RCSB’s top management make a decision to venture into agriculture business as another source of income. An agriculture land was purchased on 1 January 2017 for RM400,000. Clearing cost amounted to RM50,000. RCSB decided to use revaluation model for this land. RCSB decided to rear chickens, goats and cow. Two chicken coup and a cow barn need to be built to house these cattle. RCSB bought wires and woods to build the chicken coup and the barn. The construction of the chicken coups was RM12,000 while the cost of the wires and woods amounting to RM10,000. RCSB paid a contractor RM3,000 to build the cow barn. RCSB decided the useful life of the chicken coup to be 2 years while of the cow barn is 5 years without any residual value. Based on the above, discuss on how you would account for the following items by reference to the appropriates approved accounting standards. Support your arguments with reasons. The agriculture land, the chicken coups, the wires, the woods and the construction costs of the cow barn. Based on the relevant approved accounting standards that you have chosen in (b), journalize each of the transactions.
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.
RCSB’s top management make a decision to venture into agriculture business as another source of income. An agriculture land was purchased on 1 January 2017 for RM400,000. Clearing cost amounted to RM50,000. RCSB decided to use revaluation model for this land. RCSB decided to rear chickens, goats and cow. Two chicken coup and a cow barn need to be built to house these cattle. RCSB bought wires and woods to build the chicken coup and the barn. The construction of the chicken coups was RM12,000 while the cost of the wires and woods amounting to RM10,000. RCSB paid a contractor RM3,000 to build the cow barn. RCSB decided the useful life of the chicken coup to be 2 years while of the cow barn is 5 years without any residual value.
Based on the above, discuss on how you would account for the following items by reference to the appropriates approved accounting standards. Support your arguments with reasons. The agriculture land, the chicken coups, the wires, the woods and the construction costs of the cow barn.
Based on the relevant approved accounting standards that you have chosen in (b), journalize each of the transactions.
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