CASE 1 – Asset Part 1
You are an audit senior in an accounting firm, KAP Bertha & Rekan. It is February 2022 and you
are currently reviewing the draft of financial statements of the PT Juri which has recently become
a client of your firm. The shares of PT Juri is listed on the Indonesia stock exchange.
There was an issue that arisen in respect of the audit of PT Juri for the year ended 31 December
2021. The audit manager, Mr. Oyo, has requested that you review these issues and send him a
memorandum with your observations and recommendations.
Issue 1 - Revaluation of land
PT Juri purchased one lot of land for Rp25 billion in 2019 for storage of the building supplies. In
2020 the area adjacent to the land was identified as the development site for a new shopping center.
PT Juri revalued the land to Rp90 billion at 31 December 2020 due to its newly acquired
development potential. Ignore the deferred tax effect on this transaction.
During 2021 a protest campaign by local residents resulted in the local council withdrawing
permission for the commercial development, and at 31 December 2021 the land was revalued to
Rp50 Billion. At that time, most of the area was being utilized for storage, with small section being
fenced off for parking by personnel.
Required:
1. Explain the correct accounting treatment of the land since its purchased in 2019
2. Set out the journal entries required to reflect your recommended accounting treatment
3. What if the asset was revalued to Rp20 billion in 2020 and Rp50 billion in 2021? Prepare
the necessary journal entries.
Issue 2 – Inventory
Leather is a primary material used by PT Juri for the manufacture of shoes. Leather inventory at
31 December 2021 had cost Rp50 million to purchase, but only had a net realizable value of Rp30
million. On the basis that PT Juri does not intend to dispose of the leather, the inventory has been
included in the financial statements at a value Rp35 million. It is believed that this partially reflects
the fall in value of the leather, but also takes account of the intention to retain the inventory for use
in the production process. It is expected that the finished shoes, into which the leather will be
incorporated, can be sold at reasonable profit margin.
Required:
1. Advice correct accounting treatment of the leather inventory of the company at 31
December 2021. Explain.
2. Provide relevant journal entries.