PAF3043: On 1st June 2019 MTB Berhad acquired a piece of property for RM180 million through a bargain purchase: Financial accounting Assignment, UPSI, Malaysia

QUESTION 1 

On 1st June 2019, MTB Berhad acquired a piece of property for RM180 million through a bargain purchase. The property, which consisted of a piece of land and three blocks of 2-story shop lot building, has a market value of RM120 million and RM100 million respectively. One of the shop lot blocks, which covers only one-quarter of the land, was used as a warehouse, training center, and employee residential. The remaining blocks were expected to be open for sale in the near future. Meanwhile, the future use of the remaining land was not decided at the time of acquisition. The building estimated useful life is 20 years. The company adopted a cost model for building.

At the end of May 2020, since one of the company’s main businesses is as developing residential areas, the company has decided to build more shop lots on the land to be sold along with the vacant blocks. The fair value of the land at the time was 140 million and the block was valued at 35 million per block. The development is expected to begin next year. However, in June 2021, due to the Covid-19 pandemic, it was forecasted that the price of houses and shops will drop tremendously for the next five years.

Due to this, the company has decided to hold the land for capital appreciation, and is expected to be sold in eight years. The vacant blocks meanwhile, are to be leased to a third party. The fair value of the land and building blocks were RM110 million and RM 25 million per block respectively. Due to this, the company adopted the fair value model for both assets.

REQUIRED:

a. Discuss the standards (MFRS) that were applicable to land throughout the year 2019 – 2021.

b. Discuss the standards (MFRS) that were applicable to building throughout the year 2019 – 2021.

c. Prepare journal entries to record all transactions related to the land and building for the year 2019 – 2021. Support your answer with detailed calculations.

QUESTION 2

For the following questions, refer to the advertisement in Appendix A and Appendix B to recognize revenue from the contract with customer.

REQUIRED:

a. Provide journal entries to recognize revenue for combo D.

b. Provide journal entries to recognize revenue for individual rental of the Villa II.

c. Provide journal entries to recognize revenue for outright purchase of Lombok III.

d. Using your calculation in (a) to (c), discuss the five-step model to recognize revenue earned from the contract.

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