Semester 1 2022-23

ACC 2203 FAR 3

Mid-Term Test (2 1/2 hours)

Friday, 11 November 2022 (10am – 12noon)

Please answer all of the following questions on a separate sheet of paper.

___________________________________________________________________________

QUESTION 1

Question 1(a)

The management of Swades Bhd. seeks advice from you concerning the recognition and
measurement requirements (provide reasoning/rational whenever possible) of the following
financial instruments transactions, in accordance with MFRS 9:

I. Issuance of RM800,000 million 5% convertible bond with a 5 year maturity period.

(5 marks)

II. Investment in equity shares that has an active market in which, the entity intends to earn
short term profits. A commission fee was incurred for this investment as the company trades
on these types of instruments through the assistance of a broker.
(3 marks)

III. Issue of 200,000 units of ordinary shares at a price of RM1 per share.
(2.5 marks)

IV. Issued 100 million 5% Redeemable Preference Shares at an issue price of 95 sen per share
and incurring transaction costs amounted to RM 1million.
(2 marks)

Question 1(b)
The management of Swades Bhd. also seeks advice on how to measure the value of some of its
non-financial assets that do not have a principal market and whose input for setting the price is
not observable. Briefly advise management on this matter.
(2.5 marks)

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 Question 1(c)
The management of Swades Bhd. further seeks a clarification on the valuation techniques
allowed by the approved financial accounting standards when measuring fair value. Briefly
explain to the management the various valuation techniques and approaches which underlie the
respective techniques.
(6 marks)

Question 1(d)

The management of Swades Bhd. then asks the following questions concerning the Fair Value
Hierarchy under which the inputs to valuation techniques used to measure fair value:

I. What are the categories of levels of inputs of the hierarchy? (3 marks)

II. What are the likely hierarchy level for the inputs below based on your opinion? (3 marks)

Input types Likely hierarchy level

Quoted shares in a company traded on a major and active ?

stock exchange

Investment property valued using observable price per ?

square meter for similar properties with adjustments for
specific features

Unquoted shares in an unquoted private company, for ?

which valuation are mainly based on various
unobservable data

(Sub-Total = 27 Marks)

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QUESTION 2

On 1 Jan 2022, Router Bhd. acquired 10,000 shares of BigPay Bhd. at a quoted price of
RM55,000. The shares were to be held for trading acquisition and the acquisition gave rise to
some transaction costs amounted RM500. The payment for this purchase to BigPay Bhd. was
agreed to be made by Router Bhd. in the form of:

 Cash of RM5,000
 The company’s land located in Penang. The initial cost of the land when initially
purchased a few years ago was RM40,000. The land value however had increased over
the years due to the continuous developments that were made surrounding its location.

On 31 December 2022, the share price of BigPay Bhd. suffered a reduction in value by 1%
following the effect from a conflict that existed among the senior management of the company.

Required:
(a) Prepare the journal entries to record the above transactions (with narrations) for the year
2020
(4 marks)
(b) Suppose the intention and objective of Router Bhd. business model for managing the
acquisition of the shares instrument was not for trading but instead, it was to collect the
contractual cash flows as well as for a long term strategic planning purposes.
(Assume payment term for the acquisition remained the same).

 Explain how is it that in this scenario should Router Bhd. recognise its acquisition of the
10,000 shares of BigPay Bhd.
(2 marks)
 Show the journal entries (with narrations) to record the relevant transactions for the year
2022 following the acquisition of shares as in part (b).
(4 marks)
(c) The management of Router Bhd. is unclear about the rule and/or accounting implication
should there be a change in the company’s business model for managing its financial assets or
liabilities. Briefly clarify this matter to the management in accordance with MFRS 9.

(3 marks)
(Sub-total = 13 marks)

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QUESTION 3

On 1July 2021, Lizzie Bhd issued 5000 three year term convertible loan stock with a face value
of RM1,000 per loan stock. Each loan stock could be convertible into 50 equity shares of
Lizzie Bhd. at any time up to maturity. Interest is payable in arrears on 31 December at a
nominal rate of 8% p.a. When the convertible loan stocks were issued, the prevailing market
rate for similar debt without conversion options was 12%. Below is the information on the
discount rates for 5-year period:

Year 8% 9% 10% 11% 12%

1. 0.9259 0.9174 0.9091 0.9009 0.8929
2. 0.8573 0.8417 0.8264 0.8116 0.7972
3. 0.7938 0.7722 0.7513 0.7312 0.7118
4. 0.7350 0.7084 0.6830 0.6585 0.6355
5. 0.6804 0.6499 0.6209 0.5935 0.5674

Required:
a) Show the journal entries to record the relevant transactions related to the issue of
convertible loan stocks above for the year 2021, in accordance with the approved financial
accounting and reporting standards, MFRS 9 and MFRS 132.
(6 marks)

(b) Suppose the company converted half of the loan stocks into ordinary shares and redeemed
the balance at par. Show the relevant journal entries to record those transactions.
(4 marks)
(Sub-total = 10 marks)
[TOTAL = 50 MARKS]

END OF QUESTIONS