AC/JAN 2024/FAR270

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE FINANCIAL ACCOUNTING 4

COURSE CODE FAR270
EXAMINATION JANUARY 2024
TIME 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions.

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) an Answer Booklet - provided by the Faculty

Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 8 pages
> Hak Cipta Universiti Teknologi MARA
 2 AC/JAN 2024/FAR270

QUESTION 1

AMG Bhd is a public listed company that manufactures medical equipment and supplies. The
following is the trial balance of AMG Bhd as at 31 December 2022. The financial statements
are expected to be authorized for issue on 30 April 2023.

Debit Credit
RM'000 RM'000
Ordinary share capital 122,000
Ordinary share interim dividends 6,800
Revenues 276,505
Cost of sales 106,520
Administrative costs 16,280
Selling and distribution costs 9,500
Finance costs 720
8% bank loan 9,000
Trade payable 35,600
Trade receivable 13,275
Maintenance costs 1,420
Income from investments 4,500
Rental income 860
Inventories as at 31 December 2022 12,500
Investment properties valuation as at 1 January 2022 5,000
Freehold property valuation as at 1 January 2022 20,000
Long term investments 21,000
Building at cost - 1 January 2022 100,000
Land at valuation - 1 January 2022 85,000
Plant and equipment at cost - 1 January 2022 80,000
Accumulated depreciation as at 1 January 2022
- Building 6,000
- Plant and equipment 16,000
- Freehold property 4,000
Tax paid 25,000
Retained earnings as at 1 January 2022 44,900
Bank 16,350
519,365 519,365

Additional information:

1. Included in the sales revenue was RM250.000 cash received in advance from Sinar Sdn
Bhd for the goods to be sent on 7 January 2023. As at 1 March 2023, inventories costing
RM4,000,000 was sold for RM3,500,000.

2. During the current year, AMG Bhd discovered the maintenance expense of
RM2,200,000 incurred in the previous year were not recorded and yet to be paid.

© Hak Cipta Universiti Teknologi MARA

 3 AC/JAN 2024/FAR270

3. During the year, depreciation is to be provided as follows:

Building 2% per annum on cost.

Plant and equipment 10% per annum on carrying value.

The land was revalued at RM84,000,000 on 31 December 2022, and the Board of
Directors resolved to record this updated value in the company's accounting records.

4. On 1 January 2022, the freehold property was revalued to RM 18,000,000. The

remaining useful life of the freehold property on 1 January 2022 was 40 years and
depreciated on a straight-line basis. No adjustment has been made for this transaction.

5. The investment property listed is a building which has a remaining useful life of 10 years
on 1 January 2022 and is measured using fair value model. The fair value of the building
as of 31 December 2022 was RM4,500,000.

6. Tax expense for the year determined to be RM26,000,000.

7. On 2 January 2023, a part of company's properties was damaged by heavy floods. The
loss was estimated at RM235.000.

8. In 2022, AMG Bhd faced legal action from one of its employees who alleged that the
company failed to provide a safe working environment, resulting in the loss of his left
leg. The employee sought compensation of RM 1,000,000. AMG Bhd's legal advisor
acknowledged that the company would be held responsible for the incident.

Required:

Prepare the following financial statements for the company in compliance with the Companies
Act 2016 and the relevant financial reporting standards:

a. Statement of Profit or Loss and Other Comprehensive Income for the year ended 31
December 2022.
(13 marks)

b. Statement of Changes in Equity for the year ended 31 December 2022.

(3 marks)

c. Statement of Financial Position as at 31 December 2022.

(9 marks)

d. The following notes to accompany the above statements.

i. Property, plant and equipment

ii. Capital commitments or contingent liabilities (if any).
(5 marks)
(Total: 30 marks)

© Hak Cipta Universiti Teknologi MARA

 4 AC/JAN 2024/FAR270

QUESTION 2

A. Wathiqa Bhd acquired a building situated in Kuantan at a cost of RM 15,000,000. The

building is currently unoccupied but is held to be leased out under one or more operating
leases. In addition, the company also owns another building in Pekan at a cost of
RM 12,500,000. Presently, the building in Pekan is occupied by some workers employed
by the entity as their working accommodations.

Required:

Identify whether each building above can be classified as an investment property in

accordance with MFRS 140 Investment Property.
(2 marks)

B. On 1 January 2022, Kilau Bhd acquired a 15-floor building at a total cost of

RM25,000,000. The company occupied the top floor of the building as its own office and
rented out the other 14 floors to Bahaman Bhd starting 1 March 2022 under an operating
lease arrangement. Bahaman Bhd used the building to run a hotel business and paid a
monthly rental of RM200,000. Kilau Bhd also provided some insignificant ancillary
services at a cost of RM36.000 per annum to support the operation of its lessee's
business. The floors of the building cannot be sold separately.

On 31 December 2022, the fair value of the building was RM26,300,000. The economic
life of the building is 50 years and the company adopts a fair value model in its
subsequent measurement of investment property. Financial year of Kilau Bhd ends on
31 December every year.

Required:

i. Discuss the accounting treatment of the 15-floor building for the year ended 31
December 2022.
(4 marks)

ii. Prepare the Statement of Profit or Loss (extract) for the year ended 31 December
2022 and the Statement of Financial Position (extract) as at 31 December 2022 to
record the above transactions for Kilau Bhd.
(5 marks)

C. On 1 July 2018, Lebaran Bhd purchased a building at a cost of RM4,000,000. The

building was immediately rented out to various tenants, earning a rental income of
RM20.000 per month. As part of the company's restructuring plan, the directors of
Lebaran Bhd decided to use the building as its administration office with effect from 1
July 2021. The fair value of the building on that date was RM5,500,000.

The building has an estimated useful life of 40 years. The company adopts the fair value
model to measure its investment property and revaluation model to measure its property,
plant and equipment. The financial year end of Lebaran Bhd is on 30 June every year.

© Hak Cipta Universiti Teknologi MARA

 5 AC/JAN 2024/FAR270

Required:

Advise Lebaran Bhd on the accounting treatment of the building on the date of transfer.
(5 marks)
(Total: 16 marks)

QUESTION 3

A. One of the major revenue recognition issues is bill-and-hold sales. Bill-and hold sales
occur when the buyer is not yet ready to take delivery but does take the title and accepts
billing.

Required:

List FOUR (4) criteria that must be met to recognise revenue of bill-and-hold sales.
(4 marks)

B. FD Electronic Bhd is an established company that manufactures and sells electronic

devices, located in Gurun, Kedah. The company has various revenue streams, including
the sale of electronic gadgets, extended warranties and maintenance services.

On 1 July 2023, FD Electronic Bhd entered into a contract with a customer, AG Sdn Bhd,
to provide a bundle of products and services which includes an electronic device with
one year warranty, 1-year maintenance service and 2-year extended warranty for a total
contract price of RM 100,000. FD Electronic Bhd has a policy on the consideration
receive in which the customers need to pay 50% of the total contract price when placing
an order. Thus, AG Sdn Bhd made half payment of the contract price on 15 July 2023.

The following goods and services are identical on a separate basis, and the costs are
as follow:

Goods and services Stand-alone price (RM)

Electronic device with one year warranty 86,000
Maintenance service per year 12,000
Optional 2-year extended warranty 8,000

The electronic device was successfully delivered to AG Sdn Bhd on 1 August 2023. FD
Electronic Bhd provided the maintenance service evenly over one-year service period.
The extended warranty covers the device for two additional years beyond the initial
warranty period.

The current financial year end of the company is 31 December 2023.

Required:

i. Discuss the accounting treatment of these transactions by FD Electronic Bhd for

the year ended 31 December 2023 using the five-step model in accordance with
MFRS 15 Revenue from Contract with Customers.
(10 marks)
© Hak Cipta Universiti Teknologi MARA
 6 AC/JAN 2024/FAR270

ii. Journalise the transactions above for the year ended 31 December 2023.
(4 marks)

C. On 25 August 2023, Hektar Sdn Bhd, a wholesaler company selling imported light
agricultural machinery, delivered 100 mist blower machines to AgriMart Trading, a farm
supply dealer in Tanjung Karang, Selangor on a consignment basis. On 26 November
2023, AgriMart Trading sold 60 of the consigned mist blower machines at RM1,300 per
unit. AgriMart Trading notifies Hektar Sdn Bhd about the sales, retains a 10%
commission, and remits the cash due to Hektar Sdn Bhd.

Required:

Discuss the appropriate accounting treatment of the revenue under the consignment
arrangement for Hektar Sdn Bhd on 26 November 2023.
(4 marks)
(Total: 22 marks)

QUESTION 4

A. In principle, the two ways that a company may apply to incorporate the effects of
changes in accounting policy, estimates and errors are retrospective application and
prospective application:

Required:

State the difference between retrospective application and prospective application.

(4 marks)

B. Soreno Bhd has the following economic events which need to be accounted for in the
financial statements for the year ended 31 December 2022.

i. On 1 January 2023, the company decided to revise the remaining useful life of its
machinery from 12 years to 9 years. The carrying amount of the machinery on that
date was RM450.000.

ii. It was discovered in the current year that a credit sale amounted to RM150,000 in
2021 was not recorded. However, the closing inventory had been deducted
accordingly.

iii. Upon finalising the current year transactions, it was found out that one of the trade
receivables, Kombucha Sdn Bhd was declared bankrupt. The amount owing by
Kombucha Sdn Bhd which amounted to RM245.000 was included as part of the
trade receivables amount.

Required:

a. For each of the above situations, identify whether it is a change in accounting

policy, a change in accounting estimates or an error (prior year error/current year
error).
(3 marks)
© Hak Cipta Universiti Teknologi MARA
 7 AC/JAN 2024/FAR270

b. Prepare the necessary journal entries to record the effect of the above transactions
for the year ended 31 December 2022. Show relevant calculations.
(6 marks)

c. Recalculate the opening balance of retained earnings as at 1 January 2022.The

retained earnings as at 1 January 2022 was RM 1,997,000.
(3 marks)
(Total: 16 marks)

QUESTION 5

A. The objective of MFRS 137 Provisions, Contingent Liabilities and Contingent Assets is
to ensure that appropriate recognition criteria and measurement bases are applied to
provisions, contingent liabilities and contingent assets and that sufficient information is
disclosed in the notes to enable users to understand their nature, timing and amount.

Required:

Identify whether a provision should be recognized in each of the following situations:

i. Namros Bhd is in the business of selling cars. During the current year, the
company sold 10,000 units of cars which come with a three-year warranty. It is
estimated that the company will incur cost of RM5,000 for 100 units of the cars
sold due to defect.

ii. It is the practice of the company to pay annual bonus to its employees even though
it is not stipulated in any written contract.

iii. A retail store has a policy of refunding purchases from dissatisfied customers and
its policy of making refund is generally known to the public.

iv. NatureRig Bhd is an oil exploratory company. It causes contamination but currently
there is no statutory requirement by the regulatory authority to clean up the
contaminated area.
(4 marks)

B. Anjung Bhd is preparing its financial statements for the year ended 30 June 2023. The
following matters are all outstanding at the year-end:

1. During the year ended 30 June 2023, one of Anjung Bhd's employees was injured
while working. The employee took legal action and sought damages of
RM500,000. Anjung Bhd has taken legal advice and is confident that the company
will be held liable, but the amount payable is questionable.

2. Anjung Bhd has been practicing a policy of allowing customers to return goods
within 10 days after sales. Anjung Bhd estimates that such returns usually amount
to 2% of sales. Sales for the year ended 30 June 2023 were RM1,800,000.

© Hak Cipta Universiti Teknologi MARA

 8 AC/JAN 2024/FAR270

3. Anjung Bhd was facing litigation for damages from a customer for the supply of
faulty goods on 1 June 2023. The amount of the claim was RM30,000. Anjung
Bhd's legal advisors considered that Anjung Bhd was liable and that it was
probable that the company will lose the case. The case is expected to be settled
within one year.

Required:

a. Advise the appropriate accounting treatment in accordance with MFRS 137

Provisions, Contingent Liabilities and Contingent Assets for the above events.
(8 marks)

b. Construct the following extracts of financial statements in respect of the above

transactions:

i. Statement of profit or loss for the year ended 30 June 2023.

ii. Statement of financial position as at 30 June 2023.

(4 marks)
(Total: 16 marks)

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA