PROPERTY, PLANT, AND EQUIPMENT MFRS 116

What are the two main criteria for recognizing an item as property, plant and equipment (PPE)?

• Depreciation

• Measured reliably

• Residual value

• Future economic benefits

What is the definition of “cost” in the context of PPE according to MFRS 116?

• a) the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire the asset

• b) The expected sales price of the asset

• c) The amount of depreciation charged on the asset

• d) The amount of tax paid on the asset

Interest expense capitalized for qualifying assets is included in the cost of property, plant, and equipment

• TRUE

• FALSE

The cost of property, plant, and equipment does NOT include the costs of __________ a new facility

Which of the following is NOT a subsequent measurement model allowed by MFRS 116 for property, plant, and equipment

• a) cost model

• b) revaluation model

• c) fair value model

• d) both A and B

A machine was purchased by Alpha Sdn Bhd on 1 January 2022 for RM60,000. The estimated useful life is 5 years, with a residual value of RM5,000. The company uses the straight-line method.

Calculate the annual depreciation for each year (2022, 2023, 2024, 2025, 2026).

Answer explanation

 RM60,000 – RM5,000/ 5 YEARS = RM 11,000 FOR EACH YEAR

On 1 January 20X1, Bestari Berhad purchased a machine for RM120,000. Additional costs include:

·       Delivery cost: RM3,000

·       Installation cost: RM7,000

·       Staff training cost: RM2,000

·       Site preparation cost: RM5,000

·       Import duties: RM2,500

·       Annual insurance for 12 months after the machine is in use: RM1,200

Calculate the total amount to be recognized as the cost of PPE.

Answer explanation

Total PPE cost: RM120,000 + RM3,000 + RM7,000 + RM5,000 + RM2,500 = RM137,500

❌ Excluded (Not capitalized):

·       Staff training cost: RM2,000

·       Annual insurance after use: RM1,200

There are treated as expenses in profit or loss.

Arif Engineering purchased a machine on 1 July 20X7 for RM500,000. It is being depreciation on a straight-line basis over its useful life of ten years. Residual value is estimated as RM20,000. On 1 January 20X8, following a change in legislation, Arif fitted a safety guard to the machine. The safety guard cost RM25,000 and has a useful life of five years with no residual value.

What amount will be charged to profit or loss for the year ended 31 March 20X8 in respect of depreciation on this machine?

Answer explanation

Machine ((500,000-20,000)/10 x 9/12) = RM36,000

Safety guard ((25,000/5) x 3/12)           = RM1,250

RM 36,000 + RM 1,250 = RM37,250

Zulfikri Sdn Bhd acquired a machine on 1 January 2020 for RM280,000. The machine has a useful life of 8 years and an estimated residual value of RM20,000. The company uses the straight-line method for depreciation.

Calculate the carrying amount of the machine as at 31 December 2023.

Answer explanation

Annual Depreciation= (280,000 – 20,000) / 8 = RM32,500

Acc Depreciation for 4 years = 32,500 X 4 =RM130,000

CARRYING AMOUNT = ORIGINAL COST – ACCUMULATED DEPRECIATION

CA on 31 December 2023 = 280,000 – 130,000 = RM150,000

Nusa Steel Sdn Bhd disposed of a delivery vehicle on 30 June 2024. The vehicle was purchased on 1 January 2021 for RM150,000. It has a useful life of 5 years with no residual value.

What is the accumulated depreciation of the vehicle at the date of disposal?

• a) RM90,000

• b) RM105,000

• c) RM120,000

• c) RM75,000

Answer explanation

Annual depreciation= 150,000/5 = RM30,000

Depreciation 2021: RM30,000

         2022: RM30,000

         2023: RM30,000

        Jan-Jun 2024: 30,000 x 6/12 = RM15,000

Total Acc Dep= 30,000 + 30,000 + 30,000 + 15,000 = RM105,000