Discuss the accounting treatment of the above transaction in accordance to MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors. Prepare the comparative financial statements for the year ended 31 December 2018 incorporating the accounting changes made by MacPro Property Bhd.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
MacPro Property Bhd acquired an investment property on 1 January 2015 and measured it using the cost model. On 1 January 2018, MacPro Property Bhd changed the accounting policy and used the fair value model to measure investment property. The acquisition cost of the property was RM70 million and the estimated useful life was 35 years.
The fair values of the property were measured as below:
|
Date |
RM (in million) |
|
31/12/2015 |
72 |
|
31/12/2016 |
74 |
|
31/12/2017 |
78 |
|
31/12/2018 |
83 |
Profit after
REQUIRED:
- Discuss the accounting treatment of the above transaction in accordance to MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors.
- Prepare the comparative financial statements for the year ended 31 December 2018 incorporating the accounting changes made by MacPro Property Bhd.
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