CONFIDENTIAL 1 AC/FEB 2021/FAR460/SET 1

UNIVERSITI TEKNOLOGI MARA

FINAL ASSESSMENT (SET 1)

COURSE : FINANCIAL ACCOUNTING AND REPORTING 2

COURSE CODE : FAR460
EXAMINATION : FEB 2021
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of four (4) questions.

2. Answer ALL questions in English.

3. Start each answer on a new page.

This assessment paper consists of 7 printed pages

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 CONFIDENTIAL 2 AC/FEB 2021/FAR460/SET 1

QUESTION 1

Corona Textiles Berhad, a company produces exclusive Digital Printed Batik was incorporated
several years ago in Kota Bharu, Kelantan. On 1 June 2016, the company decided to acquire a
new high-tech digital machine from China to cater for the increasing demand of Digital Printed
Batik. The purchase price of the machine was RM650,000. Below are the additional costs incured
related to the acquisition of the machine.

RM
Insurance on shipment 18,000
Trade discount on purchase price 5%
Import duties and taxes 25,000
Delivery and transportation costs 5,000
Wages for offloading and internal delivery to the factory 8,800
Installation charges 32,000
Administrative and general overhead expenses 10,000
Maintenance charges for 2 years 55,000
Start-up and pre-production costs 8,000

Included in the installation charges was RM9,300 being the cost of rectification work carried out
by the supplier due to wrong specification given by Corona Textiles Berhad. At the end of the
useful life, Corona Textiles Berhad will incur dismantling cost of RM50,000 but its present value
was RM45,000.

The machine is expected to be used for 10 years and residual value is estimated to be RM75,000.
The machine was ready to be used starting from 1 July 2016 whereby depreciation was also
charged on straight-line from that date on monthly basis. The company closes its book on 31
December each year.

On 1 July 2019, the machine having some technical problems and the management planned to
dispose the machine. On that date, the fair value less cost to sell and the value in use of the
machine were RM525,000 and RM515,000 respectively, and the residual value is estimated to
be zero. The machine was disposed on 31 December 2019 for RM485,000.

Required:

a. Indicate whether the machine is an asset of Corona Textiles Berhad.

(2 marks)

b. Explain briefly whether the machine is a property, plant and equipment in accordance with the
MFRS 116 Property, Plant and Equipment.
(3 marks)

c. Discuss the initial cost of the machine and it carrying amount in the Statement of Financial
Position as at 31 December 2018.
(10 marks)

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d. Explain the subsequent measurement of the Machine as at 1 July 2019.

(5 marks)

e. Compute the gain or loss on disposal of the machine and prepare the journal entries on 31
December 2019.
(5 marks)
(Total: 25 marks)

QUESTION 2

Ebony Bhd is a company incorporated in Malaysia and involves in diverse business activities. The
following is the trial balance of the company as at 31 December 2019. The financial statements
are authorised for issue on 1 April 2020.

Debit Credit
Details
RM RM
Ordinary shares 29,540,000
Retained earnings as at 1 January 2019 4,129,944
Asset revaluation reserve as at 1 January 2019 729,000
Interim dividend paid 400,000
Investment properties as at 1 January 2019 1,200,000
Land at valuation as at 1 January 2019 15,850,000
Building at valuation as at 1 January 2019 5,080,000
Plant 5,880,000
Machinery 1,400,000
Biological assets as at 31 December 2019 2,990,000
Accumulated depreciation and amortisation as at 1 January 2019:
- Building 540,000
- Plant 1,380,000
- Machinery 700,000
Trade receivables 1,200,000
Inventories as at 31 December 2019 448,080
Trade payables 321,824
Bank 13,620,812
8% Bank loan 6,000,000
Sales 24,244,812
Cost of sales 13,176,688
Administrative expenses 2,890,000
Selling and distribution expenses 2,020,000
Interest on bank loan 380,000
Tax paid 1,050,000
67,585,580 67,585,580

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Additional information:

1. Ebony Bhd has adopted the following accounting policies:

 Building is to be depreciated on a straight-line basis over its useful life. Land and building
are measured subsequently using revaluation model.
 Plant and Machinery are to be depreciated on a straight-line basis over 10 years and to
measured subsequently using cost model.
 Investment property is to measured using fair value model.

2. On 1 January 2019, the land and building were revalued at RM15,500,000 and RM4,800,000
respectively. These have not been recorded in the books. The building has a remaining life of
25 years at the date of the revaluation. The asset revaluation reserves in the trial balance
related to the surplus of revaluation on the land which was revalued previously.

3. On 1 October 2019, the company acquired a new investment property amounted to

RM750,000 and paid in cash. This transaction has not yet recorded in the company’s book.
As at 31 December 2019, the fair value of investment properties including the newly acquired
investment property is RM2,050,000. This valuation also has not yet recorded.

4. On 1 February 2020, an inspection was conducted on company’s inventory and it was found
that the inventory costing RM10,000 was discovered to be obsolete and damaged. The
inventory was purchased in November 2019.

5. As at 31 December 2019, the interest on bank loan is still outstanding.

6. In September 2019, the board of directors has approved for the company to perform a minor
restructuring exercise and the planning was communicated with the affected employees in
November 2019. The estimated cost for the restructuring is RM888,000. However, no related
records have been made.

7. Tax expense for the year was RM1,000,000.

Required:

Prepare the following financial statements for publication in accordance with the relevant
Malaysian Financial Reporting Standards:

a. Statement of Profit or Loss and Other Comprehensive Income for the year ended 31
December 2019.
(10 marks)

b. Statement of Changes in Equity for the year ended 31 December 2019.

(4 marks)

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c. Statement of Financial Position as at 31 December 2019 together with the Notes to the
Property, Plant and Equipment.
(16 marks)
(Total: 30 marks)

QUESTION 3

Besi Teguh Bhd manufactures and sells machine spare parts and tools to contractors all over
Malaysia. The company is in the process of finalising their financial statement for the year ended
31 December 2019. Below are the situations related to the company during the year.

Situation 1
On 1 September 2019, Besi Teguh Bhd sued Tools & Tools Bhd, a supplier, for breach of contract
for RM350,000. On that date, the company's lawyer was in the opinion that the Besi Teguh Bhd
would probably win the case and expected sufficient amount of compensation will be awarded.
As at 28 December 2019, the court ordered Tools & Tools Bhd to pay Besi Teguh Bhd a sum of
compensation of RM275,000. However, as at the year-end, Tools & Tools Bhd has not yet paid
that compensation.

Situation 2
It is the policy of the company to give a six-month warranty period and to replace for free of charge
of any goods returned due to manufacturing flaw. At the beginning of the year 2019, there was a
balance brought forward in provision for warranty account amounted to RM320,000. During the
year ended 31 December 2019, there was no claim made by the customers and the provision for
warranty cost in relation to the current year sales was estimated at RM210,000.

Situation 3
In line with the expansion of online business, the company planned to cancel the two rental
agreements for two different premises which was signed three years ago and still have remaining
period of two years. Based on the terms stipulated in the agreement, the rental is non-cancellable
but should either party intend to do so, penalty of RM500,000 is to be imposed. The total rental
amount for both premises is RM240,000 per year. A negotiation was held with the owner of the
premises before the year end to forfeit the penalty. However, the landlord did not agree to forfeit
the penalty but agreed to reduce it to RM300,000. On 30 December 2019, the company decided
to proceeds with the cancellation of the rental agreements.

Required:

a. Discuss whether Besi Teguh Bhd should recognise the compensation receivable in Situation
1 for the year ended 31 December 2019.
(5 Marks)

b. Prepare the relevant journal entries for the year ended 31 December 2019 in both companies’
books for Situation 1.
(5 Marks)

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c. Illustrate the extract Statement of Profit or Loss for the year ended 31 December 2019 and
Statement of Financial Position as at 31 December 2019 of Besi Teguh Bhd to incorporate
the Situation 2.
(5 Marks)

d. Explain the appropriate accounting treatments for the Situation 3 in accordance with the
MFRS137 Provision, Contingent Liabilities and Contingent Assets.
(5 Marks)
(Total: 20 Marks)

QUESTION 4

Below are the Statement of Financial Position of Teja Bhd as at 31 December 2019 and 2018:

2019 2018
RM’000 RM’000

Non-current assets
Property, plant and equipment 43,500 29,316
Investments 2,300 1,950
Intangible assets 5,500 7,900

Current assets
Inventories 5,000 4,000
Accounts receivable 2,000 4,180
Tax recoverable 155 -
Bank 5,000 4,334
Prepaid administrative costs 30 20
63,485 51,700

Shareholders’ equity
Share capital 31,150 28,150
Asset revaluation reserve 5,000 4,000
Retained earnings 6,400 5,750

Non-current liabilities
6% debentures 6,000 4,000
Long term loan 6,800 5,000

Current liabilities
Accounts payable 3,750 2,000
Interest payable 1,100 750
Bank overdraft 85 -
Tax payable - 250
Dividend payable 3,200 1,800
63,485 51,700

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Extract of the Statement of Profit of Loss for the year ended 31 December 2019

RM’000
Gross profit 30,500
Interest income 230
Administrative costs (8,030)
Distribution costs (2,540)
Finance costs (900)

Additional information:

1. The net profit after tax and tax expenses for the year ended 31 December 2019 were
RM12,500,000 and RM6,760,000 respectively.

2. During the year ended 31 December 2019, the following transactions were related to property,
plant and equipment:

 One of the plants was acquired through an issuance of ordinary shares of RM1,500,000.
 A plant which has carrying amount of RM8,000,000 was disposed for RM6,000,000.
 On 31 December 2019, the land and building were revalued for the first time resulting a
surplus of RM1,000,000 and a deficit of RM400,000, respectively. The deficit of
RM400,000 is included in the administrative costs.
 Depreciation charged for the year was RM4,350,000.

3. The company classified that 10% of its investment as cash equivalent.

4. An interim dividend was declared and paid during the year.

5. There was amortisation of intangible assets for the year ended 31 December 2019. However,
no purchase or disposal of the intangible assets had been recorded during the year.

Required:

a. Prepare a Statement of Cash Flows for Teja Bhd for the year ended 31 December 2019, using
the indirect method.
(22 marks)

b. Interpret the performance of Teja Bhd based on the Statement of Cash Flows prepared above.
(3 marks)
(Total: 25 marks)

[END OF QUESTION PAPER]

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