CONFIDENTIAL 1 AC/JUL 2022/FAR610/620

UNIVERSITI TEKNOLOGI MARA

FINAL ASSESSMENT

COURSE : ADVANCED FINANCIAL ACCOUNTING AND

REPORTING 1 / CONSOLIDATED FINANCIAL
STATEMENTS
COURSE CODE : FAR610/620
ASSESSMENT : JULY 2022
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of two (2) questions.

2. Answer ALL questions. Start each answer on a new page.

3. Please check to make sure that this examination pack consists of:

i) the Question Paper

4. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 9 printed pages
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QUESTION 1

PART A

Kulim Bhd was incorporated many years ago primarily to undertake construction of highway
and related businesses. Over the years, it has become a conglomerate with diverse business
interests conducted through members of its group of companies namely Mahang Bhd,
Karangan Bhd and Dublin Bhd. The followings are the financial statements of the companies
for the financial year ending 31 December 2021.

Statements of Profit or Loss for the year ended 31 December 2021

Kulim Mahang Karangan Dublin

Bhd Bhd Bhd Bhd
RM’000 RM’000 RM’000 RM’000
Revenues 36,000 30,000 25,900 18,450
Cost of Sales (8,300) (6,600) (5,900) (4,200)
Gross Profit 27,700 23,400 20,000 14,250
Investment Income 300 400 440 250
Other Income 500 750 100 500
Administrative Expenses (12,200) (9,000) (6,400) (2,500)
Selling & Distribution Expenses (5,700) (2,600) (4,000) (2,000)
Finance Cost (1,900) (2,050) (1,240) (1,500)
Profit Before Taxation 8,700 10,900 8,900 9,000
Taxation (2,200) (2,800) (2,300) (2,500)
Net Profit 6,500 8,100 6,600 6,500

Kulim Bhd
Statement of Changes in Equity for the year ended 31 December 2021

5% Preference Ordinary Other Components Retained

Share Share of Equity Earnings
RM’000 RM’000 RM’000 RM’000
Balance b/f 10,000 149,300 3,000 6,000
Profit for the year - - - 6,500
Dividend - - - (500)
Balance c/f 10,000 149,300 3,000 12,000

Mahang Bhd
Statement of Changes in Equity for the year ended 31 December 2021

5% Preference Ordinary Other Components Retained

Share Share of Equity Earnings
RM’000 RM’000 RM’000 RM’000
Balance b/f 18,000 60,000 2,000 2,800
Profit for the year - - 8,100
Dividend - - (900)
Balance c/f 18,000 60,000 2,000 10,000

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Karangan Bhd
Statement of Changes in Equity for the year ended 31 December 2021

5% Preference Ordinary Other Components Retained

Share Share of Equity Earnings
RM’000 RM’000 RM’000 RM’000
Balance b/f 10,000 70,000 5,000 4,700
Profit for the year - - - 6,600
Dividend - - - (500)
Balance c/f 10,000 70,000 5,000 10,800

Dublin Bhd
Statement of Changes in Equity for the year ended 31 December 2021

5% Preference Ordinary Other Components Retained

Share Share of Equity Earnings
RM’000 RM’000 RM’000 RM’000
Balance b/f - 60,000 1,400 3,500
Profit for the year - - - 6,500
Dividend - - - (600)
Balance c/f - 60,000 1,400 9,400

Statements of Financial Position as at 31 December 2021

Kulim Mahang Karangan Dublin

Bhd Bhd Bhd Bhd
RM’000 RM’000 RM’000 RM’000
Property, Plant & Equipment 49,000 80,000 78,900 75,400
Intangibles 2,000 5,000 6,000 -
Investment in Mahang Bhd 63,000 - - -
Investment in Karangan Bhd 60,000 - - -
Investment in Dublin Bhd 24,000 - - -
Other investment 12,000 30,000 26,000 8,000
Inventories 2,300 3,300 4,200 470
Trade Receivables 1,800 2,500 5,320 3,330
Bills Receivables 100 100 300 -
Current Account-Mahang Bhd 1,500 - - -
Bank 3,100 2,100 5,000 3,400
TOTAL 218,800 123,000 125,720 90,600
Share Capital 159,300 78,000 80,000 60,000
Reserves 15,000 12,000 15,800 10,800
8% Debentures 35,000 24,100 20,000 14,400
Bank loan 7,500 5,000 7,000 4,000
Trade Payables 1,200 1,600 2,300 800
Current Account-Kulim Bhd - 1,400 - -
Bills Payables 300 - 120 -
Dividend payables 500 900 500 600
TOTAL 218,800 123,000 125,720 90,600

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Additional information:

1. Acquisition of companies

The following is the summary of the acquisitions of the shares by Kulim Bhd in Mahang
Bhd, Karangan Bhd and Dublin Bhd:

Company Acquisition
Mahang Bhd Acquisition date: 1 January 2020

Acquisition of 80% of the ordinary shares and 50% of the

preference shares. The preference shares were acquired at
RM1.00 each. Retained Earnings and Revaluation Reserve were
at RM2 million each.

On 1 January 2021, Kulim Bhd disposed 20% of the ordinary

shares acquired at RM1.08 per share. The disposal has not been
recorded.
.
Karangan Bhd Acquisition date: 1 January 2021

Acquisition of 60% of the ordinary shares and 20% of the

preference shares. The preference shares were acquired at
RM2.00 each.
.
Dublin Bhd Acquisition date: 1 April 2021

Acquisition of 40% of the ordinary shares.

.

2. Revaluations

a. On the acquisition date, a plant of Mahang Bhd was revalued from RM10.5 million
to RM9 million only. The plant was acquired in 2018.

b. On 1 December 2021, the land of Kulim Bhd was revalued from RM8.8 million to
RM9.5 million.

All revaluations were still not recorded in the respective company’s accounts.

3. Inter-companies transactions

a. In 2021, Kulim Bhd sold on credit goods worth RM1.8 million to Karangan Bhd.
Karangan Bhd has sold one-quarter of the total goods purchased. Karangan Bhd
has paid only 55% to Kulim Bhd as of 31 December 2021.

b. During the months of September 2021 to December 2021, Kulim Bhd sold goods
RM100,000 every month to Dublin Bhd. 50% of these goods still remain unsold in
Dublin Bhd at the end of the year 2021.

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c. Bills receivables of Karangan Bhd were due from Kulim Bhd.

d. Mahang Bhd disposed to Karangan Bhd a machine in December 2020. The gain
on the disposal of the machine was RM100,000. The machine was purchased by
Mahang Bhd in January 2018 at RM500,000.

4. Other issues

a. In 2020, Kulim Bhd discovered that a piece of land of Mahang Bhd was recognised
as “Property, Plant & Equipment”. The land was purchased by Mahang Bhd a year
before at RM2 million and currently has no specific future use.

b. Kulim Bhd, Mahang Bhd and Karangan Bhd have provided the preference share’s
dividend, while Dublin Bhd has provided the ordinary share dividend. Kulim Bhd
had recognized its shares from its associate as investment income but has yet to
record dividends from its subsidiaries.

c. Goodwill on the acquisition of Mahang Bhd was impaired by RM200,000 in the

acquisition year and a further RM100,000 was impaired for the year ended 31
December 2021.

5. Selected accounting policies.

a. Depreciation.
Method selected: the straight line and charged on yearly basis.
Useful life: Plant-12 years; building-20 years; machine-5 years. Land was not
depreciated.

b. Valuation of Non-Controlling Interest (NCI).

The partial goodwill method.

c. Margin on inter-companies sales of goods.

20% margin.

d. Measurement subsequent to initial recognition.

The group adopts the revaluation model for its Property, Plant & Equipment and
Intangibles.

e. Assumption.
All profits or losses are deemed to accrue evenly throughout the years.

Required:

a. Calculate the goodwill or bargain purchase arising from the acquisitions in Mahang Bhd,
Karangan Bhd and Dublin Bhd.
(12 marks)

b. Calculate the gain or loss on the disposal of ordinary shares in Mahang Bhd.
(4 marks)

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c. Prepare the Consolidated Statements of Profit or Loss of Kulim Bhd group for the year
ended 31 December 2021.
(18 marks)

d. Prepare the Consolidated Statement of Changes in Equity of Kulim Bhd group for the
year ended 31 December 2021 (showing Group Retained Earnings and Non-Controlling
Interest column only)
(7 marks)

e. Prepare the Consolidated Statement of Financial Position of Kulim Bhd group as at 31

December 2021.
(19 marks)
(Total: 60 marks)

PART B

a. Radiant Age Berhad acquired 30% of the ordinary shares of Glitter Berhad on 1 January
2022. Radiant Age Berhad holds a substantive option to acquire another 25% of the
ordinary shares of Glitter Berhad, but the option can only be exercised in 40 days (12
February 2022).

Discuss when Radiant Age Berhad controlled Glitter Berhad.

(5 marks)

b. On 1 January 2021, Venus Bhd acquired 30,000 out of 100,000 ordinary shares of Pluto
Bhd. With these interests, Venus Bhd has the power to participate in the financial and
operating policy decisions of Pluto Bhd. During the year, Pluto Bhd lent Venus Bhd
RM30,000, charging interest rate at 5% per year.

Explain the accounting treatment of the loan from Pluto in the Consolidated Financial
Statements of Venus Bhd for the year ended 31 December 2021.
(5 marks)

c. On 1 January 2021, Prestige Bhd purchased 100,000 of the 400,000 ordinary shares of
Matrix Bhd for a cash consideration of RM15 million. As of 31 December 2021, the
investment in Matrix Bhd is impaired by RM5,000.

Explain the accounting treatment for the investment in Matrix Bhd under the equity
method.
(5 marks)
(Total: 15 marks)

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QUESTION 2

The Consolidated Statement of Financial Position and the Consolidated Statement of Profit or
Loss and Other Comprehensive Income of Pearl Bhd for the year ended 31 December 2021
are as follows:

Pearl Bhd
Consolidated Statement of Financial Position
as at 31 December
2021 2020
RM '000 RM'000
ASSETS
Non-Current Assets
Property, plant and equipment 700,800 504,000
Intangible assets 95,400 72,000
Investment in associate 168,000 102,000
Goodwill on consolidation 57,000 78,750

Current assets
Inventories 165,000 136,500
Trade and other receivables 129,000 90,000
Short term investment 79,500 52,500
Bank 37,500 24,750
Total Assets 1,432,200 1,060,500

EQUITIES AND LIABILITIES

Equity
Ordinary share capital 646,500 411,000
Retained Profit 420,000 279,600
Non-controlling Interest 63,000 55,500

Non-current Liabilities
Long term borrowing 69,000 78,000

Current liabilities
Trade and other payables 120,900 121,500
Deferred tax liabilities 37,500 42,000
Dividend payables 61,800 53,400
Interest payable 13,500 19,500
Total Equities and Liabilities 1,432,200 1,060,500

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Pearl Bhd
Consolidated Statement of Profit or Loss and Other Comprehensive
Income for the year ended 31 December 2021
RM'000
Turnover 1,548,000
Cost of sales (981,000)
Gross Profit 567,000
Operating expenses (325,500)
Finance cost (9,000)
Gain on sales of land 20,100
Share of profit of associate 99,900
Profit before tax 352,500
Taxation (79,500)
Profit for the year 273,000
.
Profit attributable to:
Equity holders of the parent 214,800
Non-controlling Interest 58,200
273,000

Additional information:

1. During the year, Pearl Bhd acquired 80% equity interest in Gold Bhd for consideration
of RM12 million. The consideration was discharged by issuing 5 million Pearl Bhd's
ordinary shares valued at RM2.00 each and the balance in cash. The net assets of Gold
Bhd amounted to RM12.5 million at the acquisition date were as follows:

RM'000
Trade receivables 4,800
Inventories 2,000
Property, plant and equipment 7,900
Trade payables 1,200
Long-term borrowing 1,000

The non-controlling interest was measured at its proportionate share of the fair value of
the subsidiary's identifiable net assets on the acquisition date.

2. Included in the operating expenses were:

Depreciation on property, plant and equipment ?

Impairment of goodwill ?
Impairment of intangible assets ?
Impairment of investment in associate RM5,600,000

3. Intangible assets comprise a new patent acquired by Pearl Bhd amounted to

RM25,000,000 (including legal cost RM500,000), paid by cheque.

4. Land with a carrying value of RM14,700,000 was disposed of at a profit. This was the
only sale of land during the year.

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5. For the acquisition of a new property, RM52,800,000 of the total cost was paid by cheque
and the remaining was financed through issuing new ordinary shares of Pearl Bhd.

6. Finance cost relates to interest expenses incurred during the year 31 December 2021.

7. The short-term investment is highly liquid and easy to dispose of.

Required:

a. Discuss the required disclosures in the consolidated statement of cash flows if a

subsidiary was acquired during the year.
(5 marks)

b. Prepare the Consolidated Statement of Cash Flows of Pearl Bhd for the year ended 31
December 2021 using INDIRECT METHOD in accordance with MFRS 107 Statement
of Cash Flows.
(20 marks)
(Total: 25 marks)

END OF QUESTION PAPER

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