What are appropriate measurements of the building as at 31/12/06? Assume current interest rates are 10%.?
ABC Bhd owns a building in Puchong that was built at a cost of RM 5 million in 1997. The building was used as a manufacturing facility from 1997 to 2006. However, economic conditions have made it necessary to consolidate ABC’s operations, and the building has been leased as of 1 January 2007, as a warehouse for 10 years at an annual rental of RM240,000. Taxes, insurance and normal maintenance costs are to be paid by the lessee. At the end of the 10 year period, ABC may offer the lessee a renewal of the lease or again use the building in its operations. The building is being depreciated on a straight line basis over a 40 year life.In early 2007 Miss Lee, a new staff in the accounts department in ABC, was assigned to review the building accounts and raised a question to Mr Tan, her supervisor, concerning the carrying value of the Puchong building. As of 31 December 2006, Miss Lee feels the Puchong building was impaired and should be written down in value.