CONFIDENTIAL 1 AC/FEB 2022/FAR270

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : FINANCIAL ACCOUNTING 4

COURSE CODE : FAR270
EXAMINATION : FEBRUARY 2022
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

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

2. Answer ALL questions in English.

3. Please submit your HANDWRITTEN answers in ONE (1) pdf file.

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

This examination paper consists of 8 pages
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QUESTION 1

Marchunk Bhd is a company manufacturing varieties of drinks located in Northern Malaysia.

The financial year of Marchunk Bhd ends on 31 December each year. The directors
authorised the financial statements for issue on 31 March 2021. The following trial balance
was extracted from the company’s books at the end of 31 December 2020.

Debit (RM) Credit (RM)

Revenue 221,692,500
Cost of sales 76,650,000
Ordinary share capital 83,454,250
Retained earnings as at 1 January 2020 72,937,500
Asset revaluation reserve 100,000
Interim ordinary dividend 600,000
Investments income 49,500
Administration expenses 55,185,000
Research and development 900,000
Interest on debentures 3,000,000
Freehold land 67,400,000
Property, plant and equipment at cost:
Buildings 58,350,000
Plant and machinery 40,192,500
Accumulated depreciation as at 1 January 2020:
Buildings 5,625,000
Plant and machinery 3,997,500
Selling and distribution costs 16,773,750
Audit fees 502,500
Bank and cash balances 39,000,000
Inventories 17,456,250
Long-term investments 495,000
Sales commission 213,750
Tax paid 3,600,000
Long term loan from Hutank Bank 9,712,500
Allowance for impairment trade receivables 217,500
Trade receivables and payables 22,717,500 5,250,000
403,036,250 403,036,250

Additional information:

1. The revenue figure above includes credit sales amounted to RM1,200,000 worth of
goods which were delivered on 6 January 2021. These goods were included in the
closing inventories.

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2. It is the company’s policy to depreciate its property, plant and equipment on a yearly
basis based on the following rates:

Buildings 5% on cost
Plant and machinery 10% on carrying value

On 31 December 2020, the freehold land was valued at RM67,250,000. The directors
decided to incorporate the revalued amount in the books of account. It is the
company’s policy to measure the land using revaluation model. Meanwhile, the
building and plant and machinery were measured based on cost model.

3. In April 2020, one of the customers took a legal action against the company for
breach of contract that caused the customer’s loss. The legal advisor of the company
was in the opinion that the company will be held liable for the sue, hence the
company needs to pay RM320,000. No payment has been made as at 31 December
2020.

4. On 25 September 2020, one of the customers who owed Marchunk Bhd RM150,000
went missing. Several reminders had been sent but the company was still unable to
trace the customer. None of the amount was expected to be recovered by the
company.

5. The taxation expense for the year was estimated to be RM3,900,000 and there was
still an outstanding audit fees of RM58,000.

6. On 30 November 2020, Marchunk Bhd entered into a contract with XZZ Machines
Bhd to purchase a high-technology machine worth RM3,800,000.

7. A cash sale on 1 December 2020 amounted to RM5,000 was wrongly recorded as

credit sales by the new account clerk.

Required:

Prepare the following financial statements in a form suitable for publication, in compliance
with the Companies Act 2016 and in relation to the relevant Malaysian Financial Reporting
Standards:

a. Statement of Profit or Loss and Other Comprehensive Income for the year ended 31
December 2020.
(12 marks)

b. Statement of Changes in Equity for the year ended 31 December 2020.

(3 marks)

c. Statement of Financial Position as at 31 December 2020.

(10 marks)

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d. The following notes accompany the above statements:

i. Property, plant and equipment

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

QUESTION 2

A. MFRS 140 Investment Property is defined as land or building, or part of building or

both which are held to earn rentals or for capital appreciation or both and not for use
in the production or supply of goods or services or for administrative purpose, or sale
in the ordinary course of business. Some property owners who let out their properties
to tenants also provide ancillary services.

Required:

Describe whether rented properties that provide ancillary services can be recognised
as investment property according to MFRS 140 Investment Property.
(2 marks)

B. Anabina Bhd developed a 15-storey building which was completed on 30 September

2019. The building was completed with the total construction cost of RM10,000,000.
Anabina Bhd uses the top floor as its own office and rents the other 14 floors to
Astrazanika Bhd, a non-subsidiary entity, starting 1 October 2019 under an operating
lease arrangement. Astrazanika Bhd uses that building to run a hotel business and
paid a monthly rental of RM200,000. Anabina Bhd provides some insignificant
ancillary services in the business operation of Astrazanika at a cost of RM2,000 per
month. The floors of the building cannot be sold separately. The economic life of the
building is 30 years, and Anabina Bhd adopts a fair value model in its subsequent
measurement of investment property.

Required:

i. Discuss the accounting treatment of the building for the year ended 30 June
2020 in accordance with MFRS 140 Investment Property.
(4 marks)

ii. Prepare the journal entries for the year ended 30 June 2020.
(5 marks)

C. Selasih Bhd owns a building which was rented out to an engineering firm under an
operating lease. The building was purchased on 1 January 2016 with a useful life of
30 years. The carrying value of the building on 31 March 2020 was RM2,500,000. On
1 April 2020, Selasih Bhd decided to use the building as its own office. The fair value
of the building on that date was increased by 20% from its carrying value. It is the
policy of the company to use the revaluation model to measure its property, plant and
equipment and fair value model for its investment property.

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Required:

Advise Selasih Bhd on the accounting treatment of the transfer from investment
property to owner-occupied property on 1 April 2020 in accordance with MFRS 140
Investment Property.
(5 marks)
(Total: 16 marks)

QUESTION 3

A. Describe THREE (3) criteria for an entity to recognise revenue after the entity
satisfies the performance obligation and transfers control of good or services over
time in accordance with MFRS 15 Revenue from Contract with Customer.
(4 marks)

B. Hoowayu Bhd is a software company which operates as a provider of software and

services to customers. On 1 Mac 2020, the company entered into a contract with
Northstar Bhd to provide professional services consisting of customised installation
and one year post installation support service for specialised software bought by
Northstar Bhd from another company. Besides that, Northstar Bhd also purchase
common software from Hoowayu Bhd. As a means of attracting increasing sale,
Hoowayu Bhd offers package of RM218,000 for all the offers.

Both common and specialised softwares were successfully installed on 1 April 2020.
Hoowayu Bhd normally charged RM85,000 for the installed common software. The
stand-alone price for the customised installation and post installation specialised
software was RM152,000 and RM5,000 respectively.

As at year end 30 June 2020, Hoowayu Bhd received full payment from Northstar
Bhd by cheque for the package.

Required:

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

the year ended 30 June 2020 using the five-step model in accordance with
MFRS 15 Revenue from Contract with Customers.
(10 marks)

ii. Journalise the transactions above for the year ended 30 June 2020.
(4 marks)

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C. Juara Glassware Bhd is a leading company selling glassware in Malaysian market.

The company enters into a contract to appoint Houzdeco Bhd to act as its agent in
distributing the product to its reseller. The contract specified that Houzdeco Bhd is
entitled for 18% profit margin. Houzdeco Bhd needs to order the glassware based on
specific quantity specified from Juara Glassware Bhd for each glassware ordered.

Required:

Discuss briefly the accounting treatment on the recognition of revenue from both
perspectives of Juara Glassware Bhd and Houzdeco Bhd.
(4 marks)
(Total: 22 marks)

QUESTION 4

A. Some items in the financial statements are using estimation as there are various
uncertainties inherent in business activities. The estimation involves judgement
based on the most recent available information that is reliable. The use of reasonable
estimation is acceptable and does not undermine reliability.

Required:

Describe the rule to apply the change in accounting estimates as stipulated in the
MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors.
(4 marks)

B. You are the chief accountant at Clippers Bhd. Narimah, the accounts officer, has
brought to you the following matters on the financial statements for the year ended
30 June 2020;

i. It was discovered that some of the inventories sold on 1 March 2019 were
included in the inventories’ account for the year ended 30 June 2020. As a
result, the inventories were overstated by RM250,000.

ii. Clippers Bhd acquired a machine on 1 July 2016. Due to proper maintenance
of the machine, no depreciation has been provided. The annual depreciation
charge per annum should be RM1,000,000.

iii. In the year 2020, Clippers Bhd decided to revise the rate of allowance for
impairment of trade receivable from 4% to 6% due to the current economic
conditions. For the year ended 2020, the account receivables showed an
amount of RM100,000 while the opening balance of allowance for impairment
trade receivables account was RM3,200.

The retained earnings as at 1 July 2019 was RM8,750,000.

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Required:

In accordance with MFRS 108 Accounting Policies, Changes in Accounting

Estimates and Errors;

a. Indicate whether it is a change in accounting policy, a change in accounting

estimates or an error for each of the above situations.
(3 marks)

b. Prepare the necessary journal entries to rectify the situations above for the
year ended 30 June 2020. Show the relevant calculation.
(6 marks)

c. Recalculate the opening balance of retained earnings as at 1 July 2019.

(3 marks)
(Total: 16 marks)

QUESTION 5

A. MFRS 137 Provisions, Contingent Liabilities and Contingent Assets classifies

obligation as either legal or constructive.

Required:

Differentiate between legal obligation and constructive obligation.

(4 marks)

B. Given below are situations that are independent of each other. For all situations, the
financial year end is 30 June 2020.

i. Mamora Bhd issues a one-year guarantee on equipment that it sells to its

customers. At the company's year end, the company was sued by one of its
customers for refusing to repair an equipment within the guarantee period.
Mamora Bhd is of the view that the fault is not covered by the guarantee as it
believes that the problem has arisen because the customer had incorrectly
followed the instructions on using the equipment. Mamora Bhd’s company
lawyer has advised that it is more likely than not that they will be found liable.
This would result in the company being forced to repair the equipment and
pay for the legal expenses amounting to approximately RM20,000.

ii. Kitari Bhd operates in the recycling industry. In February 2020, it inadvertently
released poisonous gases into the air which caused a number of local
residents to become ill. A law firm representing the affected residents has
submitted a compensation claim to the entity for pain and suffering of
RM5,000 per affected resident. There was a total of 15 residents affected.
The court hearing is scheduled to occur sometime over the next six months.
The company’s legal advisor suggested that the company is very likely to win
the case as this was an accident and no one has been seriously harmed as a
result.
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Required:

a. Advise the company on the accounting treatment for the above situations in
accordance with MFRS 137 Provisions, Contingent Liabilities and Contingent
Assets.
(8 marks)

b. Prepare the journal entries or relevant notes to financial statements for the
above situations.
(4 marks)
(Total: 16 marks)

END OF QUESTION PAPER

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