Jutawan Bhd Bhd had used an office building for administrative purposes with a depreciated cost of historical cost of RM3.6 million on 1 April 2019 with a remaining life of 20 years. There were some reorganizations to Harta’s properties during the year of 2019. The office building was rented to a third party and reclassified as an investment property applying the fair value on 1 October 2019. Jutawan Bhd had consulted an independent professional assessor valued on the property. The fair value of the building was valued at RM4.14 million at 1 October 2019 by the assessor. This value rose further to RM4.212 million at 31 March 2020.
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.
Jutawan Bhd Bhd had used an office building for administrative purposes with a
Required:
Discuss the accounting treatment of the above scenario in accordance to the relevant MFRS.
Show the effects to the financial statements of Jutawan Bhd’s land and office building.
(12 marks) (CLO1:PLO1:C6)
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