Bible Beauty Bhd (BB) is a successful company that sells a range of cosmetic products. With the increasing orders received by a company, BB has prepared a land site to construct a new warehouse for the company’s operation. BB bought a three-acre land with an old factory building in the year 2019 at the price of RM500,000. BB paid RM2,000 for real estate taxes and RM1,500 real estate agent commission fees. The land ownership transfer was just completed and an additional cost of RM30,000 was incurred for clearing the site. BB received RM8,000 from the residual value of demolishing the old building. In order to ensure the safety of the property, BB incurred a cost totalled RM20,000 for the installation of fences around the property. The plan has been arranged accordingly to ensure that the warehouse could be constructed as soon as the site was ready. However, the loan applied from CNN Bank was rejected and all related construction activities had to be temporarily suspended. BB then made a new loan application with BNN Bank. While waiting for the loan approval, the management team of BB decided to utilize the site to generate additional income for the company. The site was rented out for car boot sales activities in the morning and food truck operations at night. In the first month of operation, BB earned RM80,000 related to rental service revenue and the related costs included RM4,800 for staff salary, RM2,200 for administration expense and RM3,000 for other expenses. After one month of operation, the bank loan was approved and BB immediately stopped the site renting operation and continued with its initial intention to construct the warehouse. The total cost to construct the warehouse, from excavation until completion, was RM880,000 (including the RM3,200 cost of inefficiencies caused by a labour strike). This cost excluded the revenue and expenses related to the site rental operation. Since the rental revenue and expenses were incurred on the construction site, Mrs Tara, the accountant of BB was uncertain whether to include these revenues and expenses in the cost of land or the cost of the constructed warehouse. Analyse and identify the issue(s) faced by the accountant of BB.
Bible Beauty Bhd (BB) is a successful company that sells a range of cosmetic products. With the increasing orders received by a company, BB has prepared a land site to construct a new warehouse for the company’s operation. BB bought a three-acre land with an old factory building in the year 2019 at the price of RM500,000. BB paid RM2,000 for real estate taxes and RM1,500 real estate agent commission fees. The land ownership transfer was just completed and an additional cost of RM30,000 was incurred for clearing the site. BB received RM8,000 from the residual value of demolishing the old building. In order to ensure the safety of the property, BB incurred a cost totalled RM20,000 for the installation of fences around the property. The plan has been arranged accordingly to ensure that the warehouse could be constructed as soon as the site was ready.
However, the loan applied from CNN Bank was rejected and all related construction activities had to be temporarily suspended. BB then made a new loan application with BNN Bank. While waiting for the loan approval, the management team of BB decided to utilize the site to generate additional income for the company. The site was rented out for car boot sales activities in the morning and food truck operations at night. In the first month of operation, BB earned RM80,000 related to rental service revenue and the related costs included RM4,800 for staff salary, RM2,200 for administration expense and RM3,000 for other expenses. After one month of operation, the bank loan was approved and BB immediately stopped the site renting operation and continued with its initial intention to construct the warehouse. The total cost to construct the warehouse, from excavation until completion, was RM880,000 (including the RM3,200 cost of inefficiencies caused by a labour strike). This cost excluded the revenue and expenses related to the site rental operation. Since the rental revenue and expenses were incurred on the construction site, Mrs Tara, the accountant of BB was uncertain whether to include these revenues and expenses in the cost of land or the cost of the constructed warehouse.
Analyse and identify the issue(s) faced by the accountant of BB.
Step by step
Solved in 2 steps
