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The following companies need your assistance in determining the accounting treatments for their properties.

K Bhd

K Bhd owns two properties in Changlun during the current reporting period. Property-One is used as the head office, and Property-Two is let to the tenant under non-cancellable operating leases for 24 months. Mr. K is uncertain how to account for these properties. He assumes that the cost model is the simplest method to account for Property-Two as the fair value estimates will not be needed.

M Bhd

M Bhd owns a motel consisting of 50 rooms. One of the rooms is used as an office and the remaining rooms are rented out daily. The company outsources the housekeeping, security, and maintenance services to an external firm and thus, the ancillary services provided by M Bhd to the rooms are considered insignificant. The manager of M Bhd is not sure how to account for the motel.

B Bhd

B Bhd owns a leasehold building that was initially used as an office from the date of purchase until 30 June 2019. The acquisition cost of the building on 1 January 2017 was RM10,000,000 with an estimated useful life of 20 years. The company depreciates the building based on the sum of years digit method. On 30 June 2019, B Bhd moved out of the building and thereafter rented it to tenants under short-term operating leases. The fair value of the building was equivalent to its book value on 30 June 2019 and the fair value of the building on 31 December 2019 was RM7,000,000. B Bhd measures owner-occupied property using the cost model and investment property using the fair value model. The companys financial year-end falls on 31 December.

REQUIRED:

(Round all numbers to the nearest RM)

1. In accordance with MFRS 140 Investment Property, discuss how K Bhd should account for the properties and whether Mr. Ks assumptions are correct.

2. In accordance with MFRS 140 Investment Property, discuss how M Bhd should account for the motel.

3. Prepare all the related journal entries for B Bhd for the financial year 2019.

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