ABFA1153 FINANCIAL ACCOUNTING I 1

Tutorial 9 – Accounting for Non-current assets

5. In the book-keeping and accounting, the term “depreciation” has a
Section 1: Multiple Choice Questions special meaning. It refers to:

1. The following are characteristics that describe capital expenditure A. The fall in the market value of fixed assets
except: B. The allocation of the cost of fixed assets over its useful life
A. It involves the purchase of new assets. C. The difference between the cost price of a non-current asset and its
B. Expenditure to increase the useful life and earning capacity of selling price when it sold
existing assets. D. Money set aside to buy a new machine when the old one is no
C. It includes day-to-day expenses to run the business. longer usable.
D. Capital expenditure is added to the cost of assets to be shown on
the Statement of Financial Position.
Section 2:
2. Which one of the following is not a capital expenditure?
A. Freight charges and custom duty 1. State whether each of the following statements is True or False:
B. Overseas transit insurance
C. Repairs and maintenance of machinery a. When as a business has an accumulated depreciation
D. Machine installation and dismantling costs account of RM4,000 for a particular non-current assets, it
means the business has accumulated, or set aside this
3. A delivery van was bought on 1 January 2012 at RM80,000. Its amount of cash for replacement later.
estimated useful life at the time of purchase was 5 years and its scrap
value, RM9000. Using the straight line basis of depreciation, what b. Depreciation is the fall in value of non-current assets.
would be the accumulated depreciation as at 31 December 2015?
A. RM23,200 c. The straight line method is the depreciation method where
B. RM56,800 decreasing amounts of depreciation are being charged to the
C. RM71,000 Statement of Profit or Loss over the years.
D. RM14,200
d. Net book value is the estimated value of non-current assets
4. A machine was bought for RM150,000 on 1 January 2013. The machine after deducting accumulated depreciation.
has a useful life of 6 years with RM12,000 scrap value. Using the
reducing balance basis of depreciation at 30%, what would be the net e. Capital expenditure is incurred when a business spends
book value as at 31 December 2015? money to buy or increase the value of non-current asset.
A. RM98,550
B. RM81,000
C. RM69,000
D. RM51,450
ABFA1153 FINANCIAL ACCOUNTING I 2

Section 3: Required:

Question 1 (a) Calculate the cost of the machine.

Wayne operates a candy factory in Seremban. The machines in his factory (b) Compute the annual depreciation for the years ended 31 Dec 2011,
are purchased overseas. On 1 Jan 2011, he purchased a machine from Japan 2012, 2013, 2014 and 2015 using the following depreciation basis:
costing RM120,000. The machine was delivered to Malaysia on freight. The
transportation cost of RM3,000 and freight insurance of RM1,200 was borne (i) straight line
by Wayne. When the machine landed in Malaysia, Wayne paid custom duty (ii) reducing balance basis at the rate of 42% per annum
of RM3,000.
(c) With your answer in (b) (ii) above, prepare for the years ended 31 Dec
Wayne hired an engineer to install the machine within the factory. The 2013, 2014 and 2015:
engineer told Wayne that in the event Wayne wishes to dismantle the
machine in the future, it would cost him RM700. After the installation was (i) Machinery account
completed, the engineer billed him at RM1000. (ii) Depreciation account
(iii) Accumulated depreciation account
Wayne plans to use the machine for 6 years. Every year, the machine would (iv) Statement of Profit or Loss (extract)
be maintained at a cost of RM350. At the end of year 6, the machine will be (v) Statement of Financial Position (extract)
dismantled and sold off as scrap for RM5,000.
(d) Show the journal entries to record the depreciation charge for the year
For every of his assets, Wayne adopts the policy to make full year ended 31 Dec 2011 and 2012 using the reducing balance method.
depreciation in the year of purchase and no depreciation in the year of
disposal.
ABFA1153 FINANCIAL ACCOUNTING I 3

Section 4: Extra exercise questions (for students’ own practice) (b) Prepare the Statement of Financial Position (extract) as at
31 December Year 1 and Year 2 showing the non-current assets.
Question 1: [This is a past year examination question]

CUBE Trading currently has a problem in finalizing the depreciation Question 2:

charges for the non-current assets. The bookkeeper has provided the
following information as at 1 Jan Year 1: A car cost RM96,000. It will be kept for 3 years, and then sold for an
estimated value of RM24,000.
Non-current Accum Dep Deprecation policy
assets Cost (RM) (RM) Required:
Land 80,000 - - Calculate depreciation for each year using:
Motor vehicles 250,000 25,000 10% on cost (a) Straight line method
Furniture Fittings 90,000 4,500 5% using reducing (b) Reducing balance method, with depreciation rate of 37%
balance method

New purchases of non-current assets during the year 2008 and 2009 (Year 1
and Year 2) :
Year 1 Year 2
New Land at cost RM50,000 1. Furniture & fittings at cost
Asset RM8,000
Purchased 2. Motor vehicles at cost RM45,000

Depreciation is to be calculated on assets in existence at the end of each

year, giving full year’s depreciation in the year of acquisition.

Required:

(a) Prepare the following accounts for the year ended 31 Dec Year 1 and
Year 2:
(i) Land account
(ii) Motor vehicle account
(iii) Furniture & Fittings account
(iv) Accumulated depreciation – Motor vehicles account; and
(v) Accumulated depreciation – furniture & fittings accounts
(no decimal, round up to the nearest RM)
ABFA1153 FINANCIAL ACCOUNTING I 4

Tutorial 9: Suggested solutions (ii)

Year RM
Section 1: Cost 128,900
1. C 2011 (-) Dep. (128,900 x 42%) (54,138)
2. C NBV 74,762
3. B 2012 (-) Dep. (74,762 x 42%) (31,400)
4. D NBV 43,362
5. B 2013 (-) Dep. (43,362 x 42%) (18,212)
NBV 25,150
Section 2: 2014 (-) Dep. (25,150 x 42%) (10,563)
1. (a) False NBV 14,587
(b) True 2015 (-) Dep. (14,587 x 42%) (6,127)
(c) False NBV 8,460
(d) True
(e) True (c)
Machinery Account
Section 3: 2013 RM 2013 RM
Jan 1 Bal b/d 128,900 Dec 31 Bal c/d 128,900
Question 1 2014 2014
Jan 1 Bal b/d 128,900 Dec 31 Bal c/d 128,900
(a) Cost of machine:
2015 2015
Purchase price: 120,000
Jan 1 Bal b/d 128,900 Dec 31 Bal c/d 128,900
Transport cost: 3,000
Freight insurance: 1,200 2016
Custom duty: 3,000 Jan 1 Bal b/d 128,900
Dismantle cost: 700
Installation cost: 1,000 Depreciation: Machinery Account
Total cost: 128,900 2013 RM 2013 RM
Dec31 Acc. dep 18,212 Dec 31 SPL 18,212
(b) (i) Annual depreciation: - 2014 2014
Dec31 Acc. Dep 10,563 Dec 31 SPL 10,563
128,900-5,000 2015 2015
6 years Der31 Acc. dep 6,127 Dec 31 SPL 6,127
=20,650
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Acc. Dep.: Machinery Account (d) Journal Entries:

2013 RM 2013 RM 2011
Dec31 Bal c/d 103,750 Jan1 Bal b/d 85,538 Dec 31 Dr Depreciation: Machinery 54,138
Dec31 Depn 18,212 Cr Accum. depn.: Machinery 54,138
103,750 103,750 (Depreciation charged for the year )
2014 2014 2012
Dec31 Bal c/d 114,313 Jan1 Bal b/d 103,750 Dec31 Dr Depreciation: Machinery 31,400
Dec31 Depn 10,563 Cr Accum. depn.: Machinery 31,400
114,313 114,313
2015 2015 Section 4:
Dec31 Bal c/d 120,440 Jan 1 Bal b/d 114,313 Question 1:
Dec31 Depn 6,127 Land Account
120,440 120,440 Yr 1 RM Yr 1 RM
Jan 1 Bal b/d 800,000 Dec 31 Bal c/d 850,000
2016
Bank 50,000
Jan1 Bal b/d 120,440
850,000 850,000
Statement of Profit or Loss (extract) for the years ended … Yr 2 Yr 2
RM RM RM Jan 1 Bal b/d 850,000 Dec31 Bal c/d 850,000
2013 2014 2015
Less: Expenditure Motor Vehicles Account
Depreciation 18,212 10,563 6,127 Yr 1 RM Yr 1 RM
Jan 1 Bal b/d 250,000 Dec31 Bal c/d 250,000
Yr 2 Yr 2
Statement of Financial Position (extract) as at … Jan 1 Bal b/d 250,000 Dec 31 Bal c/d 295,000
RM RM RM Bank 45,000
2013 2014 2015 295,000 295,000
Non-current assets
Machinery 128,900 128,900 128,900 Furniture & Fittings Account
Less: Accumulated depreciation (103,750) (114,313) (120,440) Yr 1 RM Yr 1 RM
Net book value 25,150 14,587 8,460 Jan 1 Bal b/d 90,000 Dec31 Bal c/d 90,000
Yr 2 Yr 2
Jan 1 Bal b/d 90,000 Dec 31 Bal c/d 98,000
Bank 8,000
98,000 98,000
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Acc. Dep.: Motor Vehicles Account

Yr 1 RM Yr 1 RM Workings : Depreciation
Jan 1 Bal b/d 25,000 Motor vehicles : Yr 1 –> 250,000 x 10% = RM25,000
Dec 31 Bal c/d 50,000 Dec 31 Depn 25,000 : Yr 2 –> 295,000 x 10% = RM29,000
50,000 50,000
Yr 2 Yr 2 Furniture & Fittings:
Jan 1 Bal b/d 50,000 1.1.Yr1 NBV 85,500 (90,000-4,500)
Dec 31 Bal c/d 79,500 Dec 31 Depn 29,500 31.12.Yr1 Depn (4,275) (85,500 x 5%)
79,500 79,500 1.1.Yr2 NBV 81,225
New 8,000
Acc. Dep.: Furniture & Fittings Account 89,225
31.12.Yr2 Depn (4,461) (89,225 5%)
Yr 1 RM Yr 1 RM
Jan 1 Bal b/d 4,500 NBV 84,764
Dec 31 Bal c/d 8,775 Dec 31 Depn 4,275
8,775 8,775
Question 2:
Yr 2 Yr 2
Jan 1 Bal b/d 8,775
(a) Depn. Each = (96,000-24,000)/3= 2,4000
Dec 31 Bal c/d 13,236 Dec 31 Depn 4,461
13,236 13,236
(b) Reducing balance method:
CUBE Trading RM
Statement of Financial Position (extract) as at 31 December Cost 96,000
Yr1 (-) Dep. (96,000 x 37%) (35,520)
Non-current assets Yr 1 Yr 2 NBV 60,480
RM RM RM RM Yr2 (-) Dep. (60,480 x 37%) (22,378)
Land 850,000 850,000 NBV 38,102
Yr3 (-) Dep. (38,102 x37%) (14,098)
Motor Vehicles 250,000 295,000
NBV 24,004
Less : Accum Dep (50,000) 200,000 (79,500) 215,500

Furniture & Fittings 90,000 98,000

Less : Accum Dep (8,775) 81,225 (13,236) 84,764
1,131,225 1,150,264