COMMON TEST (FAR 410)

SOLUTION OCT 2018

PART A

1. C
2. D
3. B
4. B
5. A
6. C
7. A
8. C
9. B
10. D

(Total: 10 marks)

PART B
QUESTION 1

a) The three (3) objectives of financial reporting are:

• To provide information to comply with laws and other regulations √

• To provide information to all users, including meeting the social needs of society √
• To provide information to specific groups of users √
(3 √ x 1 mark = 3 marks)

b) Yes, Alifbata Teak Berhad should recognised the purchase of land as an asset in accordance
with MASB Conceptual Framework √ besause :
• Alifbata Teak Berhad had controlled over the land since they have ownership and
legal rights. √
• Alifbata Teak Berhad bought the asset in 2016 and this is refers to as result from past
event. √
• Economic benefits of the land is probable and will flow into the business when the
company resale the land. √
(4 √ x 1 mark = 4 marks)

c) Information regarding the purchase of land would be useful to Utama Bank on approving the
loan application because :
• To assess the entity’s prospects for future net cash inflows, Utama Bank needs
information about the resources of the entity and claims against the entity. √
• Utama Bank needs to know how efficiently and effectively the entity’s management
and governing board have discharged their responsibilities to use the entity’s
resources. √
• The land was purchased for investment purpose by the entity. √
• Utama Bank needs to know that the purchase of land indirectly will generate cash
inflow to the company and is expected to increase the profit of the company. √
( any 3 √ x 1 mark = 3 marks)

d) The sale transaction between Alifbata Teak Berhad and Rumbia Resort can be recorded as
revenue because it met the definition of revenue that is recognition of revenue will increase
assets or decrease liabilities √ . When the sale transaction occurred, account receivable was
created since the sale was made on credit √. Even though, the payment is yet to be received
but we can say that there is an increase in assets because account receivable is an asset √.
(3 √ x 1 mark = 3 marks)
e) For the information to be relevant, it should be material enough to be disclosed √ . The
information is material if omitting it or misstating it could influence decisions of the primary
users of general purpose financial reporting √. The accounting policy of Alifbata Teak Berhad
stated that any financial figure more than RM50,000 is considered to be material. Since, the
total loss from the fire incident is RM100,000 which is higher than RM50,000, thus it should
be disclosed to their shareholders √. The non-disclosure of the information could mislead the
decision making of the investors √.
(4 √ x 1 mark = 4 marks)

f) Going Concern Concept is when financial statements are normally prepared on the
assumption that the reporting entity is a going concern and will continue in operation for a
foreseeable future √. Hence, it is assumed that the entity has neither the intention nor the
need to enter into liquidation or to cease trading √. If such an intention or need exists, the
financial statements may have to be prepared on a different basis √. If so, the financial
statements need to describe the basis used.
(3 √ x 1 mark = 3 marks)
(Total: 20 marks)

QUESTION 2

a. Asset is define as a resource controlled by an entity as a result of past event and from which
future economic benefits are expected to flow to the entity √. Therefore, shares repurchased
and held in treasury do not satisfy the recognition criteria of an asset √. The shares
repurchases must be retired by a cancellation or by set-off against the equity of the company
√.
(3 √ x 1 mark = 3 marks)

b.

No Particular Debit (RM) Credit (RM)

1. Dr Bank 5,950,000 √
Dr Share issue expense 50,000√
Cr Contributed Share Capital (2,000,000 x RM3) 6,000,000√

Dr Retained Profits 50,000√

Cr Share issue expense 50,000√

2. Dr Bank 5,000,000√
Cr Contributed Share Capital (2,500,000 x RM2) 5,000,000√

3. Dr Bank (1,600,000 x RM2) 3,200,000√

Cr Contributed Share Capital (1,600,000 x RM2) 3,200,000√

4. Dr Contributed Share Capital [(25,000 x 5)+1,000] x 60% 75,600√

Dr Treasury Shares [(25,000 x 5)+1,000] x 40% 50,400√
Cr Bank 126,000√

Dr Retained Profits 75,600√

Cr Contributed Share Capital 75,600√

(14√ x ½ =7 marks)
c.
Rasa Raya Berhad
Statement of Financial Position (extract) as at 31 July 2018 /

Non Current Assets

Property, Plant and Equipment 12,000,000 /
Other current assets 9,000,000 /
Bank (8,000+5,950+5,000+3,200-126) 22,024,000 ////
43,024,000

Issued and fully paid-up

11,575,000 /// Ordinary Shares (16,000+6,000+3,200) 25,200,000 //

Treasury Shares (50,400) //

3,500,000 / Preference Shares (4,000+5,000) 9,000,000 //

Retained Earnings (7,000-50-75.6) 6,874,400 //

General Reserve 2,000,000 /

43,024,000

(20/ x ½ = 10 marks)
(Total: 20 marks)