CONFIDENTIAL 1 AC/JULY 2021/FAR270

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION
ANSWER SCHEME

COURSE : FINANCIAL ACCOUNTING 4

COURSE CODE : FAR270
EXAMINATION : JULY 2021

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SOLUTION 1

a.
Vicenzo Bhd
Statement of Profit or Loss and Other Comprehensive Income for the year
ended 31 December 2020
Note RM’000
Revenue (410,390k + 80k) 410,470 √√
Cost of Sales (209,000k + 2,000k) (211,000) √√
Gross Profit 199,470
Administrative expenses (W1) (80,067.7) 12√
Selling and distribution expenses (17,020) √
Increase in FV of IP (6,500k – 6,000k) 500 √√
Profit from operation 102,882.3
Finance expenses (2,835) √
Investment Income 540 √
Profit before tax 100,587.3
Income tax expense (7,500) √
Profit for the year 93,087.3 √
Other Comprehensive Income:
Surplus on revaluation on land (20,300k–19,800k) 500 √√
Total Comprehensive Income for the year√ 93,587.3
(26√ x ½ mark = 13 marks)

W1: Administrative expenses RM’000

As per trial balance 78,370
Directors’ fees 495√
Loss on disposal of machine 500k√ – [(500kx0.1) √ + 405
(500k x 0.9 x 0.1)√]
Depreciation – Building (10,000k/50y) √√ 200
Depreciation – P&M 597.7
[(8,000k√+550k√–500k√) – (2,168k√-95k√)] x 0.1√
80,067.7

b.

Vicenzo Bhd
Statement of Changes in Equity for the year ended 31 December 2020
Ordinary ARR Retained profits
Shares Total
RM’000 RM’000 RM’000 RM’000
Balance at 1/1/2020 385,000√ 800√ 40,254√
Surplus on land 500√
Profit for the year √ 93,087.3
Balance at 31/12/2020 √ 385,000 1,300 133,341.3 519,641.3
(6√ x ½ mark = 3 marks)

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Vicenzo Bhd
Statement of Financial Position as at 31 December 2020
Note RM
Non-current assets
Property, plant & equipment √ 1 33,479.3
Investment property (6,000k + 500k) 6,500 √√
Investments 256,850 √

Current assets
Bank (196,502k – 550k) 195,952 √√
Inventories (39,000k – 2,000k) 37,000 √√
Trade receivables (49,500k + 80k – 440k) 49,140√√
Less: AFITR (1,980k – 440k) (1,540) √√ 47,600
TOTAL ASSETS 577,381.3

Equity
Share capital√ 385,000
Reserves√ (1300k + 133,341.3k) 134,641.3
Total Equity 519,641.3

Non-current liabilities
Long term loan 16,190 √

Current liabilities
Trade payables 41,250 √
Tax payable (7,500k – 7,200k) 300 √√

TOTAL EQUITY & LIABILITIES 577,381.3

(18√ x ½ = 9 marks)

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d. NOTES TO THE ACCOUNT

i. Property, Plant and Equipment

Land Building P&M Total

RM’000 RM’000 RM’000 RM’000
Cost/Valuation
As at 1/1/2020 √ 19,800 10,000 8,000
Surplus on revaluation 500 √of
Addition 550 √
Disposal (500) √
As at 31/12/2020 20,300 10,000 8,050

Accumulated depreciation
As at 1/1/2020 √ 2,000 2,168
Disposal (95) √of
Charge for the year 200 √of 597.7 √0f
As at 31/12/2020 0 2,200 2,670.7

Carrying amount √ 20,300 7,800 5,379.3 33,479.3

ii. Contingent liabilities

One of the customers sued the company for RM100,000 due to injuries suffered while
using an electrical appliance purchased from the company. √
(10√ x ½ mark = 5 marks)
(Total: 30 marks)

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SOLUTION 2

A. ii. Building leased to another company under a finance lease. √

iv. Property held for use in the production of goods. √

(2√ x 1 mark = 2 marks)

B. Accounting treatment of the building:

i. The building is classified as an investment property on 1 January 2018 at the initial

cost of RM8,590,000√√ (8,000,000+550,000+40,000). Since Sesedap Rasa Bhd has
adopted the fair value model for its investment properties, changes in their fair value
will be recognized in the statement of profit and loss. √ An increase in the fair value of
RM500,000√ on 31 December 2018 shall be credited to the statement of profit or loss√,
while a decrease of RM370,000√ on 31 December 2019 shall be written off in the
statement of profit or loss√. The building shall not be depreciated√.
(8 √ x ½ mark = 4 marks)
ii. Journal entries

2018 Dr Investment property √ RM 8,590,000

Cr Cash/ Payable RM 8,590,000

Dr Investment property √ RM 500,000

Cr SOPL – fair value gain √ RM 500,000

2019 Dr SOPL – fair value loss √ RM 370,000

Cr Investment property √ RM 370,000

(5 √ x 1 mark = 5 marks)

C. On 1 July 2020, there is a transfer from IP to PPE because there is a change in use from
rented property to owner-occupied property. √ Under MFRS 140 Investment Property, the
owner-occupied property will be measured at the fair value of the investment property of
RM8,660,000 on the date of the transfer on 1 July 2020 √. The difference between the fair
value at transfer date and the previous carrying amount of RM60,000 √ (RM8,720,000 –
RM8,660,000) is recognized in the statement of profit or loss as a fair value loss√. From
here onwards, the building shall be depreciated over its remaining useful life of 47.5
years√.
(5 √ x 1 mark = 5 marks)
(Total: 16 marks)

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SOLUTION 3

A.

1. the contract has been approved by the parties to the contract and are committed to
performing their respective obligations; √
2. each party’s rights in relation to the goods or services to be transferred can be
identified; √
3. the payment terms for the goods or services to be transferred can be identified; √
4. the contract has commercial substance; √ and
5. it is probable that the consideration to which the entity is entitled to in exchange for the
goods or services will be collected. √
(Any 4√ x 1 mark = 4 marks)

B.
a.
STEP 1: Identify the contract with a customer√
Zeneka Bhd signed a contract with Astral Bhd to sell a package of business
management solution on 1 February 2020. √

STEP 2: Identify the performance obligations in the contract√

There are 3 performance obligations in the contract:
1) Deliver the software√
2) The installation of the software√
3) Training on how to use the software√

STEP 3: Determine the transaction price√

The total transaction price is RM50,000√

STEP 4: Allocate the transaction price to the performance obligations in the

contract√
The transaction price allocated are as follows:
Performance Stand-alone Allocated transaction price (RM)
obligation selling price
(RM)
Software 48,000√ 48,000/54,000 x 50,000= 44,444.44√
Installation 1,000√ 1,000/54,000 x 50,000 = 925.93√
Training 5,000√ 5,000/54,000 x 50,000 = 4,629.63√
54,000 50,000

STEP 5: Recognize revenue when (or as) the entity satisfies the performance
obligation√

Revenue from sale of the business management software and installation should
be recognised upon delivery and completion of installation the accounting software
on 1 March 2020√ as the customer obtains control of that asset√. Service revenue
from the training is recognised on 10 June 2020 when the service is provided√ and
the performance obligation is satisfied√.
(20√ x ½ mark=10 marks)
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b.
Date Accounts Debit Credit
1/3/2020 Contract asset√ 45,370.37(of) √
Revenue from sales of software √ 44,444.44
Revenue from Installation√ 925.93

10/6/2020 Account receivables√ 50,000√

Contract asset√ 45,370.37
Revenue from Training√ 4,629.63

(8√ x ½ mark = 4 marks)

D. Based on MFRS15, it is determined that the relationship between Bawal Bling with the
distributors is not a consignment agreement. √ That is due to the followings:
(1√ x 1 mark)

i. The distributor has legal title to the products without any restrictions, √
ii. The distributor has an obligation to pay for the products when received √
iii. The distributors cannot return the products to Bawal Bling Bhd √
iv. Bawal Bling Bhd determines that control has transferred to the distributor when the
products are delivered. √
(any 3√ acceptable reasons x 1 mark)
(4√ x 1 mark = 4 marks)

(Total: 22 marks)

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SOLUTION 4

A.
a. Changes in accounting policy shall be adjusted retrospectively. √ The entity shall
adjust the opening balance of affected component of equity for earliest prior period
presented and the other comparative amounts disclosed for each prior period
presented if the new accounting policy had always been applied. √
(2√ x 1 mark = 2 marks)

b. Two situation of changes in accounting policies:

ii. Valuation method of inventories is changed from LIFO to Weighted Average. √
v. A change in measurement basis of investment property from cost model to fair
value model √

(2√ x 1 mark = 2 marks)

B. a.

i. Prospectively√
ii. Retrospectively√
iii. Retrospectively√

(3√ x 1 mark = 3 marks)

b. Accounting treatment
i. This is changes in accounting estimate. √ Adjustment should be done by
increasing the AFITR√ in SOFP by RM70,000√ [(4,000,000x8%)-250,000] and
record increase in AFITR in SOPL√ by RM70,000.
ii. This is a prior year error. √ The company should rectify the repair and
maintenance amount by capitalizing the RM50,000 in office equipment√ and
reduce retained earnings√ by the same amount. To rectify under depreciation
of office equipment, retained earnings should be reduced by RM5,000√ and
depreciation in SOPL should be increased by RM5,000√ The accumulated
depreciation also should be increased by RM10,000. √
iii. This is changes in accounting policy. √ The cumulative effect of the change is
adjusted through the opening balance of retained earnings. √
(12√ x ½ = 6 marks)

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c. Journal entry

(i)

DR SOPL/Increase in AFITR √ RM70,000

CR Allowance for Impairment of Trade RM70,000
Receivables√

(ii) To rectify repair and maintenance amount:

DR Office Equipment√ RM50,000

CR Retained Earnings√ RM50,000

To rectify depreciation wrongly charged:

Depreciation Expense:
RM50,000 x 10% = 5,000

DR Retained Earnings√ RM5,000

CR Accumulated Depreciation RM5,000

To record depreciation charge for the year:

DR SOPL - Depreciation√ RM5,000

CR Accumulated Depreciation RM5,000
(6√ x 1/2 mark = 3 marks)
(Total: 16 marks)

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SOLUTION 5

A.
a. Legal or constructive obligation:

i. Constructive√
ii. Legal√
iii. Constructive√
iv. Constructive√
(4√ x ½ mark = 2 marks)

b.

1. No √
2. Yes √
(2√ x 1 mark = 2 marks)

B.

a. Accounting treatment.

1. The company’s lawyers believe that it is virtually certain that the company will be
awarded for the compensatory damages√ and the court has ordered payment of
RM500,000 to be made to Fuchsia Bhd. Thus, the income now has become
virtually certain and the company can be recognized the whole amount as asset. √

2. Fuchsia Bhd has a present obligation (legal) arising from past event. There is a
probable outflow or resources√ as there is a high probability that the employee will
win the case. The amount of obligation also can be estimated reliably at
RM90,000√. Therefore, the company should recognize a provision of RM90,000 in
the financial statements. √

3. There is present obligation (legal) as a result of past event √. Even though a reliable
estimate can be made, there is no probable outflow of resources since no legal
action has been charged against the company√. Thus, the information should be
disclosed as contingent liability in the notes to the financial statements. √
(8√ x 1 mark = 8 marks)

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b. Construct financial statements

i. Extract Statement of Profit or Loss for the year ended 30 June 2020
RM
Other Income:
Compensation for damages √ 500,000

Other operating expenses:

Legal suit cost √ 90,000

ii. Extract Statement of Financial Position as at 30 June 2020

RM
Current Asset
Compensation receivable √ 500,000

Non-Current Liabilities
Provision for legal suit √ 90,000

(4√ x 1 mark = 4 marks)

(Total: 16 marks)

END OF SUGGESTED SOLUTION

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