CONFIDENTIAL, ACIJUL 2017/FAR610/650 UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE : ADVANCED FINANCIAL ACCOUNTING AND REPORTING 1 / ADVANCED FINANCIAL REPORTING COURSE CODE : FAR610/650 EXAMINATION : JULY 2017 TIME : 3HOURS INSTRUCTIONS TO CANDIDATES 1. This question paper consists of two (2) questions. 2. Answer ALL questions in the Answer Booklet. Start each answer on a new page. 3. Do not bring any material into the examination room unless permission is given by the invigitator. 4 Please check to make sure that this examination pack consists of : i) the Question Paper il) an Answer Booklet — provided by the Faculty 6 ‘Answer ALL questions in English, DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO This examination paper consists of 11 printed pages (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 2 ACIJUL 2017/FAR610/650 QUESTION 1 PARTA Introduction Borneo Tree Sdn Bhd was formed on 1 July 1988 and started from a humble manufacturer of chairs for dining set with one factory in Pending. After more than fifteen years in operation, the company has expanded its business activities by operating two more factories in Bintulu and Miri. The company had also successfully carved out a strong niche in the household furniture segment. Driven by the vision to be the largest rubber-wood furniture (high-and- medium end dining and bedroom sets) manufacturer in Malaysia, the company decided to go for public listing on the Bursa Malaysia. The company offered its shares for public subscription to raise additional capital for its business expansion and on 1 January 2014 the company was officially listed on the Bursa Malaysia. The company's name was changed to Borneo Tree Bhd with authorised share capital of RM1 billion ordinary shares of RM1 each. The issued and fully paid-up share capital is RM442.123 million. The company's financial year end is 30 June each year. Acquisition of shares in Latitude Bhd Borneo Tree Bhd had on 1 July 2014, acquired 80% of the issued and paid-up ordinary share capital and 25% of the 8% debentures of Latitude Bhd for a cash consideration of RM164,000,000. The debentures were acquired at par value. The principal activity of Latitude Bhd, is manufacturing and marketing of rubber-wood furniture. On the date of acquisition, the share premium and retained profit of Latitude Bhd were RM16,200,000 and RM13,500,000 respectively. The fair values of Latitude Bhd's freehold property was RM500,000 in excess of its carrying amount at the date of acquisition. This amount has not been adjusted by Latitude Bhd in its books to reflect the fair value. On 1 July 2015, Borneo Tree Bhd acquired another 10% of the ordinary shares of Latitude Bhd. The acquisition was satisfied through an issue of 10,000,000 units of ordinary shares of RM1 each in Borneo Tree Bhd at market price. This transaction has not been recorded by Borneo Tree Bhd. The market price of Borneo Tree Bhd's shares on 1 July 2015 was RM2.50 each. On 1 July 2015, the fair value of the identifiable net assets of Latitude Bhd was equal to its carrying value except for unadjusted fair value for the freehold property as mentioned above. Borneo Tree Bhd’s policy is to measure the non-controlling interest (NCI) of Latitude Bhd based on its proportionate share of the fair value of the net assets of Latitude Bhd at acquisition date. Acquisition of shares in Sonice Bhd On 1 January 2016, Borneo Tree Bhd had acquired another company, Sonice Bhd which also involves in rubber wood furniture business through acquisition of 75% of its issued and Paid-up ordinary share capital. On the acquisition date, the share premium of Sonice Bhd was RM7,200,000. The consideration transferred to acquire the shares in Sonice Bhd was RM154,123,000 in cash. Borneo Tree Bhd measures the NCI in Sonice Bhd at the fair value of the shares held. On the acquisition date, the fair value of the NCI in Sonice Bhd was RM30,000,000, (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 3 ACIJUL 2017/FAR610/650 Acquisition of shares in Alaric Bhd On 1 April 2016, Borneo Tree Bhd had also acquired 40% of 60,000,000 units of ordinary shares of RM1 each in Alaric Bhd for cash consideration of RM30,000,000. Alaric Bhd is a company dealing in marketing, transportation and printing businesses. Alaric Bhd’s profit after tax for the year ended 30 June 2016 was RM26,000,000 and its retained profit at 30 June 2015 was RM20,000,000. No dividend was paid or declared by Alaric Bhd in respect of accounting year ended 30 June 2016. Financial Statements of companies Below are the financial statements of Borneo Tree Bhd, Latitude Bhd and Sonice Bhd as at 30 June 2016: Statement of Financial Position as at 30 June 2016 Borneo Tree | Latitude | Sonice Bhd Bhd Bhd Note RM'000 RM’000 RM’000 Share capital 442,123 192,000 | 144,000 Reserves 146,490 46,620 43,200 Bank loans. 40,000 = - 8% Debentures. - 20,000 = Trade payables 24,000 9,460 21,600 Bills Payable 7,000 2,880 = Loan from Borneo Tree Bhd - 800 = Debenture interest payable 1.600 Property, plant and equipment 2 237,490 226,960_| 181,300 Investments in subsidiaries 318,123 = = Other investments 3 40,000 8,000 = ‘Inventories 18,000 14,000 12,000 ‘Trade receivable 14,000 5,600 5,000 Bills receivable 10,000 5,800 - Loan to Latitude Bhd 1,000 = = Cash and bank 21,000 13,000 10,500 (© Hak Cipta Universit Teknologi MARA CONFIDENTIALCONFIDENTIAL, ACIJUL 2017/FAR610/650 ‘Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2016 Borneo Tree | Latitude | Sonice Bhd | _Bhd | Bhd RM’o00 | _RM’000 Rm'000 Revenue 288,000 194,400 89,246 Gain on disposal of machine Cost of sales (186,400) (126,360) Bo 100 [Operating expenses (87,400) (25,272) _|_(14,600) Finance costs (2,300) (7,600) = Investment income 5,300 240 = Profit before tax 67,300 41,408_| 22,310 Tax expense 16,825) (17,808) | (6,570) Other comprehensive income: Surplus on revaluation of freehold land 40,790 5 5 Statement of Changes in Equity of Borneo Tree Bhd for the year ended 30 June 2016 Ordinary | Preference | Share | Revaluation | Retained share share | premium | Reserve | _ profits Rwroo0 | __RM000 | RM’000 RM'000 | _RM’000 Balance at 1 July 2015 442,123 =| 72,600 -|_ 23,515 ‘Surplus on revaluation - = - 10,790 - Profit for the year =|" 50,475 Interim ordinary dividend ~ = ~ < 2h ‘Statement of Changes in Equity of Latitude Bhd for the year ended 30 June 2016 (© Hak Cipta Universiti Teknolog! MARA Ordinary | Preference | Share [Revaluation | Retained share share | premium | Reserve |_ profits Rw’o00 | _RM’000 | _ RM’000 RM'000 |_RM'000 Balance at 1 July 2015 162,000 30,000 | 16,200 =| 5,923 oft for the year = = = =| 29,600 ierim ordinary dividend = = = =| 4.860) Preference dividend (243) CONFIDENTIAL,CONFIDENTIAL, Statement of Changes in Equity of Sonice Bhd for the ACIJUL 2017/FAR610/650 r ended 30 June 2016 (Ordinary | Preference | Share | Revaluation | Retained share share | premium | — Reserve | _ profits Rw’o00| _Rw’000 | RM’o00| —_—RM’000|_ RM"000 Balance at 4 July 2015 | 144,000 7,200 19,260 Notes to the account: Profit for the ee 16.740 1. The policy of the group is to provide depreciation on tangible non-current assets, except for freehold land on a yearly basis using the straight-line method, The estimated useful life are: - Building 50 years - Plant & machinery 10 years - Equipment 10 years 2. Property, plant and equipment Borneo Tree Bhd Freehold | Building | Plant &| Equipment | Total land machinery Rm‘o00 | Rw’000 | RM’000| —_RM’000 | RM’000 Cost Att July 2015 39,850 | 140,000] 90,500 | __70,820 ‘Additions 5 : : 80. Revaluation 70,780 5 = = ‘Acc. Depreciation ‘Att July 2015 =| 30,800 36,150 28,410 | 95,360 Disposals - = (150) =| (150) Depreciation for the year -| 2.800 9,000 7,040| 18,840 ASST RES 9.500} RS OD RR SO MEETS} (© Hak Cipta Universiti Teknologi MARA ans amounts CONFIDENTIALCONFIDENTIAL, 6 ACIJUL 2017/FAR610/650 Latitude Bhd ~ Freehold |Building| Plant &| Equipment] Total land machinery Rw’oo0| RM’o00| —_RM’000| __RM’000 |_RM'000 [Gost ‘Att July 2015 25,910 | 126,000 | 89,550, 66,830 | 308,290 ‘Additions = = 450 - 450 Disposals ~ = ~ (80) (80) ‘Ace. Depreciation — | ‘At 4 July 2015 =| 22,680 | 27,000 13,875 | 63,555 Disposals 5 = = (60) | (60) Depreciation for the a -| 2.520 9,000 6,675 | 18,195 -arrying amounts | Sonice Bhd Freehold Building] Plant & | Equipment | Total land machinery RM’000| RM'000 | RM’000| __RM’000 |_RM’000 Cost ~ Att July 2015 21,120 | 89,080 | 67,500 50,000 | 227,700 ‘Additions 550 ~ - - 50 ‘Acc. Depreciation ‘Att July 2015 =| 2,792 13,500 10,000 | 26,282 Depreciation for the ear 908 6,750 5,000 | 20,658 arrying amounts 3. Other investments Borneo Tree Latitude Sonice Bhd Bhd Bhd RM'000 RM’000 RM’000 Investment in Alaric Bhd 30,000 - - Investments in less than 20% interest __ 10,000 - 40,000 (© Hak Cipta Universit Teknologi MARA CONFIDENTIALCONFIDENTIAL 7 ACIJUL 2017/FAR610/650 Additional information a. Dividends and interest on debentures * Ordinary dividend has been recorded by both companies: Latitude Bhd and Boreo Tree Bhd. The ordinary dividend received from Latitude Bhd is included in the investment income of Borneo Tree Bhd. + Latitude Bhd had accrued and recorded the full-year debenture interest expense and is included under finance cost, but no entry was made in the books of Borneo ‘Tree Bhd in respect of the debenture interest due from Latitude Bhd for the year ended 30 June 2016, + No dividends declared or paid by Sonice Bhd in respects of accounting year ended 30 June 2016. Inter-company transaction * On 1 January 2016, Borneo Tree Bhd sold machinery to Latitude Bhd at a profit of RM100,000. On that date, the remaining useful life of the machinery was 5 years. As at 30 June 2016, the machinery was still used by Latitude Bhd. * Out of bills payable of Latitude Bhd as at 30 June 2016, RM1,000,000 were issued in favour of Borneo Tree Bhd. Borneo Tree Bhd had discounted RM700,000 of this bill * On 5 May 2016, Latitude Bhd sold inventories to Sonice Bhd and Borneo Tree Bhd for RMB,000,000 and RM800,000 respectively at a profit margin of 20% on invoice price. At the end of the reporting period, RM2,000,000 of these goods were still in the inventory of Sonice Bhd while Borneo Tree Bhd has sold all these goods. Goodwill Goodwill on consolidation was tested for impairment loss at 30 June 2016 and only goodwill for investment in Latitude Bhd was impaired by RM440,000. Required: a. Compute goodwill/bargain purchase on acquisition of Latitude Bhd, Sonice Bhd and Alaric Bhd, (14 marks) Calculate gain/(loss) on second acquisition of Latitude Bhd’s shares. (3 marks) Compute group retained profit and non-controliing interest as at 30 June 2016 using the schedule form, (9 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 8 ACIJUL 2017/FAR610/650 Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2016. (15 marks) Prepare the Consolidated Statement of Changes in Equity for the year ended 30 June 2016 showing the Group Retained Profit and Non-Controlling Interest columns only. (6 marks) Prepare the Consolidated Statement of Financial Position as at 30 June 2016. (16 marks) PARTB a Huge Bhd acquired 40% ordinary share capital of Big Bhd on 1 January 2016 and was able to participate in the decision making about financial policies of Big Bhd. On 1 September 2016, Huge Bhd acquired another 20% ordinary shares of Big Bhd and able to appoint 3 out of § board of directors of Big Bhd. Required: Discuss the accounting treatment of Huge Bhd's investment in Big Bhd for accounting year ended 31 December 2016. (6 marks) Machang Bhd, Ketereh Bhd and Bachok Bhd decide to enter into a joint arrangement and form a separate vehicle, Jelawat Sdn Bhd. Machang Bhd holds 25%, Ketereh Bhd owns 35%, and Bachok Bhd owns 40% of the equity shares in Jelawat Sdn Bhd. The shareholders agreement among the investors is such that decisions can be made with 80% consent and the profits of Jelawat Sdn Bhd will be distributed to the investors according to their respective shareholding in Jelawat Sdn Bhd. Each investor has equal representation on the board of directors of Jelawat Sdn Bhd. Required: i Discuss whether the joint arrangement is a joint operation or a joint venture. (4 marks) ii, Explain the accounting treatment to the investment in the joint arrangement in the investors’ book (5 marks) (Total: 75 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 9 ACIJUL 2017/FAR610/650 QUESTION 2 The consolidated statements of financial position of Canggih Bhd were as follows: Canggih Berhad Consolidated Statement of Financial Position as at 30 June 2016 2015 RM’000 RM'000 Ordinary shares of RM1.00 each 380,000 200,000 Retained profit 572,000 583,000 Asset revaluation reserve 56,000 23,000 ‘Non-controlling interest 31,000 54,000 Borrowings 10,000 75,000 Trade payables 265,000 258,000 Tax payable 73,000 93,000 Bank overdraft - 7,286,000 Property, plant and equipment 440,000 470,000 Intangibles 235,000 50,000 Goodwill on consolidation 50,000 100,000 Inventory 175,000 210,000 Trade receivables 404,000 359,000 Dividend receivable 3,000 2,000 Short-term investments 135,000 60,000 Cash at bank 8,000 35,000 10 Additional information: 1. Canggih Bha’s profit before tax for the year ended 30 June 2016 was RM20,000,000. In arriving at the profit before tax, the following items had been debited or credited: RM’000 Dividend income 12,000 Gain on disposal of subsidiary, Indah Bhd 8,000 Finance cost (24,000) Loss on disposal of property, plant and equipment (6,000) 2. Tax expense for the year was RM5,000,000. 3. The operating expenses include depreciation charge, impairment loss of goodwill, amortisation of intangible assets and loss on disposal of property, plant and equipment. 4. Profit for the year attributable to the non-controlling interests was RM3,000,000. (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 10 ACI/JUL 2017/FAR610/650 5. Dividend paid during the year by Canggih Bhd to its shareholders was RM25,000,000. 6. Short-term investments qualified as cash equivalent items. 7. Detail movement of the property, plant and equipment: 2016 2015 Property Plant Property —_ Plant RM'000 Rwo00 = RM’000.-—RM’000 Cost 300,000 220,000 +~=—-250,000 312,000 Accumulated depreciation (6,000) (74,000) _(40,000)__(52,000) Carrying amount 294,000 146,000 210,000 _ 260,000 On 2 July 2015, a property was revalued at a surplus of RM36,000,000. The company’s policy is to eliminate the accumulated depreciation against the gross amount of the property. On 30 June 2016, RM2,000,000 was transferred from the revaluation reserve to the retained profit which represented a realisation of the revaluation reserve upon provision of depreciation. During the year, a new property and a new plant were acquired for RMS5,000,000 and RM30,000,000 respectively for cash. An old plant costing RM32,000,000 (accumulated depreciation RM18,500,000) was sold for RM7,500,000. 8. Detail movement of the Intangible assets: Development cost RM'000 Balance at 1 July 2015 Incurred ‘Amortisation Balance at 30 June 2016 9. On 1 October 2015, Canggih Bhd sold all its 85% interest in Indah Bhd for cash. The remaining goodwill in Indah Bhd was RM30,000,000 on disposal date. The net assets of Indah Bhd on that date were as follows: RM’000 Plant 90,000 Accumulated depreciation (30,000) Inventories 20,000 Trade receivables 30,000 Bank 80,000 Trade payables Borrowings TOTAL (© Hak Cipta Universit Teknologi MARA CONFIDENTIALCONFIDENTIAL, " ACIJUL 2017/FAR610/650 Required: a. Determine the cash consideration received from the disposal of Indah Bhd. (5 marks) b. Compute cash generated from operations for the year ended 30 June 2016, using the indirect method. (12 marks) c. Prepare an extract of the consolidated statement of cash flows for the year ended 30 June 2016 showing the cash flows from investing and financing activities. (8 marks) (Total: 25 marks) END OF QUESTION PAPER (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL