Question

Syarikat Berjaya Untung Berhad purchased a major machinery Item from Japan for RM800 000 in 2009 to be used in the manufacturing of Product Angel. Import duties and freight charges are RM25,000 and RM35,000 respectively. Installation cost was RM10, 000 while start-up and pre-production costs incurred was RM25,000. The machine was depreciated on the straight-line basis over 10 years, charging a full year's depreciation in the year of purchase and none in the year of disposal. The following expenditures were incurred subsequent to the acquisition of the above machinery elah In 2012, an important component of the machine was damaged and it was replaced with a same component at a cost of RM50,000 In 2014, the company spent RM200,000 to upgrade the perfarmance of the machine Several important components were replaced by components which were more modern and efficient. This upgrading increased the output capacity by 30% The maintenance and repair costs totaled RM60,000 par annum In August 2017, newer machinery introduced to the market rendered the machinery of Syarikat Berjaya Untung Berhad to be obsolete. The management has decided to urchase the new machinery. The old machinery was moved to a warehouse and kept for eventual disposal. The net realizable value was estimated at RM50,000. Determine the carrying amount of the machinery in August 2017 and prepare the journal entry to recognize the amount. Explain your answer clearly. (7 markah/marks)

Answer 1

	Calculation of Carrying Value of Major Machine in August'2017
	Particulars	Amount (in RM)
	Purchase Amount of Machinery	800,000.00
Add:	Import Duty	25,000.00
Add:	Freight Charges	35,000.00
Add:	Installation Charges	10,000.00
Add:	Pre- Production Charges	25,000.00
	Total Amount to be Capitalized in the Year 2009	895,000.00
Less:	Depreciation for the Year 2009	84,500.00
Less:	Depreciation for the Year 2010	84,500.00
Less:	Depreciation for the Year 2011	84,500.00
Less:	Depreciation for the Year 2012	84,500.00
Less:	Depreciation for the Year 2013	84,500.00
	Total Amount of Asset at the start of 2014	472,500.00
Add:	Cost spend to upgrade Machine	200,000.00
		672,500.00
Less:	Depreciation for the Year 2014	124,500.00
Less:	Depreciation for the Year 2015	124,500.00
Less:	Depreciation for the Year 2016	124,500.00
Less:	Depreciation for the Year 2017 (from Jan'17 to Aug'17 i.e. 8 months)	83,000.00
	Carrying Value at the end of August'2017	216,000.00

Working Note:
1	Calcuation of Depreciation on Machine as per Straight Line Method
	Depreciation p.a.=	{[Machine Cost (-) Residual Value]/Life of Machine}
		[895,000(-)50,000]/10
		84,500.00
	(Here, it has been assumed that the Machinery has been purchased at the
	start of the year 2009).
2	The Amount spent in the year 2012 amounting to RM 50,000 for replacing
	the component, is to be treated as Revenue Expenditure. Therefore, not
	to be added in the value of Machine as it is not adding to the performance
	of the machine.
3	Amount of RM 200,000 spent to upgrade the machine performance by 30%
	output capacity. Therefore, it shall be treated as Capital Expenditure and
	thereby capitalised to the amount of machinery.
	(Here, it has been assumed that the amount spend at the beginning of the
	year).
	Depreciation shall be revised from this year for the remaning period of time
	Value as at the beginning of 2014	472,500.00
	Add: Capitalized Cost	200,000.00
	Value after Capitialization	672,500.00
	Depreciation P.a. for next 5 Years=	{[Machine Cost (-) Residual Value]/Life of Machine}
		[672,500(-)50,000]/5
		124,500.00
4	The Repair & Maintenance cost p.a. for RM 60,000 shall be treated as Revenue
	Expenditure.

Journal Entry:

Bank A/c Dr. 50,000

Profit & Loss A/c Dr. 166,000

To Machine A/c 216,000

(Being Machine Disposed)