UNIVERSITI MALAYSIA KELANTAN

Financial Reporting and Control (GST 5033)

Assignment on Depreciation
and Plant, Property &
Equipmment

Submitted to
Prof Dr. Zulkarnain Bin Muhamad Sori
Submitted by
Md Ekramul Haq
Metric No: P12D073P

Accounting Property, Plant and Equipment

Given Costs:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Cost price is RM 2500,000

Freight Forwarding is RM 150,000
Taxes is RM 25,000
Others cost are RM 25,000
Site Clearance cost is RM 75,000
Day to Day servicing cost is Rm 15,000
Engineer commission is RM 150,000
Advertisement cost is RM 60,000
Selling & Administrative cost is RM 15,000

Classification of Cost
The cost of equipment, vehicles, and furniture includes the purchase price, sales taxes,
transportation fees, insurance paid to cover the item during shipment, assembly, installation, and
all other costs associated with making the item ready for use. These costs do not include such
things as motor vehicle licensing and insurance, however, even if they are paid when a vehicle
purchase occurs. Expenses of this type are normal, recurring operational expenses that do not add
lasting value to the vehicle.

1. Initial costs
Items of property, plant and equipment may be acquired for safety or environmental reasons. The
acquisition of such property, plant and equipment, although not directly increasing the future
economic benefits of any particular existing item of property, plant and equipment, may be
necessary for an entity to obtain the future economic benefits from its other assets. Such items of
property, plant and equipment qualify for recognition as assets because they enable an entity to
derive future economic benefits from related assets in excess of what could be derived had those
items not been acquired. However, the resulting carrying amount of such an asset and related
assets is reviewed for impairment in accordance with FRS 136 Impairment of Assets.
For this machine, any costs directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner intended by management.
Such as costs of site clearance is RM 75,000, professional fees for fixing the machine from
Switzerland is RM 150,000. (MFRS 116, para 16 & 17)

(1) Maintenance. The recurring work required to preserve or immediately restore a facility to
such condition that it can be effectively used for its designed purpose. It includes work done to
prevent damage to a facility.
(2) Preservation/Restoration Costs: Expenditures associated with maintaining special assets in,
or returning them to, a level of quality as close to the original as possible. Example: Returning a
stained glass window to its former level of beauty or acting to prevent any further deterioration.
(3) Interest Costs. The cost of interest related to the acquisition or construction of an asset will
be expensed during the period of time that is required to complete and prepare the asset for its
intended use.
(4) Feasibility Studies. Costs incurred in connection with preliminary planning and testing of
site adequacy or the preparation of site modeling.

2. Subsequent costs
Day-to-day servicing of the item shall be recognized in profit or loss as incurred, because they
just maintain (not enhance) items capacity to bring future economic benefits. For this machine,
the Day to day servicing cost is RM 15,000.
Costs of Machine:
Cash Price
Freight Forwarding

RM 2500,000
RM 150,000

Taxes

RM 25,000

Miscellaneous

RM 25,000

Site Clearance

RM 75,000

Day to Day servicing

RM 15,000

Engineer commission

RM 150,000

Total

RM 2940,000

Discussion on Depreciation Method of following assets

Photostat Machine Depreciation
Units of Usage Method of Depreciation: Depreciation charge varies in line with the change in
number of machine hours consumed each year .Under the units of production method, the
amount of depreciation that charged to expense varies in direct proportion to the amount of asset
usage. a machine may be depreciated on the basis of output produced during a period in
proportion to its total expected production capacity. Therefore, useful life of an asset under Units
of Production Method is stated in terms of production output or usage rather than years of
service.
Depreciation per annum = (Cost - Residual Value) / Useful Life
The Formula for calculation of depreciation under Units of Production Method is as follows:

Value of Work Certified as

complete
Stage of Completion % =

x 100
Total Expected Production or
Usage

Asset Cost- The original value of your asset or the depreciable cost; the necessary amount
expended to get an asset ready for its intended use, Cost of the machine = RM 100,000
Salvage Value- The value of the asset at the end of its useful life; also known as residual value
or scrap value, The salvage value at that point is expected to be RM 2,000.
Useful Units- The expected number of units that the asset will produce or last for its life, Useful
life is expected to end after producing 51,000 copies.,
Units Used in Period- The number of units used in the period of time you want to calculate
depreciation, year 1 is 12,000 copies, year 2 is 16,000 copies, year 3 is 13,000 copies, year 4 is
10,000 copies

1. Depreciable Base = Asset Cost - Salvage Value

= RM 98,000 (RM 100,000 RM 2,000)
2. Depreciation per Unit = Depreciable Base / Useful Units
= RM 98,000 /51,000= RM 1.9215
3. Depreciation for Period = Number of Units Used in a Period x Depreciation per Unit

1st year=

12000 x 1.9215
= RM 23,058

2nd year =

16000 x 1.9215
=RM 30,745

3rd Year=

13000 x 1.9215
= RM 24,980

4th Year=

12000 x 1.9215
=RM 19,215

Motor Vehicle Depreciation:

Reducing Balance Depreciation Method
Reducing Balance Method charges depreciation at a higher rate in the earlier years of an asset.
The amount of depreciation reduces as the life of the asset progresses. Depreciation under
reducing balance method may be calculated as follows:
Depreciation per annum = (Net Book Value - Residual Value) x Rate%

Where:

1.
2.
3.
4.

Net Book Value is the asset's net value at the start of an accounting period. It is
calculated by deducting the accumulated (total) depreciation from the cost of the fixed
asset.
Residual Value is the estimated scrap value at the end of the useful life of the asset. As
the residual value is expected to be recovered at the end of an asset's useful life, there is
no need to charge the portion of cost equaling the residual value.
Rate of depreciation is defined according to the estimated pattern of an asset's use over its
life term.
Asset Life 10 years
Residual or Scrap Value is RM 30,000
Cost of the asset was RM 350,000
Rate of depreciation is (1/10) = 10%

Depreciation = Rate x Net Book Value

NBV = Cost Provision for Depreciation

Year
1
2
3
4
5
6
7
8
9
10

NBV
350,000
318,000
286,200
257,580
231,822
208,640
187,776
168,998
152,098
136,889

R.V
30,000
30,000
30,000
30,000
30,000
30,000
30,000
30,000
30,000
30,000

Rate
.10
.10
.10
.10
.10
.10
.10
.10
.10
.10

Depreciation
Rm 32,000
Rm 31,800
Rm 28,620
Rm 25,758
Rm 23,182
Rm 20,864
Rm 18,777
Rm 16,899
Rm 15,209
Rm 13,688

Machine to Manufacture Plastic Pipe Depreciation

Sum of the years' digits depreciation method involves calculating depreciation based on the sum
of the number of years in an asset's useful life.
Sum of the years' digits depreciation method, like reducing balance method, is a type of
accelerated depreciation technique that allocates higher depreciation expense in the earlier years
of an asset's useful life.

Given that,
Depreciable Base = RM 4.2 Million
No Salvage Value
SYD Depreciation = Depreciable Base x
Sum of the Years' Digits =
=
= 36
Year Depreciable Base
1
Rm 4200,000
2
Rm 4200,000
3
Rm 4200,000
4
Rm 4200,000
5
Rm 4200,000
6
Rm 4200,000
7
Rm 4200,000
8
Rm 4200,000

Factor
8/36
7/36
6/36
5/36
4/36
3/36
2/36
1/36

Depreciation Expense
Rm 933,333
Rm 816,666
Rm 700,000
Rm 583,333
Rm 466,666
Rm 350,000
Rm 233,333
Rm 116,666