66,250 2018 1,28,200 20,650 82,600 45,600 2019 1,28,200 20,650 1,03,250 24,950 2020 1.28.200 20,650 1,23,900 4,300

Depreciation for the year ended 31st Dec. 2015, 2016, 2017, 2018 and 2019 is RM 20,650 each year.

(ii) Computation of Depreciation using the Reducing balance Method @ 42%

(a.ii) COMPUTATION OF ANNUAL DEPRECIATION Reducing-balance Method (Amounts in RM) Acquisition Annual Accumulated Book Year Cost Depreciation Depreciation Value 2015 1,28,200 53,844 53,844 74,356 2016 1,28,200 31,230 85,074 43,126 2017 1,28,200 18,113 1,03,187 25,013 2018 1,28,200 10,506 1.13,692 14,508 2019 1,28,200 6,093 1,19,786 8,414 2020 1,28,200 4,114 1,23,900 4,300

Depreciation for the year ended 31st Dec 2015 is RM 53,844, for 2016 is RM 31,230, for 2017 is RM 18,113, for 2018 is RM 10,506 and for 2019 is RM 6,093.

(b) Preparation of following accounts

(i) Machinery Account Date Particulars 01-Jan-17 Balance b/d Debit Date Particulars RM 1,28,200 31-Dec-17 Balance c/d 1,28,200 Credit RM 1.28.200 1,28,200 01-Jan-18 Balance b/d 1,28,200 31-Dec-18 Balance c/d 1,28,200 1.28.200 1,28,200 01-Jan-19 Balance b/d 1,28,200 31-Dec-19 Balance c/d 1,28,200 1,28,200 1,28,200

(ii) Depreciation Account Date Particulars 31-Dec-17 Accumulated Depreciation Alc Debit Date Particulars RM 18,113 31-Dec-17 Profit & Loss Alc 18,113 Credit RM 18,113 18,113 31-Dec-18 Accumulated Depreciation Alc 10,506 31-Dec-18 Profit & Loss A/c 10,506 10,506 10,506 31-Dec-19 Accumulated Depreciation Alc 6,093 31-Dec-19 Profit & Loss Alc 6,093 6,093 6,093

(iii) Accumulated Depreciation Account Date Particulars Debit Date Particulars RM 01-Jan-17 Balance b/d 1,03,187 31-Dec-17 Depreciation Account 1,03,187 Credit RM 85,074 18,113 1,03,187 31-Dec-17 Balance c/d 31-Dec-18 Balance c/d 01-Jan-18 Balance b/d 1,13,693 31-Dec-18 Depreciation Account 1,13,693 1.03.187 10,506 1,13,693 31-Dec-19 Balance cld 01-Jan-19 Balance b/d 1,19,786 31-Dec-19 Depreciation Account 1,19,786 1,13,693 6,093 1,19,786

(iv) Statement of Profit & Loss A/c (Extract)

Wayne Statement of Profit & Loss Alc (Extract) S.No. Particulars 2017 RM 2018 RM 2019 RM 1 Income from Operations Net Sales (Including Export Incentives) Other Operating Income Total Income from Operations 2 Expenditure Cost of Materials Sold Purchase of Stock-in-trade Change in Stook-in-trade & WIP Employee Benefit Expense Repair & Maintenance expense Other Expenditure Depreciation & Amortisation Finance Costs 350 350 350 18,113 | 10,506 6,093 5 Profit before Tax and Exceptional items Exceptional items 6 Profit before Tax (PBT) Tax Expenses 7 Profit After Tax (PAT) 8 Other comprehensive income (after-tax) 9 Total Comprehensive Income after tax

(v) Statement of Financial Position (Extract)

Wayne Statement of Financial Position (Extract) S.No. Particulars 2017 RM 2018 RM 2019 RM 1,28,200 1,28,200 1,28,200 A. ASSETS 1 Non-Current Assets Machinery Capital WIP Other Intangible Assets Financial Assets Other Non-Current Assets Sub-Total Non-Current Assets 2 Current Assets Inventories Trade Receivables Financial Assets (including Cash & Bank balance) Current Tax Assets (Net) Other Current Assets Sub-Total Current Assets Total Assets B. EQUITY & LIABILITIES 1 Non-Current Liabilities Financial Liabilities Provisions Deferred Tax Liabilities (Net) Other Non-Current Liabilities Sub-Total Non-Current Liabilities 2 Current Liabilities Trade Payables Financial Liabilities Other Current Liabilities Provisions Current Tax Liabilities (Net) Sub-Total Current Liabilities Accumulated Depreciation 3 Equity Equity Minority Interest Sub-Total Equity 1,03,187 1,13,692 1,19,786 " Total Equity & Liabilities