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RM Professional fees 80,000 Commission paid to real estate agency 16,500 Cost of demolishing an old building on the land 20,000 Excavation cost
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Question

Atif Pharma Bhd (AP Bhd) is a pharmaceutical distributor which purchases

prescription medicines and other medical products directly from pharmaceutical manufacturers and distribute across the country. In 2019, the company was involved in several transactions related to the acquisition of property, plant and equipment in order to diversify its operation.


On 2 January 2019, the company purchased a land with an old building for the purpose of self- constructed a new building as a factory by a selected constructed contractor. The price of the land and old building were RM850,000 and RM150,000, respectively. Additional expenditure incurred in relation to the purchase of land and construction of new factory were as follows:





Including in the professional fees was legal fees for the land purchased totalled of RM35,000 and architect's fee for the factory was of RM45,000. The construction of the factory completed on July 2019. But during the construction, the division manager had specified a low quality of direct material which caused the cost of inefficiency of RM25,000. This cost has been included in the cost of direct material and direct labour.
On 1 July 2019, AP Bhd purchased a specialised machinery for medicine repackaging and laboratories operation that will be used in a new factory. There is no market for this type of machinery in Malaysia, therefore AP Bhd spent of RM20,000 for oversea trip to search for this machinery. The list price of the machinery was RM4,500,000 with a trade discount of 1%. The shipping and handling cost to bring the machinery to the factory was RM180,000. Insurance cost during the shipping was RM30,700. This machinery need a special treatment for the specified area, therefore the company has incurred a cost of RM50,000 for concrete reinforcement; and electrical cabling and wiring totalled of RM33,000 for site preparation. While the Installation and assembly cost was RM42,900. Cost of maintenance of this machinery for three years was RM10,000.
In addition, AP Bhd has an old equipment. However, this old equipment cannot be used in a new factory since a new factory is made for specified medicine regarding Immunologist while the old machine used for Anesthesiologists. Therefore, on 19 August 2019, AP Bhd decided to exchange its old equipment plus cash for a new equipment from another company. The old equipment was bought on 1 Jun 2015 for RM1,500,000. The old equipment has useful life of 20 years and the company uses straight line method to calculate for depreciation. This old equipment has a market value of RM1,458,000 at the time of trade in. The new equipment has a market value of RM1,420,000. This transaction has a commercial substance.
On 31 August 2019, AP Bhd purchased a furniture for a new factory with a fair value of RM1,200,000 by issuing 60,000 unit of ordinary share. The market value of the share is RM2.50 per unit.
On 30 September 2019, AP Bhd has launched an opening of new factory by inviting the Minister of Health as it becoming the third bumiputera factory and company in pharmaceutical in country. This grand ceremony involved additional cost of RM30,000. On 10 November 2019, AP Bhd entered into contract to acquire the franchise of multivitamin products. AP Bhd paid an amount of RM1,250,000 to the franchisor to produce and sell the product using the formula given by franchisor.


REQUIRED:


(a)  Based on MFRS 116 Property, Plant and Equipment, calculate the cost of land, land improvement and factory by AP Bhd during 2019.




(b)  Prepare the journal entries to record the acquisition of machinery, equipment, furniture and franchise in accordance to MFRS 116 Property, Plant and Equipment and MFRS 138 Intangible Assets. Please show details calculations for each item.

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RM
Professional fees
80,000
Commission paid to real estate agency
16,500
Cost of demolishing an old building on the land
20,000
Excavation cost
33,000
Salvage value from the old building
18,200
Cost of grading and clearing the plot
25,000
Installation of high grade fences around the factory
31,200
Cost of 200 parking lot and 4 driveways
83,000
Cost of direct material and direct labour for construction of factory
438,000
Overhead cost incurred during construction of factory
80,300
Cost of constructing and demolishing living quarters for the workers
22,200
building a factory
Interest cost incurred to finance the construction of factory
23,790
Cost of planted a temporary green landscape
18,700

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Subject: Accounting, Business

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