Speedy Bhd is a company engaged in trading of motor vehicles. With increasing orders received by the company since its i
Posted: Wed May 04, 2022 6:30 am
Speedy Bhd is a company engaged in trading of motor vehicles.
With increasing orders received by the company since its
incorporation, Speedy Bhd is optimistic of a better sales growth in
the future. The company closes its account on every 31
December.
In order to meet customers’ demand for its product, the company
acquired the plant assets of Jupiter Sdn Bhd on 2 March 2015. The
plant assets consist of:
Cost (RM)
Land
3,200,000
Building
4,000,000
Warehouse
600,000
Speedy Bhd also incurred the following expenditure in cash
between 15 March and 15 May 2015:
Ordinary repairs to the
building
RM 13,000
Additions to the
building
RM 200,000
The building was estimated to have useful life of 10 years with
no residual value. The company used straight-line depreciation
method for building and the company policy is to recognise
depreciation to the nearest whole year where assets acquired during
the first six-month are considered held for the entire year while
assets acquired during the last six-month are not considered in the
depreciation computation.
In early 2018, the company replaced the marble floor with wooden
floor and the cost was RM180,000 which extends the estimated life
of the building by two years. At the end of 2019, the building was
revalued at RM3,500,000 by the qualified appraisal agent. On 30
December 2020, ¼ of the building was sold to MJ Sdn. Bhd. for cash
consideration of RM1,500,000. The company also constructed a
building on 1 April 2017. A piece of land was purchased for the
building construction with a cost of RM130,000. On 1 April 2017,
the company paid RM30,000 for architect fees. The excavation work
began during the first week in April with payments made to the
contractor in 2017 as follows:
Date
Amount of payment (RM)
30 June
2017
120,000
21 August
2017
180,000
1 December 2017
90,000
The construction was completed on 1 May 2018 and the last
payment of RM50,000 was made on the same date. To finance the
construction of the building, Speedy Bhd borrowed RM650,000 from
Rich Bank on 1 April 2017. The RM650,000 was a 10-year loan bearing
interest at 8%. Speedy Bhd had no other borrowing.
Speedy Bhd acquired a machine in 2015. It’s carrying amount as
at 31 December 2017 was RM68,500. There was a widespread adverse
publicity against product #334 such that the demand dropped
substantially. The company decided to report an impairment loss of
RM50,000 on 31 December 2017. The company estimates that the
present value of cash flows expected from the future use and
eventual sale of the asset at the end of its useful life is
RM70,000 and RM5,000, respectively.
In addition, Speedy Bhd has three main categories of inventories
which are Ducati motorbike, Moto Guzzi motorbike, and Aprillia
motorbike. At 31 December 2021, the balance of Inventory account
was RM3,450,000 and Allowance to Reduce Inventory to NRV (credit
balance) was RM220,000. The company summarised the relevant
inventory costs and market data at 31 December 2021 in the table
below.
Inventory
Cost (RM)
Sales Price (RM)
Selling cost (RM)
Ducati motorbike
1,500,000
1,380,000
90,000
Moto Guzzi motorbike
1,200,000
1,150,000
60,000
Aprillia motorbike
750,000
845,000
30,000
As a new account assistant, Miss Lina has been assigned to
calculate the amount that should appear on Speedy Bhd’s financial
statement for inventory under the lower-of-cost-or-NRV (LCRNV) rule
as applied to each item in inventory. The company applies the loss
method and uses an Allowance Account to record for the write down
of the inventory to net realisable value (NRV).
However, Madam Bee, Speedy Bhd’s accountant had an argument with
Mr. Han, senior accountant of the company regarding the method to
be used to record the write down of the inventories. Madam Bee
prefers to use the loss method to write down inventory because it
is more clearly discloses the decline in the net realisable value
and does not distort the cost of goods sold. But, Mr. Han prefers
the cost-of-goods-sold method to write down because it does not
call attention to the decline in net realizable value.
On 31 December 2020, Speedy Bhd recorded an intangible asset,
patent, at a revalued amount of RM6,500,000. The patent is related
to a new sustainable technology in the motor engine, which was
developed by the R&D team of the company. The patent was
initially recorded at RM8,000,000 on 1 January 2018. The management
of the company expected that the estimated future benefits from the
patent would be consumed evenly for the next eight (8) years. In
2021, due to adverse effect of Covid-19 pandemic to the market, the
company revalued the patent to market value of RM4,000,000. Due to
this latest development the company revalued the remaining useful
life of the patent to be three (3) years. Beside the patent, other
intangible assets of Speedy Bhd consist of:
With increasing orders received by the company since its
incorporation, Speedy Bhd is optimistic of a better sales growth in
the future. The company closes its account on every 31
December.
In order to meet customers’ demand for its product, the company
acquired the plant assets of Jupiter Sdn Bhd on 2 March 2015. The
plant assets consist of:
Cost (RM)
Land
3,200,000
Building
4,000,000
Warehouse
600,000
Speedy Bhd also incurred the following expenditure in cash
between 15 March and 15 May 2015:
Ordinary repairs to the
building
RM 13,000
Additions to the
building
RM 200,000
The building was estimated to have useful life of 10 years with
no residual value. The company used straight-line depreciation
method for building and the company policy is to recognise
depreciation to the nearest whole year where assets acquired during
the first six-month are considered held for the entire year while
assets acquired during the last six-month are not considered in the
depreciation computation.
In early 2018, the company replaced the marble floor with wooden
floor and the cost was RM180,000 which extends the estimated life
of the building by two years. At the end of 2019, the building was
revalued at RM3,500,000 by the qualified appraisal agent. On 30
December 2020, ¼ of the building was sold to MJ Sdn. Bhd. for cash
consideration of RM1,500,000. The company also constructed a
building on 1 April 2017. A piece of land was purchased for the
building construction with a cost of RM130,000. On 1 April 2017,
the company paid RM30,000 for architect fees. The excavation work
began during the first week in April with payments made to the
contractor in 2017 as follows:
Date
Amount of payment (RM)
30 June
2017
120,000
21 August
2017
180,000
1 December 2017
90,000
The construction was completed on 1 May 2018 and the last
payment of RM50,000 was made on the same date. To finance the
construction of the building, Speedy Bhd borrowed RM650,000 from
Rich Bank on 1 April 2017. The RM650,000 was a 10-year loan bearing
interest at 8%. Speedy Bhd had no other borrowing.
Speedy Bhd acquired a machine in 2015. It’s carrying amount as
at 31 December 2017 was RM68,500. There was a widespread adverse
publicity against product #334 such that the demand dropped
substantially. The company decided to report an impairment loss of
RM50,000 on 31 December 2017. The company estimates that the
present value of cash flows expected from the future use and
eventual sale of the asset at the end of its useful life is
RM70,000 and RM5,000, respectively.
In addition, Speedy Bhd has three main categories of inventories
which are Ducati motorbike, Moto Guzzi motorbike, and Aprillia
motorbike. At 31 December 2021, the balance of Inventory account
was RM3,450,000 and Allowance to Reduce Inventory to NRV (credit
balance) was RM220,000. The company summarised the relevant
inventory costs and market data at 31 December 2021 in the table
below.
Inventory
Cost (RM)
Sales Price (RM)
Selling cost (RM)
Ducati motorbike
1,500,000
1,380,000
90,000
Moto Guzzi motorbike
1,200,000
1,150,000
60,000
Aprillia motorbike
750,000
845,000
30,000
As a new account assistant, Miss Lina has been assigned to
calculate the amount that should appear on Speedy Bhd’s financial
statement for inventory under the lower-of-cost-or-NRV (LCRNV) rule
as applied to each item in inventory. The company applies the loss
method and uses an Allowance Account to record for the write down
of the inventory to net realisable value (NRV).
However, Madam Bee, Speedy Bhd’s accountant had an argument with
Mr. Han, senior accountant of the company regarding the method to
be used to record the write down of the inventories. Madam Bee
prefers to use the loss method to write down inventory because it
is more clearly discloses the decline in the net realisable value
and does not distort the cost of goods sold. But, Mr. Han prefers
the cost-of-goods-sold method to write down because it does not
call attention to the decline in net realizable value.
On 31 December 2020, Speedy Bhd recorded an intangible asset,
patent, at a revalued amount of RM6,500,000. The patent is related
to a new sustainable technology in the motor engine, which was
developed by the R&D team of the company. The patent was
initially recorded at RM8,000,000 on 1 January 2018. The management
of the company expected that the estimated future benefits from the
patent would be consumed evenly for the next eight (8) years. In
2021, due to adverse effect of Covid-19 pandemic to the market, the
company revalued the patent to market value of RM4,000,000. Due to
this latest development the company revalued the remaining useful
life of the patent to be three (3) years. Beside the patent, other
intangible assets of Speedy Bhd consist of: