FAR460 – JUNE 2020

SUGGESTED SOLUTION
Question 1
a.
Sunrise Bhd
Statement of Profit or Loss and Other Comprehensive Income for the year ended
31 December 2019
RM(‘000)
Revenue 770,646
Cost of sales (388,390 + 1,000) (389,390)
Gross profit 381,256
Other income -
Administrative expenses (66,870)
Selling & distribution expenses (32,880)
Profit from operation 281,506
Finance expenses (1,360)
Investment income 1,312
Profit before tax 281,458
Taxation (17,500)
Profit after tax √ 263,958

Other Comprehensive Income

- -
Total comprehensive income 263,958

Workings Administrative Selling & Distribution Finance

(RM’000) (RM’000)
(RM’000)
As per TB 31,611 - 860
Audit fees 2,800
Director’s remuneration 1,000
Depreciation
-office building 1,000
-factories 2,150
-plant & equipment 816
Wages and salaries 27,493
Advertisement 19,730
Salesmen commissions 13,150
Maintenance (5,100-5,100) 0
Debenture interest 500
66,870 32,880 1,360

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 FAR460 – JUNE 2020

b.
Sunrise Bhd
Statement of Changes in Equity for the year ended 31 December 2019
OSC RE ARR Total
RM (‘000) RM (‘000) RM (‘000) RM (‘000)
Bal b/d 38,000 29,724 3,950 71,674
NPAT 263,958 263,958
Deficit - Land (60) (60)
OS dividend (2,200) (2,200)
38,000 291,482 3,890 333,372
(6√ x 1 = 6 marks)

c.
Sunrise Bhd
Statement of Financial Position as at 31 December 2019

RM (‘000) RM (‘000)
Non-current assets
PPE 97,054
Investments 28,000
Intangible assets 54,000

Current assets
Inventories (32,000 -1,000) 31,000
Trade receivables 128,600
Cash and bank 93,476 253,076
432,130

Equity
Share capital √ 38,000
Reserves 295,372
Shareholders’ equities 333,372

Non-current liabilities
10% Debentures 5,000
Long Term Loan 5,000

Current liabilities
Tax payable (17,500-16,700) 800
Accruals 27,050
Trade payables 60,908 88,758
432,130
(note* 1 √ given if student does not recognise the future operating losses)

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 FAR460 – JUNE 2020

Notes to the Accounts

Property, plant and equipment (RM’000)
Cost/valuation Land Office Factories Plant & Total
building equipment
Bal b/d 30,060 50,000 21,500 4,080 105,640
Prior year adjustment - - - - -
Restated Balance 30,060 50,000 21,500 4,080 105,640
Deficit on revaluation (60) - - - (60)
Error: Addition - - - 5,100 5,100
Bal c/d 30,000 50,000 21,500 9,180 110,680

Less: Acc. Dep.

Bal b/d - 5,000 4,300 360 9,660
Prior year adjustment - - - - -
Restated Balance - 5,000 4,300 360 9,660
Elimination against - - - - -
valuation
CY dep. - 1,000 2,150 816 3,966
Disposal - - - - -
Bal c/d - 6,000 6,450 1,176 13,626

CA 30,000 44,000 15,050 8,004 97,054

Workings:
Bal b/d properties (cost) as per TB RM71,500,000
Cost of building RM50,000,000
Factories RM21,500,000

Bal b/d office building = RM50,000,000/50 yrs x 5 years RM5,000,000

Bal b/d factories = RM21,500,000/10 yrs x 2 years RM4,300,000
Accumulated depreciation as per TB RM9,300,000

QUESTION 2

a.

i. Identify the classification of assets in Transcend Bhd according to the relevant MFRS.

Land and New Factory

- Both assets can be classified as PPE under MFRS116 √ because according to MFRS
116, property, plant and equipment are the assets that:

• are held by an entity for use in the production of goods and services, for rental to
others, or for administrative or maintenance purposes; √ (manufacture automobile
parts), and

• are expected to be used during more than one reporting period (useful life 20 and
10 years)

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 FAR460 – JUNE 2020

ii. Discuss briefly about the elements of cost in recognition of initial measurement for the
related non-current assets including its computation of initial cost for the land and
factory.

• Initial recognition for NCA applied the same principles for purchased PPE and self-
constructed Property, Plant and Equipment.

• The cost of an item of property, plant and equipment comprises:

(a) its purchase price, √ including import duties and non-refundable purchase taxes,
after deducting trade discounts and rebates.

(b) any costs directly attributable to bringing the asset to the location and condition
necessary for it to be capable of operating in the manner intended by
management√. (For self-constructed asset, it Included all costs incurred such as
material, labour, overhead and other resources that are directly attributable to
complete the construction of the asset such as borrowing costs √, and excluded
internal profit and costs of abnormal amounts wastage√)
(c) the initial estimate of the costs of dismantling and removing the item and restoring
the site on which it is located√, the obligation for which an entity incurs either when
the item is acquired or as a consequence of having used the item during a
particular period for purposes other than to produce inventories during that
period.√

Details Land New Factory

RM RM
Purchase of the land 15,000,000
Costs of dismantling existing structures on the site 450,000

Purchase of materials to construct the factory 6,000,000

Employment costs (3/4 x RM1,800,000) 1,350,000
Production overheads directly related to the 1,050,000
construction (RM1,250,000√ - RM200,000√)
Architects’ fees directly related to the construction 280,000
Consultation fees directly related to the construction 320,000
Interest on loan to finance the construction of the 1,200,000
factory
15,450,000 10,200,000
(10√ x ½ = 5 marks)
(Total: 7 marks)

iii. Explain the accounting treatment for assets recognised and expenses written off for the
year ended 31 December 2017.
Land√ of RM15,450,000(OF)√ and factory√ of RM10,200,000(OF)√ are to be capitalised√
under PPE (MFRS116)√ and to be disclosed in Statement of Financial Position√, while
employment costs of RM450,000√, general administrative overhead of RM650,000√ and
factory opening costs of RM150,000√ are to be written off√ to SOPL√ in the year the costs
are incurred.
(Any 10√ x ½ marks = 5 marks)

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 FAR460 – JUNE 2020

b.
i. Prepare the relevant journal entries for the land and factory for the year ended 31
December 2018.

2018
Land
Original costs @ 31 December 2017 15,450,000
Revalued amount / new CA @ 31 December 2018 16,000,000
Surplus on revaluation 550,000

Factory
Initial costs @ 31 Dec 2017 10,200,000
Depreciation [(10,200,000 – 200,000)/10] (1,000,000)
CA 9,200,000
Revalued amount / new CA @ 31 December 2018 8,500,000
Deficit on revaluation 700,000

Journal entries FTYE 31 December 2018

Debit Credit
Land 550,000
ARR 550,000

Acc Depreciation 1,000,000√

SOPL 700,000√
Factory 1,700,000

(14√ x ½ mark = 7 marks)

ii. Determine the carrying amount of the land and new factory as at 31 December 2019

2019
Land
CA @ 31 December 2018 16,000,000
Revalued amount @ 31 December 2019 -
CA @ 31 December 2019 16,000,000

Factory
CA @ 31 Dec 2018 8,500,000
Depreciation (8,500,000/12**) (708,333)
CA @ 31 December 2019 7,791,667
**Useful life (10 -1 + 3) = 12 years

CA (RM)
Reporting date Land Factory
31 December 2019 16,000,000 7,791,667
(6√x ½ mark = 3 marks)
(Total: 25 marks)

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 FAR460 – JUNE 2020

SOLUTION 3
a.
i. State the treatment of Changes in provisions in accordance with MFRS 137
Provisions, Contingent Liabilities and Contingent Assets

Provisions shall be reviewed at the end of each reporting period and adjusted to reflect
the current best estimate. √ If it is no longer probable that an outflow of resources
embodying economic benefits will be required to settle the obligation√, the provision
shall be reversed√.
(3√ x 1 mark = 3 marks)
ii. State the treatment of Future operating losses in accordance with MFRS 137
Provisions, Contingent Liabilities and Contingent Assets

Future operating losses do not meet the definition of a liability and the general
recognition criteria set out for provisions.√ Therefore, provisions shall not be
recognised for future operating losses.√
(2√ x 1 = 2 marks)

iii. Discuss briefly whether the company has to recognise the provision for the rental cost
of the office space in Situation 1 above.

This is onerous contract√ where Atiz Concrete Bhd would suffer unavoidable cost of
meeting the obligation under the contract which exceeds economic benefits expected
to be received under it. A provision shall be recognised√ by the entity since there is a
present legal obligation√ (the company is contracted to rent the office space for 5
years) as a result of past obligating event √ (the signing of the non-cancelable
agreement). It is also probable that outflow of resources is embodying the economic
benefits will be required to settle the obligation. Provision should be made for the best
estimate of the unavoidable losses borne by the company, i.e. RM120,000.

iv. Explain briefly the proper accounting treatment for Situation 2 above.

There is no legal obligation since the company has no return or refund policy.
However, there is an obligating event which give rise to constructive obligation
because the company has created a valid expectation among buyers for giving
refunds. There is a probability of an outflow of resources embodying economic
benefits in settlement. A provision is to be recognised for RM18,000 of the costs of
refunds.

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 FAR460 – JUNE 2020

b. Prepare the following statements to record for the Situation 3 above :

i. The Statement of Profit or Loss (extract) for the year ended 31 December 2019.

Statement of Profit or Loss (extract) for the year ended 31 December 2019

Expense
Repair and replacement cost (15,000-10,000) RM5,000

(Any 2√ x 1 mark = 2 marks)

ii. The Statement of Financial Position (extract) as at 31 December 2019.

Statement of Financial Position (extract) as at 31 December 2019

Current Asset
Provision for compensation receivable RM10,000

Current Liability
Provision for repair and replacement cost RM15,000

(Any 3√ x 1 mark = 3 marks)

(Total: 20 marks)

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 FAR460 – JUNE 2020

QUESTION 4
a)
Mesra Alam Bhd
Statement of Cash Flows of for the year ended 31 December 2019

RM RM
Cash Flows from Operating Activities
Cash received from customers 6,660,000
Cash paid to suppliers (4,445,480)
Cash paid for operating expenses and employees (2,097,420)
Cash generated from operations 117,100

Interest paid (36,000)

Tax paid (186,000)
Net cash flows from operating activities (104,900)

Cash Flow from Investing Activities

Aquisition of land (300,000)
Acquisition of PPE (916,000)
Proceeds from disposal of building (500,000 - 44,400 417,600
- 38,000)
Acquisition of herbs plantation (120,000)
Proceeds from disposal of investment 427,000
Aquisition of intangible asset (51,500)
Net cash flows from investing activities (542,900)

Cash Flow from Financing Activities

Cash received from issue of OSC 1,230,000
Cash received from issue of Debentures 130,000
Dividend paid (462,500)
Cash received from borrowing 50,000
Net cash flows from financial activities 947,500

Net cash outflow during the year 299,700

Beginning cash and cash equivalents 100,600
Ending cash and cash equivalents 400,300

Statement of Cash and Cash equivalents

Bal b/d Bal c/d Difference
Bank 210,600 620,300 409,700
Bank Overdraft (110,000) (220,000) (110,000)
100,600 400,300 299,700

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 FAR460 – JUNE 2020

Land
RM ‘000 RM ‘000
Bal b/d 1040
ARR 240
Bank 300 Bal c/d 1580

PPE
RM ‘000 RM ‘000
Bal b/d 680.8 Disposal of build 455.6
Bank 916 Depn 150.6
Bal c/d 990.6

Trade Receivables
RM ‘000 RM ‘000
Bal b/d 1,500√ Bank 6,660
Revenue 7,500√ Bal c/d 2,340√

Inventories
RM ‘000 RM ‘000
Bal b/d 990.6 COS 4,500
Purchases 4,169.4 Bal c/d 660

Trade Payables
RM ‘000 RM ‘000
Bank 4,445.48 Bal b/d 1,361.2
Bal c/d 1,085.12 Purchases 4,169.4

Expenses
RM ‘000 RM ‘000
Loss on disposal 38 Bal b/d 140.4
Depn 150.6 Selling & Distrn 440.8
Amortisation 24.5 Admin exp 1,950.12
Bank 2,097.42
Bal c/d 220.8

Tax Payable
RM ‘000 RM ‘000
Bank 186 Bal b/d 96
Bal c/d 120 SOPL 210

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 FAR460 – JUNE 2020

Dividend Payable
RM ‘000 RM ‘000
Bank 462.5 Bal b/d 200
Bal c/d 300 SOPL 562.5

b.
1. To review the costing of goods or products
2. To revise the credit terms offered to the customers.
3. To negotiate with the existing suppliers for discount on purchase.
4. To discuss longer credit terms from suppliers
5. To search for suppliers who can offer goods and products at a lower price with good
quality
6. To revise the pricing strategy or profit margin of the company.

(Any 4 x 1 mark = 4 marks)

(or any other acceptable answers)

END OF SOLUTION

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