FINANCIAL ACCOUNTING & REPORTING II BKAR 2023
Part 1: Case Analysis
1. Determination of whether the cost incurred subsequent to the acquisition of PPE
should be charged to operations or capitalized involves a much mor
...
FINANCIAL ACCOUNTING & REPORTING II BKAR 2023
Part 1: Case Analysis
1. Determination of whether the cost incurred subsequent to the acquisition of PPE
should be charged to operations or capitalized involves a much more careful
analysis of the character of the expenditure. What are the factors that should be
considered in making such a decision?
• Capitalised expenditure is an expense where the benefit continues over a long
period, rather than being exhausted in a short period. Such expenditure is of a
non-recurring nature and results in the acquisition of permanent assets.
• Four types of cost can be capitalized:
i. costs that produce benefits.
ii. news assets that have a useful life substantially beyond one year.
iii. Improvements that prolong the life of the property,[9] restore the property to a
“like-new” condition, or add value to the property.
iv. Adaptations that permit the property to be used for a new or different
purpose.
2. Prepare the journal entries to record the expenditure incurred subsequent to the
acquisition of the building in 2011 and determine the new cost of the building.
Date Details Debit
(RM)
Credit
(RM)
15 March
2015
Dr. Expense 1,750
Cr. Cash 1,750
( Repairs to the building )
15 May 2015
Dr. Building 530,000
Cr. Cash 530,000
( Addition to the building )
New Building = RM 5,287,047 + RM 530,000
= RM 5,817,047
3. Calculate the new annual depreciation for the building after the replacement
made in 2013.
Years Calculation
2011 & 2012
RM 5,817,047 – [ ( RM 5,817,047 / 10YEARS ) 2 ]
= RM4,653,637.60
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