SOLUTION/FAR460/AUG 2021/SET 1

QUESTION 1

a. Statement of profit or loss and other comprehensive income

Puncak Bhd
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2020
RM’000
Revenue 1,963,800
Cost of sales (973-6) (967,000)
Gross profit 996,800
Other income (W1) 14,000
Selling expenses (98,000)
Administrative expenses (W2) (351,000)
Finance expenses (23,400)
Profit before tax 538,400
Income tax expense (149,000)
Profit after tax 389,400

Other comprehensive income:

Revaluation surplus for land 15,000
Total comprehensive income 404,400

(9 marks)

Admin Expenses (W2) RM’000 Other Income (w1) RM’000

As per draft 132,000 Fair value gain on 6,000

General expenses 140,000 Investment property
Depreciation of buildings 15,000 Fair value gain on 8,000
Depreciation of plants & equipment 16,000 Biological assets
Depreciation of motor vehicles 20,000
Prov. for legal claims 28,000
WO Gge = 211,000 351,000 14,000

b. Statement of changes in equity

Puncak Bhd
Statement of Changes in Equity for the year ended 30 June 2020
OS RE RESERVE
RM’000 RM’000 RM’000
Bal as at 1.7.2019 600,000 315,600 240,000
Prior year adjustment (6,000)
Restated balance 600,000 309,600 240,000
Revaluation during the year 15,000
Dividend (12,000)
Current year profit - 389,400 -
Bal as at 30.6.2020 600,000 687,000 255,000
(5 marks)

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c. Statement of financial position and notes on PPE

Puncak Bhd
Statement of Financial Position as at 30 June 2020

Non-current assets RM’000

Property, plant and equipment 1,182,000
Investment property (160 + 6) 166,000
Biological assets (130 + 8) 138,000
Intangible assets 300,000

Currents assets
Inventories 175,000
Trade receivables 80,000
Bank 42,000
2,083,000
Equity
Shares capital 600,000
Retained earnings 687,000
Other reserves 255,000

Non-current liabilities
9% Debentures 260,000

Current liabilities
Trade payables 137,000
Tax payable 104,000
Dividend payable 12,000
Provision for legal claims 28,000

2,083,000

Note on PPE (14)

Land Buildings PM MV Total
Cost/Valuation RM’000 RM’000 RM’000 RM’000 RM’000
As at 1.7.2019 600,000 600,000 160,000 100,000
Revaluation 15,000
As at 30.6.2020 615,000 600,000 160,000 100,000
ACD
As at 1.7.2019 - 150,000 32,000 60,000
Current depreciation - 15,000 16,000 20,000
As at 30.6.2020 615,000 165,000 48,000 80,000
Carrying amount 615,000 435,000 112,000 20,000 1,182,000
(16 marks)
Total: 30 marks

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 SOLUTION/FAR460/AUG 2021/SET 1

QUESTION 2

a. The information is useful to assist the users like investors and lenders to:
• Assess how efficient the entity’s management discharge responsibilities to use the
resources, for example the acquired plant.
• Assess how management protect the resources from unfavourable economic
effects.
• Assess the company’s prospects for future net cash inflows.
• Assess entity’s ability to pay dividend and interest and principal payment.
• Assess the company’s ability to pay back their debts as the assets can be used as
collateral.
...or any relevant answers
(4 marks)

b. Initial measurement of the machine comprises:

Total Cash Payables

RM RM RM
Initial payment 50,127 50,127
PV payment on 30 June 2018 8,264 8,264
Installation cost 10,000 10,000
PV of dismantle cost 6,209 6,209
74,600 60,127 14,473

(2 marks)

c. Related journal entries

Year ended 30 June 2017

Date Journals Dr Cr
RM RM
1/7/2016 Machine 74,600
Bank (50127 + 10000) 60,127
Other payables 8,264
Provision for dismantle 6,209

30/6/2017 Depreciation (74600/5) 14,920

Accumulated depreciation 14,920

30/6/2017 Interest expense (8264 X 10%) 827

Other payables 827

30/6/2017 Interest expense (6209 X 10%) 621

Provision for dismantle 621

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 SOLUTION/FAR460/AUG 2021/SET 1

Year ended 30 June 2018

Date Journals Dr Cr
RM RM
30/6/2018 Depreciation (74600/5) 14,920
Accumulated depreciation 14,920

30/6/2018 Interest expense (8264+827) X 10% 909

Other payables 909

30/6/2018 Other payables (8264+827+909) 10,000

Bank 10,000

30/6/2018 Interest expense (6209+621) X 10% 683

Provision for dismantle 683

(10 marks)

d. Accounting treatment for replacement of component and maintenance

Replacement component on 2 July 2018

• The cost of new component RM15,000 will be capitalised and added up to the
carrying amount of the machine as it can reduce the operating cost of the company.
The carrying amount of the old component of RM11,355 will be de-recognized.

Maintenance work on 4 July 2019

• Maintenance work of RM6,000 on 4 July 2019 for the routine maintenance not
capitalized. It will be charged to the profit or loss.
(5 marks)

e. Carrying amount of the machine as at 30 June 2020

RM
Initial cost @ 1 July 2016 74,600
2 years Less: Accumulated depreciation. (74,600/5 x 2) (29,840)
CV @ 30 June 2018 44,760
Add: Capitalized replacement cost (2/7/18) 15,000
Less: De-recognition-old component (2/7/18) (11,355)
New CA as at 2 July 2018 48,405
1 year Less: Accumulated Depreciation (48,405/3) (16,135)
CV @ 30 June 2019 32,270
1 Year Less: Accumulated Depreciation (16,135)
CV @ 30 June 2020 16,135

(4 marks)
(Total: 25 marks)

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 SOLUTION/FAR460/AUG 2021/SET 1

QUESTION 3

a. For the disclosure of contingent liability, when there a possibility for the company will
be held liable, the company shall disclose for each class of contingent liability at the
end of the reporting period a brief description of the nature of the contingent liability
and, where practicable:
• an estimate of its financial effect, measured using the principles set out in MFRS
137,
• an indication of the uncertainties relating to the amount or timing of any outflow;
and
• the possibility of any reimbursement.

As for disclosure of contingent assets, a company shall disclose for each class of
contingent asset when an inflow of economic benefits is probable. The entity shall
disclose a brief description of the nature of the contingent assets at the end of the
reporting period, and, where practicable, an estimate of their financial effect, measured
using the principles set out in MFRS 137.
(5 marks)

b. The license is to be classified as intangible assets in accordance to MFRS 138 Intangible

assets. MFRS 138 defines intangible asset as an identifiable non-monetary asset
without physical substance, which include three recognition criteria namely identifiability,
control over the resources and the existence of future economic benefits.

Discussion for compensation was made and according to the company’s lawyer, the
possibility that the company will be held liable but the amount of compensation has not
yet finalised. Since the company is possible (not remote) to be held liable but the amount
cannot be measured reliably/, no provision shall be made on 15 March 2020. The
compensation to the bus driver shall be classified and disclosed as contingent liability.
(5 marks)

c. Once the compensation amount has been finalised and probability of the company will
be held liable, the provisions shall be recognised as a liability.

The reimbursement receivable shall be recognised when, and only when, it is virtually
certain that reimbursement will be received.

In the statement of financial position, the provision and reimbursement receivable shall
be treated and disclosed separately as liability and asset respectively.

In the statement of profit or loss, the expense relating to the provision may be presented
net of the amount recognised for the reimbursement.
(5 marks)

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 SOLUTION/FAR460/AUG 2021/SET 1

d. Journal entries

Date Journal DR CR
RM RM
30/3/2020 Compensation expense 60,000
Provision for compensation 60,000

10/5/2020 Provision for compensation 60,000

Bank 60,000

Date Journal DR CR
10/5/2020 Compensation receivable 60,000
Recovery gain 60,000

Recovery gain 60,000

Compensation expenses 60,000

Note: Para 53 (MFRS 137) The reimbursement shall be treated as a separate asset. However, In
the statement of comprehensive income, the expense relating to a provision may be
presented net of the amount recognised for a reimbursement (para 54 of MFRS 137).
(5 marks)
(Total: 20 marks)

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 SOLUTION/FAR460/AUG 2021/SET 1

QUESTION 4

a. Statement of cash flows

Sri Alam Bhd.

Statement of Cash Flows for the year ended 30 June 2019

RM’000 RM’000
Cash flows from operating activities:
Cash received from customers 14,004
Cash payment to suppliers (6,800)
Cash payments for expenses and employees (1,400)
Cash generated from operation 5,804
Interest paid (900)
Income tax paid (600+1,300-900) (1,000)
Net cash flows from operating activities 3,904

Cash flows from investing activities:

Purchase of PPE (4260-490-914-6550) (3,694)
Proceeds from sale of equipment 340
Acquisition of IA (1200-400-1710) (910)
Proceeds from sale of intangible asset (400 + 60) 460
Acquisition of BA (800-50-1030) (280)
Acquisition of investment property (1600-100) (1,500)
Interest income received 640
Net cash flows from investing activities (4,944)

Cash flows from financing activities:

Proceeds from issuance of SC (4000-3200) 800
Proceeds from bank loan (1100-880) 220
Dividend paid (600+1200-1200) (600)
Net cash flows from financing activities 420

Net decrease in cash and cash equivalent (620)

Cash and cash equivalent beginning of year 1,400
Cash and cash equivalent end of year 780
(42 / x ½ = 21 marks)

Direct method Indirect method

Disclose cash receipts from Starting with profit before tax and adjusted for non-cash
customers transactions and income or expenses associated with investing
and financing activities /
Disclose cash payments for suppliers, Disclose the cash flows movement for working capital changes
other expenses and employees

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 SOLUTION/FAR460/AUG 2021/SET 1

Workings:

Trade Receivable
RM’000 RM’000
Balance b/d 280 Bank 14,004
Sales 14,124 Balance b/d 400

Inventories
RM’000 RM’000
Balance b/d 640 COS 6,000
Purchases 6,400 Balance b/d 1,040

Trade Payable
RM’000 RM’000
Bank 6,800 Balance b/d 1,100
Balance c/d 700 Purchases 6,400

Tax payable
RM’000 RM’000
Bank 1,000 Balance b/d 600
Balance c/d 900 SOPL 1,300

Property, plant and equipment

RM’000 RM’000
Balance b/d 4,260 Disposal 490
Bank 3,694 Depreciation 914
Balance c/d 6,550

Intangible Assets
RM’000 RM’000
Balance b/d 1,200 Disposal 400
Bank 910 Balance c/d 1,710

Biological Assets
RM’000 RM’000
Balance b/d 800 FV Loss 50
Bank 280 Balance c/d 1,030

Dividend payable
RM’000 RM’000
Bank 600 Balance b/d 600
Balance c/d 1,200 P/L 1,200

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b. The main differences between direct method and indirect method:

• The main difference is only for operating activities

Direct method Indirect method

Disclose cash receipts from customers Starting with profit before tax and
adjusted for non-cash transactions and
income or expenses associated with
investing and financing activities

Disclose cash payments for suppliers, Disclose the cash flows movement for
other expenses and employees working capital changes

(4 Marks)
(Total: 25 Marks)

END OF SOLUTION