Homework Help is Here – Start Your Trial Now!
Business
Accounting
for RM30 millio building were

for RM30 millio building were

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

Q1 (a)

KMH Bhd purchased a 25-storey building as an investment property on 1 January 2019 for RM30 million. The legal cost and other incidental costs relating to the purchase of the building were RM8 million. 15 floors of the building are rented out to its other subsidiaries and 7 floors are rented out to outsider retailers, while the balance is used by KMH Bhd as its head office. The portions of the building that were used as its head office could not be sold separately from the portions that were rented out to its subsidiaries and outside retailers. The independent valuer estimates that the useful life of the building is 20 years and its residual value is RM10 million. KMH Bhd uses the cost model to account for its investment property and also uses the straight-line method to depreciate its property, plant, and equipment. However, the outbreak of the world health crisis, Covid-19 in the year 2020 has caused massive disruption to the economic conditions for many companies and an increase in economic uncertainty for others. Tenants who have been forced to suspend operations were not able to pay rent in the near term and asked to renegotiate a lower rent. Following these unfavourable situations, KMH Bhd decided to provide for impairment loss on the building for the year ended 31 December 2020. The management of KMH Bhd estimated the fair value less cost to sell of the building on 31 December 2020 to be RM32 million while the projected cash inflows for the remaining useful life of the building are as follows: 2022 RM8,800,000 Year 2021 RM9,600,000 2023 Cash flow RM7,000,000 KMH Bhd.'s incremental borrowing rate was 10%. The table below presents the present value for single sums, where i = interest and n = years is given below: Year Discount factor at 10% 1 3 0.9091 0.8264 0.7513 On 1 January 2021, the tenancy of the building with its subsidiaries and outside retailers was terminated and KMH Bhd has decided to occupy all 25 floors of the building as its administrative office. Required: Discuss how the building is accounted for in the book of KMH Bhd and its consolidated group account under MFRS 140 Investment Property. а.
Transcribed Image Text:KMH Bhd purchased a 25-storey building as an investment property on 1 January 2019 for RM30 million. The legal cost and other incidental costs relating to the purchase of the building were RM8 million. 15 floors of the building are rented out to its other subsidiaries and 7 floors are rented out to outsider retailers, while the balance is used by KMH Bhd as its head office. The portions of the building that were used as its head office could not be sold separately from the portions that were rented out to its subsidiaries and outside retailers. The independent valuer estimates that the useful life of the building is 20 years and its residual value is RM10 million. KMH Bhd uses the cost model to account for its investment property and also uses the straight-line method to depreciate its property, plant, and equipment. However, the outbreak of the world health crisis, Covid-19 in the year 2020 has caused massive disruption to the economic conditions for many companies and an increase in economic uncertainty for others. Tenants who have been forced to suspend operations were not able to pay rent in the near term and asked to renegotiate a lower rent. Following these unfavourable situations, KMH Bhd decided to provide for impairment loss on the building for the year ended 31 December 2020. The management of KMH Bhd estimated the fair value less cost to sell of the building on 31 December 2020 to be RM32 million while the projected cash inflows for the remaining useful life of the building are as follows: 2022 RM8,800,000 Year 2021 RM9,600,000 2023 Cash flow RM7,000,000 KMH Bhd.'s incremental borrowing rate was 10%. The table below presents the present value for single sums, where i = interest and n = years is given below: Year Discount factor at 10% 1 3 0.9091 0.8264 0.7513 On 1 January 2021, the tenancy of the building with its subsidiaries and outside retailers was terminated and KMH Bhd has decided to occupy all 25 floors of the building as its administrative office. Required: Discuss how the building is accounted for in the book of KMH Bhd and its consolidated group account under MFRS 140 Investment Property. а.
Expert Solution
steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Stock Market Analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS