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On 1 January 2016, MYG Bhd bought two office buildings at two new developed commercial areas in
Petaling Jaya and Subang Jaya. The management has decided to hold the properties with a purpose of
generating income. The cost for the office building in Petaling Jaya was RM15 million and was estimated to
have a useful life of 25 years. Legal fees incurred amounted to RM1 million. Due to the highly renowned
area, the office building’s fair value at the end of 2016 has increased by RM2.5 million. However, due to
slow economic growth in the area, the value of the building fall down by RM3 million at the end of the
following year. The office building in Subang Jaya is still under construction and it is expected to complete
by 2010. As a result, the fair value of the building is not reliably determinable until the construction is
completed. The company uses the fair value model to value its properties. The company’s financial year
ends on 31 December.
(a) Advise whether the buildings could be classified as investment property in accordance with MFRS140
Investment Property.
(b) Prepare the related journal entries for the building in Petaling Jaya for the year 2016 and 2017.
(c) If MYG Bhd decides to use the building in Petaling Jaya for its headquarter on 1 January 2018, briefly
explain how the decision might affect the accounts of the company.
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