FAR510 – DEC 2015

SUGGESTED SOLUTION : FAR510 DEC 2015

QUESTION 1

i.
Cheer Bhd
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2015
RM'000
Revenue 229,800 √
Cost of sales [126,800+ (700 - 500)] (127,000) √√
Gross profit 102,800
Investment income 360 √
Deficit on revaluation of building (W3) (2,100) √√√
Administrative expenses (W1) (37,800)
Selling and distribution cost (12,300) √
Finance cost (2,060) √
Profit before taxation 48,900
Taxation (8,500 + 200) (8,700) √√
Profit for the year 40,200
Other comprehensive income
Surplus on revaluation of land (W3) 64,000 √
Deficit on revaluation of building (W3) (9,900) √
Total comprehensive income 94,300

Basic earnings per share (W2) 37.16 sen

W1)Administrative expenses
RM’000
As per T/B 24,700 √
Depreciation:
Building (W3) 5,000 √ OF
Plant(W4) 6,400 √ OF
Equipment (W5) 1,700 √ OF
37,800

W2)
BEPS = 40,200 √ OF – 2,300√ = 37.16 sen
100,000 + 2,000 √

20 x ½ = 10 marks

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 FAR510 – DEC 2015
ii.
Cheer Bhd
Statement of Changes in Equity for the year ended 30 June 2015

OSC N-RPSC ARR RP

RM’000 RM’000 RM’000 RM’000
As at 1 July 2014 100,000 17,000 61,000 16,000
Prior period adjustment (W3)(550) √ 550 √OF
Restated balance 100,000 17,000 60,450 16,550
Net profit for the year 40,200 √OF
OCI –Surplus on rev of land 64,000 √
OCI- Deficit on rev of bldg (9,900) √
Transfer from ARR to RP (W3)(550) √ 550 √OF
Preference dividend (2,300) √
Issue of shares 2,000 √
As at 30 June 2015 102,000 17,000√ 114,000 55,000
√ 10 x ½ = 5 marks
iii.
Cheer Bhd
Statement of Financial Position as at 30 June 2015
RM'000
Non-current Assets
Property, plant and equipment √ 286,400 Note
Investment property 6,100 √

Current Assets
Inventory (13,700-200) 13,500 √
Trade receivables 15,500 √
Bank (2,000+400-2,400+6,000) __6,000 √
327,500
Equity
Share Capital 119,000
Retained earnings √ 55,000
Other Reserves 114,000

Non-current Liabilities
Deferred tax (3,600+200) 3,800 √
Lease creditor (W8) (6,000-1,160) 4,840 √√
Deferred Gain (W6) 960 √

Current Liabilities
Trade payables 14,500 √
Tax payable (W9) 2,300 √√√
Lease creditor (W8) (1,260-100) 1,160 √√
Deferred gain (W6) 240 √
Bank overdraft _11,700 √
327,500

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 FAR510 – DEC 2015

Note on property, plant and equipment

Land Building Plant Equipment Total
Cost/Valuation RM'000 RM'000 RM'000 RM'000
Bal as at 1 July 2014 96,000 100,000 62,000 17,000
Surplus on revaluation (W3) 64,000 √
Deficit on revaluation (W3) (12,000) √√
Acquisition 2,000 √
Elimination of AD (10,000) √
Disposal (8,000) √
Leased 6,000√
Bal as at 30 June 2015 160,000 78,000 64,000 15,000

Accumulated depreciation
Bal as at 1 July 2014 5,000 18,000 7,700
Disposal
Elimination of AD (10,000) √ (3,200) √
Charge for the year (W3)5,000 √ (W4)6,400 √ (W5)1,700√
Bal as at 30 June 2015 0 0 24,400 6,200

Carrying value 160,000 78,000 39,600 8,800 286,400

√ 30 x ½ = 15 marks
(Total: 30 marks)

W3)Revaluation of land and building:

Land RM’000
1/7/2014 96,000
30/6/2015 160,000
Surplus 64,000

Building
1/7/2014 Revalued Amt 100,000
Acc dep (5,000)
95,000
30/6/2015 Dep(100,000/20) (5,000)
CA 90,000
FV 78,000
Deficit 12,000 Dr ARR/OCI 9,900 (11,000- #550 - #550)
Dr P&L 2,100
Cr Building 12,000

Transfer from ARR to RE = ARR Building/Remaining useful life

= 11,000/20
= #550 ftye 30 June 2014 & 2015

W4) Plant: Depreciation

64,000,000/10 = 6,400,000

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 FAR510 – DEC 2015
W5) Equipment: Depreciation
17,000,000/10 = 1,700,000

W6)Sale and leaseback of equipment (leaseback is a finance lease, payment in arrears)

RM’000
Cost of equipment 8,000
Acc. Dep. (3,200)
Carrying Amount 4,800
Selling Price (FV) 6,000
Deferred gain 1,200 CL (1,200,000 /5) =240,000
NCL (1,200,000 – 240,000) = 960,000

W7) Allocation of interest: Sum- of- digits method and payment in arrears
RM’000
Total instalments (1,260 x 5) = 6,300
Fair value 6,000
Finance charges 300

Payment in arrears, n=5,

n (n + 1) / 2 = 5 (5 + 1) / 2 = 15

YE 30 June 2015, interest = 5/15 x 300,000 = 100,000*

W8) Lease creditor balance as at 30 June 2015: CL (1,260,000-100,000*)= 1,160,000

NCL (6,000,000 – 1,160,000) = 4,840,000

W9) Tax Payable = [(8,500,000+200,000) + (3,600,000 - 3,800,000) – 6,200,000] =2,300,000

QUESTION 2

a. Initial cost of building in Kota Samarahan:

Construction cost 8,250,000 √

Borrowing cost capitalized:
Y/E 30/6/2012: (RM10m x 8% x 9/12) 600,000 √√
Less: Investment income (RM4m x 6% x 9/12) (180,000) √√
Y/E 30/6/2013:(RM10m x 8% x 10/12) 666,667 √√
Y/E 30/6/2014: (RM10 m x8% x 9/12) 600,000 √√
1,686,667
9,936,667√

(10 x 1/2 = 5 marks)

b. Since each floor of the new building can be sold separately, it can be classified separately√.
The four storeys of the building shall be classified as PPE√ because it will be occupied by
the company and will be accounted for under MFRS116√. The other six storeys are
classified as IP√ because they will be let out to tenants and accounted for under
MFRS140√
(5 x 1 = 5 marks)

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 FAR510 – DEC 2015
c. For the year ended 30 June 2014, the building at Kota Sentosa can be classified as a non-
current asset held for sale√ since the construction of the new building in Kota Samarahan
has completed and the company has vacated the old building. This indicates that the asset
is available for immediate sale√. The sale is also highly probable because the company has
engaged a property agent to sell the building√.

For the year ended 30 June 2015, the building in Kota Sentosa cannot be classified as held
for sale√ because the company has no intention of reducing the price, which will not make
the sale highly probable√.
(5 x 1 = 5 marks)

d. Non-current asset held for sale shall be measured at the lower of carrying amount and fair
value less cost to sell√. The fair value less cost to sell is RM2,000,000√ and the carrying
amount is RM2,300,000√√√ [2.4M –(2.4M/20 x 10/12)]. It should be measured at
RM2,000,000√. Since the carrying amout is higher than the fair value less cost to sell, there
is an impairment loss√ of RM300,000√√ (2.3M-2M). The impairment loss will be written off
to SOPL√.
(10 x 1/2 = 5 marks)
e.
DR CR
RM’000 RM’000
Equipment 3,000√
Bank 2,000√
OSC 1,000√

Bank 2,000√
Deferred income√ 2,000√

Deferred income (2M/10) 200√

SOPL√ 200

Dep (3M/10) √ 300

Acc dep 300√
(10 x ½ = 5 marks)
(Total : 25 marks)

QUESTION 3.
a.
The decision to recognise the training cost as an intangible assets and amortize it over four years
do not comply with MFRS 138. √ Aira Bhd has no control over the staff. √

Staff training costs cannot be recognized as an intangible asset and must be expensed off in the
SOPL. √

Items can be capitalized as intangible assets only if the following criteria are met– identifiable,
control, future economic benefits will flow to the entity. √

The decision to capitalise research cost also do not comply with MFRS 138 √.

The cost of materials of RM300,000 √and service of external consultants of RM500,000√ incurred
during the research phase are recognized as an expenses√ in the SOPL in the period they are
incurred and not to be capitalized as intangible assets√. This is because there is uncertainty that
future economic benefits that are attributable to the assets will flow to the entity. √
(10 x ½ = 5 marks)

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 FAR510 – DEC 2015
b.
At the beginning of the year ended 30 June 2013, the development cost of RM50,000 cannot be
capitalised as an intangible asset√ because it has not met the criteria for capitalisation√. The
RM50,000 has to be written off to SOPL √.

At the end of the year ended 30 June 2013, development cost can be capitalised √ as an
intangible asset because it meets the criteria for capitalisation√ (i.e probable future economic
benefit will flow to the entity).

The total development that can be capitalised is RM500,000 which comprise of fees to register
trade design RM20,000√ , amortisation of patent used in the project RM80,000√ and salaries of
scienties and technicians RM400,000√ .

Sellings and administrative overheads allocated of RM150,000 should be expensed of as they do

not relate directly to the development project√.

The development cost of RM50,000 which has not met the criteria for capitalisation previously
cannot be re-instated. √
(10 x ½ = 5 marks)

c.
Development costs of RM 150,000 incurred for the project need to be capitalized. √

The carrying amount as at 30 June 2014 amounted to RM 650,000√ (RM500,000 + RM150,000)

The net recoverable amount is RM580,000 (RM660,000 √ – RM30,000 √–RM 50,000 √)

Since the carrying amount is higher than net recoverable amount, the development cost
capitalized is impaired√ .

The impairment loss of RM70,000 (650,000√ -580,000√ ) should be recognized immediately in the
SOPL. √

The amount that can be capitalised is restricted to the net recoverable amount of RM580,000.√
(10 x ½ = 5 marks)
d.
Further development cost of RM80,000√ incurred will be capitalised. √

The total development cost capitalised will be RM660,000 (580,000√ + 80,000√ )

Since the product was launched√ on 1 January 2015, the development cost need to be amortised√
over 5 years√.

For the year ended 30 June 2015, the amortisation will be RM66,000 √ √ √ (660,000/5 x 6/12)

(10 x ½ = 5 marks)
(Total: 20 marks)

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 FAR510 – DEC 2015
QUESTION 4
a. Mutaqqin Bhd
Statement of Cash Flows for the year ended 30 June 2015
RM RM
Cash flows from operating activities
Net profit before tax 3,450,000 √
Adjustments:
Depreciation 1,110,000 √
Profit on disposal of assets (60,000) √
Amortisation of intangible asset 30,000 √
Interest expense 210,000 √
Interest income (90,000) √
Operating profit before working capital changes 4,650,000
Dec. In inventories 450,000 √
Inc. In trade receivables (660,000) √
Inc. In trade payables 2,550,000 √
Cash generated from operations 6,990,000
Interest paid √√√ (180,000)
Income tax paid √√√√ (1,040,000)
Net cash inflow from operating activities 5,770,000

Cash flows from investing activities

Purchase of PPE (3,910,000) √√√√√√
Proceeds from disposal of PPE 630,000 √
Purchase of investment (1,800,000) √
Interest income received 120,000 √√
Net cash outflow from investing activities (4,960,000)

Cash flows from financing activities

Issue of ordinary shares 900,000 √
Finance lease repayment (190,000) √√√
Redemption of 6% debentures (600,000) √
Dividend paid (1,020,000) √√√√
Net cash outflow from financing activities (910,000)

Net increase in cash and cash equivalent (100,000)

Cash and cash equivalent b/d 30,000√√
Cash and cash equivalent c/d (70,000) √√√
(40√ x ½ = 20 marks)

b. Ways to improve the liquidity of Muttaqqin Bhd:

1. The company should acquire more assets through lease agreements rather than purchase
for cash .
2. The company can aquire assets not by cash payment but exchange with securities of the
company.
3. The company should pay less dividend or delay payment of dividends.
4. The company should delay payment to suppliers.
5. The company can issue more shares for cash.
6. The company can take a loan from the bank
7. The company can purchase short term investments that qualify as cash equivalent.

Any five (5) answers above or other acceptable answers.

(5 x 1 = 5 marks)

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 FAR510 – DEC 2015
Workings:
Cash and cash equivalent:

2014 2015
Cash 630,000 120,000
Bank overdraft (600,000) (240,000)
S/t investment - 50,000
30,000 (70,000)

Interest payable
Bank 180,000 Bal b/d 60,000
Bal c/d 90,000 SOPL 210,000

Tax
Bank 1,040,000 DT b/d 500,000
DT c/d 360,000 Bal b/d 450,000
Bal c/d 510,000 SOPL 960,000

PPE
Bal b/d 5,880,000 Disposal 570,000
ARR 210,000 Depreciation 1,110,000
Finance lease 840,000 NCAHFS 1,000,000
Bank 3,910,000 Bal c/d 8,160,00

Finance lease
Bank 190,000 Bal b/d -
Bal c/d(500+150) 650,000 PPE 840,000

Retained profit
Dividend 900,000 Bal b/d 2,460,000
Bal c/d 4,050,000 SOPL 2,490,000

Dividend payable
Bank 1,020,000 Bal b/d 240,000
Bal c/d 120,000 Retained profit 900,000

Interest income
Bal b/d 60,000 Bank 120,000
SOPL 90,000 Bal c/d 30,000