TUTORIAL MFRS140 FAR270

1) FZ Bhd acquires a building in Kuching. The building is let out to tenant. The cost of
the building is RM500,000.

a. Is the building an asset ?

b. Is the building an item of investment property?
c. What is the conclusion that you can derive ?

2) AB Bhd leases an entire shopping complex in Kuching from Mall Bhd under a 20–year
operating lease. Under the lease agreement, AB Bhd would manage and take the risks
of operating the shopping complex for twenty years. It pays a yearly rental of of RM
40 million to Mall Bhd.

a. Is the shopping complex an asset for Mall Bhd?

b. Is the building an item of investment property for Mall Bhd ?
c. What is the conclusion that you can derive ?

3) Maju Bhd acquires a 14-storey building in Kuching. Four storeys of the building are
occupied by Maju Bhd’s management for administrative purposes. The remaining ten
storeys are let out to tenant. The cost of the building is RM500,000,000.

a. Does Maju Bhd have an asset ?

b. Is the 14-storey building an item of investment property?
c. Is the item of investment property within the scope of MFRS140 ?

4) Kaya Bhd owns a hotel property situated in a very strategic place in Melaka city. The
hotel is leased out to Merdeka Inn Bhd under a ten year operating lease. The hotel
become one of the popular attraction among the local and foreign tourists. In lease
agreement, Kaya Bhd will receive yearly lease payment of RM25 million for ten years
plus 5% of room revenue from the operations of the hotel. Kaya Bhd estimates that
the cash flows from its 5% share of the room revenue to be about RM2 million per year.

a. Is the hotel an asset for Kaya Bhd?

b. Is the hotel an item of investment property for Kaya Bhd ?
c. Is the item of investment property within the scope of MFRS 140 ?

5) MM Bhd owns a two-storey building. The first floor is rented out to various
organisations under operating leases in return for rental payments of RM100,000 per
annum The second floor is occupied by MM Bhd’s administrative and maintenance
staff. MM Bhd cannot measure reliably the fair value of each floor of the building
without undue cost or effort .

Can the freehold building be recognised as investment property.?

6) An entity owns a building that it rents out to independent third parties under operating
leases in return for rental payments. The entity provides cleaning, security and
maintenance services for the lessees of the building.

Can the building be considered as an asset under invesment property ?

7) An entity owns a building that it rents out to independent third parties under operating
leases in return for rental payments. This lessee operates a hotel from the building
including a range of services commonly provided by boutique hotels. The entity does

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not provide any services to hotel guests and its rental income is unaffected by the
number of guests that occupy the hotel ( ie the entity is a passive investor).

Can the building be considered as an asset under invesment property ?

8) On 1 January 2013, AA Bhd acquires a property for investment purpose at a cost of

RM 10 million by cash . AA Bhd also incurs the following costs in connection with the
purchase of the property.
RM’000
Adminsitrative expenses 100
Legal fees 1,400
Property transfer taxes 100
Soft launching cost to market for tenants 200
1,800

Determine the cost of the investment property.

9) On 1 January 2013, CC Bhd acquired a property for investment purpose. The cost of
the building was RM11 million and the economic life was estimated to be 50 years. At
the end of year 2013, the fair value of the building was RM12 million. The fair value on
31 December 2014 was RM11.8 million. The company adopts the cost model.

Show the journal entries for the above transactions.

10) The facts are the same as in example 17. However, in this example the company
adopts the fair value model.

Show the journal entries for the above transactions.

11) On 1 July 2013, TT Bhd disposed of a building which was classified as investment
property and accounted for under the cost model with a carrying amount of RM6 million
for cash consideration of RM5 million.

What is the journal entry to derecognise the building?

12) On 1 January 2011, Ria Bhd purchases a property at a cost of RM5 million. The
property is classified as investment property and accounted for under the fair value
model. At 31 December 2013, the market value of the investment property is RM 7
million. On 1 January 2014, the property was sold for a cash consideration of RM8.2
milliom. Costs of disposal amounted to RM0.2 million was also paid.

Calculate the gain on loss on disposal and show the journal entry to
derecognise the property.

13) JAYA Bhd and its subsidiaries have provided you, their list of the properties they own:

A. Land held by JAYA Bhd for undetermined future use.

B. A vacant building owned by JAYA Bhd and to be leased out under an
operating lease.
C. Property held by a subsidiary of JAYA Bhd, a real estate company, in the
ordinary course of its business.
D. Property held by JAYA bhd for the use in the production.

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E. A hotel owned by MAJU Bhd, a subsidiary of JAYA Bhd, and for which MAJU
Bhd provides security services for its guests’ belongings

Required:
Advise JAYA Bhd and its subsidiaries as to which of the above would qualify under
MFRS140 as investment properties. If they do not qualify, how should they be treated
under MFRS?

COMMON TEST FEB2015

a. Anas Bhd owns a three-storey building. Floor 1 is rented out to independent third
parties under operating leases in return for rental payments. Floor 2 is occupied by
Anas Bhd’s administration and maintenance staff. Floor 3 is vacant . Anas Bhd is still
uncertain as to the usage of the vacant floor. Anas Bhd can measure reliably the fair
value of each floor of the building without undue cost or effort.

Required:

i. State the conditions that must be satisfied for an asset to be classified as

investment property.
(2 marks)

ii. Explain the classification of each of the three floors based on the relevant
Financial Reporting Standards.
(3 marks)

iii. Under what circumstances the floors mentioned above can be classified as an
investment property?
(4 marks)

b. Adnin Bhd is a computer chip manufacturer. It adopts a 31 December accounting year

ended for each business year. On 1 January 2013, the company uses its excess cash
to buy a warehouse for investment purposes.

The warehouse is rented out to another manufacturer. The warehouse costs

RM30,000,000 and is expected to have a useful life of 30 years with no salvage value.
The market value of the warehouse building was RM35,000,000 as at 31 December
2013, and RM28,000,000 as at 31 December 2014.

Adnin Bhd adopts the fair value model in measuring its investment property.

Required:

Prepare the journal entries (narrations are not required) to record the above
transactions for the years ended 31 December 2013 and 2014.
(6 marks)
(Total: 15 marks)

COMMON TEST AUG2015

A. On 1 January 2014, Lavender Bhd acquired a plot of land for RM5,000,000 near the
urban area. Legal and other expenses incurred amounted to RM1,000,000. The
company expects the land value to increase over time. No rentals are expected to be
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generated from the land in the foreseeable future. As at 31 December 2014, the fair
value of the land was reliably estimated for RM8,000,000. It is the policy of the
company to use the fair value model for all of its investment properties.

Required:

a) Describe whether the land satisfy the definition of an asset.

(2 marks)

b) Explain whether the land is within the scope of MFRS 140 Investment Property.
(2 marks)

c) Determine the value at which the land should be recognized in the Statement of
Financial Position as at 31 December 2014.
(2 marks)

B. On 1 January 2013, Mac Spice Bhd acquired a freehold building in Dungun costing
RM2,500,000. The building is fully rented out to various organizations, earning rental
income of RM280,000 per annum. The freehold building qualifies as investment
property under MFRS 140.

The fair value of the building was RM2,750,000 and RM2,420,000 as at 31 December
2013 and 2014 respectively. The company adopts the fair value model in its
measurement of investment properties subsequent to the initial recognition.

Required:

a) Give THREE (3) examples of properties which are treated as investment property
in accordance with MFRS 140 Investment Property.
(3 marks)

b) Discuss the subsequent measurement of the freehold building on 31 December

2013 and 2014.
(3 marks)

c) Show the journal entries to record the transactions for the year ended 31
December 2014.
(3 marks)
(Total: 15 marks)

COMMON TEST JAN2016

A. Given below are two (2) scenarios which are independent of each other. The financial
year end for all scenarios was on the 31 December 2015.

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a. An entity owns a building that it rents out to independent third parties under
operating leases in return for rental payments. The entity provides cleaning,
security and maintenance services for the lessees of the building.

b. An entity owns a building that it rents out to an independent third party (the
lessee) under an operating lease in return for fixed rental payments. The lessee
operates a hotel from the building including a range of services commonly
provided by boutique hotels. The entity does not provide any services to hotel
guests and its rental income is unaffected by the number of guests that occupy
the hotel (i.e. the entity is a passive investor).

Required:

For each scenario above, briefly explain whether the building can be classified as
investment property in accordance with MFRS140 Investment Property.
(5 marks)

B. On 1 June 2014, Big Space Bhd acquired a rental property as an investment for
RM15,000,000. The legal costs to transfer title and property transfer taxes incurred by
the company were RM500,000 and RM1,000,000 respectively. The company uses one
of the fifteen floors to accommodate its administration and maintenance staff. The other
fourteen of the floors are rented to independent third parties.

The rental property is appraised at the end of each December and the fair value of the
property as at 31 December 2014 and 31 December 2015 were RM16,200,000 and
RM18,000,000 respectively. The economic life of the property is estimated at 20 years.

Big Space Bhd has adopted the fair value model. The financial year end is 31
December.

Required:

i. Discuss the accounting treatment of the rental property for the year ended 31
December 2014 and 2015 with reference to MFRS140 Investment Property.
(4 marks)

ii. Prepare the statement of profit or loss and other comprehensive income (extract)
for the year ended 31 December 2014 and 2015 and the statement of financial
position (extract) as at that date.
(6 marks)
(Total: 15 marks)

COMMON TEST AUG2016

A. Jaya Bhd owns a 20-storey building in Petaling Jaya at a cost of RM200 million. 2
storeys were used as administrative office and another storey were used as a gym for
the staffs. The remaining storeys were rent out.

Required:
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a. Determine whether the building can be recognized as an investment property if:

i. The building can be sold or leased separately.

ii. The building cannot be sold or leased separately.

Give reason for your answer.

(4 marks)

b. Determine the cost of the investment building for a. i) and ii) above.
(2 marks)

B. Labis Bhd purchased an investment property on 1 January 2014 on a financing

agreement. The following cost relates to the purchase:

Purchase price (before discount) RM120,000,000 (cash price)

(A trade discount of 10% were given)
Legal fees RM500,000
Taxes RM800,000
Total interest on financing RM81,000,00
Administrative expenses RM150,000

Required:

a. Compute the initial cost of the investment property.

(3 marks)

b. Show the journal entries for a. above.

(1 mark)

c. On 31 December 2014 the fair value of the property was RM125,000,000 and on
31 December 2015 the fair value was RM118,500,000. You are required to show
the journal entries for subsequent measurement on 31 December 2014 and 31
December 2015 if the company adopts the fair value model.
(5 marks)
(Total: 15 marks)

COMMON TEST NOV2017

A. Patin Bhd is a diversified company that operates its business in Kuantan, Pahang.
During the financial year ended 31 March 2017, Patin Bhd has recorded the following
transactions:

i. The company rents out its office building to Perniagaan Baru and earns
monthly rental of RM2,500.

ii. Owns a 1.5 acres land in a sub-urban area near Kuantan. The land is leased out
to Amin Agro for monthly rental of RM8,000 under operating lease agreement.

iii. Acquired a building for RM560,000. Until 31 March 2017, the company has yet to
determine whether to use the building as business office or rent it to the third
party or to be sold out immediately.
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iv. Owns a 10-storey building in the Kuantan town area. Patin Bhd uses this building
to operate a hotel chain branded as Leaf Hotel.

Required:

a. Define investment property in accordance with MFRS 140 Investment Property.

(2 marks)

b. State whether the above properties can be classified as investment property or

not according to MFRS 140 Investment Property.
(4 marks)

B. On 1 September 2016, Maju Bhd acquired a 15-storey building for RM2 million
(excluding trade discount of 2%). Out of 15 storeys, only top floor is occupied as the
management office and the remaining floors are rented to the third parties. Acquisition
price was for the whole of the building and each level of the building cannot be bought
or sold separately. Maju Bhd also incurred the following costs on acquisition:

Items RM
Legal costs and stamp duty 200,000
Annual property tax 12,000
Property launching expenses 30,000

It was estimated that the fair value of the property as at 31 March 2017 was RM3
million. The economic useful life of the property was determined to be 40 years. Maju
Bhd adopts fair value model to measure the investment property.

Required:

a. Calculate the initial cost of the investment property for Maju Bhd
(3 marks)

b. Discuss the accounting treatment for the year ended 31 March 2017 for Maju Bhd
in accordance to MFRS140 Investment Property.
(4 marks)

c. Prepare the necessary journal entry to recognise change in the fair value on 31
March 2017 if the fair value on that date was determined to be RM2.05 million.
(2 marks)
(Total: 15 marks)

COMMON TEST MAY2018

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Beat Three Bhd is a multinational company located in Georgetown, Penang. It diversifies its
principal activities by making strategic investment in many types of business and investment
activities. The company closes its account on 31 March each year. The following information
relates to the company’s properties for the current year:

1. Homestay Property – NorthWing

Homestay Property - NorthWing located in Chandan Puteri had a cost of

RM30,000,000 as at 1 April 2017. The estimated useful life of the property is 30 years.
The property has been fully rented out, earning total rental income of RM800,000 per
month. At the same time, Beat Three Bhd also provides security and maintenance
services to the tenants of the homestay of RM200,000 per annum and had charged the
tenants of the homestay as fees.

Required:

a. Define investment property in accordance with MFRS 140 Investment Property.

(2 marks)

b. Determine whether Homestay Property - NorthWing can be recognised as an

item of investment property as at 1 April 2017 in the books of Beat Three Bhd.
Provide reasons for your answer according to MFRS 140.
(3 marks)
2. Apartment – WestWing

Apartment - WestWing, a 10-storey apartment in Kuala Kangsar. It was acquired on 3

April 2017 at a cost of RM60,000,000. Beat Three Bhd also incurred legal fees of
RM11,600,000, property transfer taxes of RM350,000 and administrative expenses of
RM200,000 in connection with the purchase of the apartment. The estimated useful life
of the apartment is 25 years. The apartment was rented out to various tenants under
operating leases in return for rental payments of RM2,000,000 per annum. It is the
policy of Beat Three Bhd to adopt the cost model for its investment properties. The fair
value of the apartment on 31 March 2018 was RM73,500,000.

Required:

a. State THREE (3) properties that are not considered as investment properties
according to MFRS 140 Investment Property.
(3 marks)

b. Discuss on the accounting treatment of the apartment – WestWing in the financial

statements of Beat Three Bhd for the year ended 31 March 2018 with reference
to MFRS 140 Investment Property.
(5 marks)

c.Prepare an extract of the statement of profit or loss for the year ended 31 March
2018.
(2 marks)
(Total: 15 marks)
COMMON TEST OCT2018

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A. On 1 January 2017, Nabalu Bhd acquired a 14-storey building in Kota Kinabalu for
RM28,000,000. The estimated useful life of the building was 50 years. Four storeys of
the building are occupied by Nabalu Bhd’s management for administrative purposes.
The remaining ten storeys are let out to tenant. The portions of the building could not
be sold separately. Cash discount equivalent to 2% of the invoice price was given by
the seller. In addition, Nabalu Bhd incurred the following cost:

RM
Legal fees 100,000
Property launching costs 50,000
Administrative costs 10,000
Property transfer tax 90,000

Required:

a. Identify whether the building is an asset of Nabalu Bhd. Provide reasons.

(2 marks)

b. Explain whether the building can be classified as an investment property in

accordance with MFRS 140 Investment Property.
(2 marks)

c. Describe the criteria of the building in order to be recognised as an asset in

Nabalu Bhd’s financial statements.
(2 marks)

d. Compute the initial cost of the building as at 1 January 2017. Show the
computation.
(2 marks)

B. Kina Bhd acquired a building amounting to RM11,700,000 on 1 January 2016. The

building is fully rented out to various organizations, earning total rental income of
RM700,000 per annum. The useful life of the building was 40 years. The fair value of
the building was RM12,500,000 on 31 December 2016 and RM12,000,000 on 31
December 2017. The company adopts the fair value model in its measurement of
investment properties subsequent to the initial recognition.

Required:

a. Explain the accounting treatment of the investment property of Kina Bhd in

accordance with MFRS 140 Investment Property for the year ended 31
December 2016 and 31 December 2017.
(5 marks)

b. Prepare an extract of the statement profit or loss for the year ended 31 December
2016 and 31 December 2017.
(2 marks)
(Total: 15 marks)