FAR610 - TEST 1 (MARCH 2018) – 1 HOUR 45 MINUTES

QUESTION 1

Multi Bhd is a public listed company that involves in steel industry for Malaysian market
since the year 2000. In recent years, Multi Bhd has ventured into new businesses by
investing in different portfolios of companies namely Hess Bhd, Joy Bhd and Scope Bhd.

Investment in Hess Bhd

On 1 January 2015, Multi Bhd has acquired 45,000,000 ordinary shares of Hess Bhd when
its retained profits and general reserve were RM52,000,000 and RM18,200,000 respectively.
On the date of acquisition, valuation made over the assets of Hess Bhd had shown that its
land was valued at RM15,000,000 more than its carrying amount and a brand valued at
RM9,000,000 million was not recognized. This intangible asset has a definite useful life of 5
years.

Investment in Joy Bhd

On 1 January 2017, Multi Bhd and Hess Bhd have respectively acquired 20% and 60%
ordinary shares in Joy Bhd. The company involves in construction industry since its
incorporation. General reserve of Joy Bhd on that date was RM10,500,000. The
consideration transferred by Multi Bhd was settled by cash and issuing 5,000,000 ordinary
shares of Multi Bhd at RM2.00 per share. However, only the cash transaction was recorded
in Multi Bhd’s book. Meanwhile, the consideration transferred by Hess Bhd was settled by
cash of RM80,000,000. The fair values of Joy Bhd’s assets on the date of acquisition were
equal to its carrying values except for a building, which had a fair value of RM3,000,000 in
excess of its carrying value. The remaining useful life of the building on that date was 20
years.

Investment in Scope Bhd

On 1 January 2017, Multi Bhd acquired 40% of 30,000,000 ordinary shares of Scope Bhd
paying cash of RM2.00 per share when the fair values of the net assets of Scope Bhd were
equal to their carrying amounts. This transaction was not recorded in Multi Bhd’s account.

Financial Statements

The following is the statements of financial position for Multi Bhd, Hess Bhd and Joy Bhd as
at 31 December 2017:

Multi Bhd Hess Bhd Joy Bhd

RM ‘000 RM ‘000 RM ‘000
Non- current Assets
Property, Plant and Equipment 165,400 71,600 45,230
Intangible assets 12,000 - 12,000
Investment in Hess Bhd 98,000 - -
Investment in Joy Bhd 40,000 80,000 -

Current Assets
Trade Receivables 59,000 52,100 21,500
Inventories 58,900 48,100 22,100
Bank 38,600 17,800 15,890

Total Assets 471,900 269,600 116,720

1
 Multi Bhd Hess Bhd Joy Bhd
RM ‘000 RM ‘000 RM ‘000

Equity
Ordinary shares 120,000 60,000 40,000
5% non-redeemable preference shares 80,000 20,000 -
General reserve 55,200 28,400 11,950
Retained profits as at 1 January 2017 98,600 68,700 32,780
Profits for the year 8,700 6,900 4,560

Non-current liabilities
Bank borrowings 46,650 40,520 14,180

Current liabilities
Trade payables 52,500 39,800 12,800
Bill payables 10,250 5,280 450

Total equity and liabilities 471,900 269,600 116,720

Additional information:

1. During the year, Multi Bhd sold inventories for RM18,000,000 to Hess Bhd making a
profit of RM3,200,000. Three quarters of these inventories still remain in Hess Bhd at
year ended 31 December 2017. At 30 December 2017, Hess Bhd remitted half of the
invoiced amount as part of the settlement to Multi Bhd in cash. However it was not
received by Multi Bhd until early January 2018.

2. Half of Joy Bhd’s bill payables is in favour of Hess Bhd. Hess Bhd has recorded the bill
receivables due from Joy Bhd under trade receivables account and had discounted
RM20,000 of these bills.

3. On 7 July 2017, Hess Bhd sold a plant with a carrying value of RM900,000 to Joy Bhd
for RM1,000,000. The remaining useful life of the plant was 5 years. The group policy is
to depreciate all its assets using straight line method on yearly basis where full year’s
depreciation was charged in the year of purchase and none in the year of disposal.

4. At the end of the year, the board of directors of Hess Bhd and Joy Bhd declared ordinary
dividends of 8% and 5% respectively. Hess Bhd also declared the full year of dividend on
preference shares at year end. However, these dividends have not yet recorded.

5. At year ended 31 December 2017, the goodwill on acquisition of Joy Bhd was impaired
by 20%.

6. During the year, Scope Bhd sold inventories worth RM5,000,000 to Multi Bhd at a profit
of 10% on selling price. All these inventories remain unsold at the end of the year. The
retained profits of Scope Bhd as at 1 January 2017 was RM210,000,000 while the
current year profit was RM45,000,000. At the year end, the investment in Scope Bhd
was impaired by RM4,350,000.

7. It is the group’s policy to measure the non-controlling interests at its proportionate share
of the fair value of the identifiable net assets of the subsidiary on the acquisition date.

2
Required:

Prepare the Consolidated Statement of Financial Position of Multi Bhd as at 31 December

2017.
(45 marks)

QUESTION 2
Accounting for interest in joint ventures and strategic alliances through joint control was
previously covered under Financial Reporting Standard (FRS) 131 Interest in Joint Ventures.
However, it is currently covered under the Malaysian Financial Reporting Standards (MFRS)
11 Joint Arrangements and MFRS 128 Investment in Associates and Joint Ventures.

Required:
a) State the two types of joint arrangement that has been classified by MFRS 11 Joint
Arrangements.
(1 mark)

b) Briefly explain two (2) differences on the type of joint arrangements mentioned above.
(4 marks)

(Total: 50 marks)