CONFIDENTIAL 1 AC/FEB 2022/FAR210/SS

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION
ANSWER SCHEME

COURSE : FINANCIAL ACCOUNTING 3

COURSE CODE : FAR210
EXAMINATION : FEBRUARY 2022

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SUGGESTED SOLUTION

QUESTION 1

a. i. Munawwarah Bhd
Statement of Profit or Loss and Other Comprehensive Income for the year ended
31 December 2021

Sales 12,420,000 √
Cost of sales (7,664,000 + 50,000) 7,714,000 √
Gross Profit 4,706,000
Other operating income (rental income) 96,000 √
Administration expenses (642,400)
Distribution expenses (203,040)
Profit from operation 3,956,560
Finance expenses (22,500)
Investment income 75,600 √
Net profit before tax 4,009,660
Taxation (998,300) √
Net profit after tax 3,011,360
Other Comprehensive income:
Surplus on revaluation 647,000 √
Total Comprehensive income for the year 3,658,360

Workings: Administration Distribution Finance

expenses expenses expenses
As per Trial Balance 247,000√ 123,100√
Director remuneration (105,000 + 25,000) 130,000√
Auditors fee 31,000√
Depreciation:
125,000√
Building (2,500,000 x 5%)
Plant & machinery [(1,450,000 – 436,000) X 10%
109,400√√
+( 80,000 x 10%)]
Motor vehicles (730,100 – 330,400) x 20% 79,940√√
Bank loan interest (15,000 + 7,500) 22,500√
642,400 203,040 22,500

(16√ x ½ = 8 marks)

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a. ii. Munawwarah Bhd

Statement of Changes in Equity for the year ended 31 December 2021√
Retained General
Share Capital
Profit ARR Reserves
Opening Balance 6,450,000√ 1,077,000√ - -
Net profit for the year√ 3,011,360
Bonus issue 193,500√ (193,500)√
Revaluation surplus - 647,000√√
Final dividend of OSC (129,000)√√
Transfer to Gen. Reserve (100,000)√ 100,000√
Closing Balance 647,000 100,000
6,643,500 3,665,860
747,000

(12√ x ½ = 6 marks)

a. iii. Munawwarah Bhd

Statement of Financial Position as at 31 December 2021
NON-CURRENT ASSETS RM RM
Property, Plant & Equipment √ 8,199,360
Investment 1,960,000 √ 10,159,360

CURRENT ASSETS
Inventories (479,000 – 50,000) 429,000 √√
Accounts Receivable 1,250,000 √
Cash in hand (557,800 – 80,000) 477,800 √√ 2,156,800
12,316,160
Financed by:
Share Capital 6,643,500
Retained earnings √ 3,665,860
Other reserves 747,000 11,056,360

NON-CURRENT LIABILITY
5% Bank loan 450,000 √

CURRENT LIABILITY
Accounts Payables 610,000 √
Tax payable 38,300 √
Accrued Ordinary dividend payable 129,000 √
Accrued loan interest [(5% x 450k) – 15k] 7,500 √
Accrued directors’ remuneration 25,000 √ 809,800
12,316,160

(14√ x ½ = 7 marks)

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b. Note on property, plant and equipment of Munawwarah Bhd

Freehold Plant & Motor
Buildings
land Machinery Vehicle
Cost/valuation RM RM RM RM
Balance as at 1 Jan 2019 4,353,000√ 2,500,000√ 1,450,000√ 730,100√
Acquisition 80,000√
Revaluation 647,000√
Balance as at 31 Dec 2019 5,000,000√ 2,500,000 1,530,000 730,100
Accumulated depreciation
Balance as at 1Jan 2019 - (480,000)√ (436,000)√ (330,400)√
Depreciation for the year √ - (125,000) (109,400) (79,940)
Balance as at 31 Dec 2019 - (605,000) (545,400) (410,340)
Carrying value 5,000,000 1,895,000 984,600 319,760
Total 8,199,360 √

(12√ x ½ = 6 marks)
(Total: 27 marks)

QUESTION 2

a. The commercial building satisfies the definition of an asset of Warisan Alam Berhad
(WAB) √ because:
• The commercial buildings are used at company’s discretion as the company has the
right to use and obtain benefit from the buildings (resource controlled) √
• The company had purchased the commercial buildings on 3 March 2021 (past event).
√
• It will result in cash inflow into the business when the company used the commercial
building as office and marketing outlet for the business (potential to generate future
economic benefit)√

(4√ x 1 = 4 marks)

b. The commercial building satisfies the definition of property, plant and equipment √ in
accordance with MFRS 116 Property, Plant and Equipment for the following reasons:
• The commercial building has physical structure (tangible items) √,
• The commercial building is held for use as office and marketing outlet to generate
sales revenue (held for use)√,
• The commercial building is expected to be used for 20 years (more than one
accounting period)√.
(4√ x 1 = 4 marks)

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c. Initial cost of the acquired commercial building as at 3 March 2021:

Quoted selling price 1,200,000 √

Less: Trade discount (5% x 1.2M) (60,000) √
1,140,000
Legal fees & stamp duty 90,000 √
Concrete reinforcement 30,000 √
Building renovation 100,000 √
Installation of building security system 20,000 √
Professional fee for building renovation 40,000 √
Re-plumbing works 15,500 √
Electrical cabling & wiring 22,500 √
TOTAL 1,458,000 √
(10√ x 1/2 = 5 marks)

d. Revenue expenditure:

Painting, decoration and advertising 12,000 √

Outlet launching ceremony 45,000 √
General overhead 4,000 √
Annual property tax and license 2,500 √
Depreciation (1,458,000 x 5%) 72,900 √
TOTAL 141,400 √
(6√ x ½ = 3 marks)

e. The accounting treatment on the revaluation of the warehouse building on 1 January

2021:

1. Remove the accumulated depreciation of RM137,500 √√ (1,375,000 x 5% x 2 yrs)

and its cost, RM1,375,000 from the company’s book. √
2. Hence the carrying amount of RM1,237,500√ (RM1.375m – RM137.5k) is
derecognised from the Statement of Financial Position√.
3. The surplus on revaluation of RM262,500√ (RM1.5m – RM1.2375m) is recognised in
Other Comprehensive Income √ and credited to Asset Revaluation Reserve. √
4. The revalued amount of RM1,500,000√ is recognised in company’s Statement of
Financial Position√ (deemed to be the carrying value as at 1 January 2021).
(10√ x ½ = 5 marks)

f. The accounting treatment on the disposal of the land on 31 December 2021:

1. The carrying value of RM1,200,000 is removed from the co’s SOFP√.

2. The sales proceed of RM1,450,000 is recognized as increase in the co’s bank
balances√.
3. There is gain on disposal of RM250,000 (RM1,450,000 – RM1,200,000) and it is
recognized as other income in the SOPL√.
4. The Asset Revaluation Reserve (ARR) balance of RM500,000(of)√ (1,200,000 –
700,000) shall be transferred directly to Retained Earnings in the Statement of
Changes in Equity (SOCE) √.

(5√ x 1 = 5 marks)
(Total: 26 marks)
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QUESTION 3

a. Factors that might influence a customer’s credit term:

1. amount of credit sales to the customer

2. how long the customer has been in business with the company
3. previous payment history of the customer
4. credit term of competitors and peers of the company
5. any cash flow issue (or problem) of the company
6. any credit term given by the company’s vendor
7. Capital – material wealth owned by individual or firm; financial backing e.g. debt
ratio or TIER
8. Character – quality/ reputation of customer to pay back the debt; reliability to pay.
9. Collateral – security pledged for repayment of loan; amount of assets available for
use in securing the credit.
10. Capacity – measures the ability of debtors to pay debt owed. Determined by
borrower’s gross & net profit
11. Conditions – changes affect (any unique condition) debtor’s ability to meet
maturing ability; can debtor handle business in changing environment.
12. Collectivity – How much can be saved if credit become bad and turned into non-
performing loan; depends on capacity & collateral of borrower
(any 3√ x 1 = 3 marks)

b. The journal entry for the transaction on 1 November 2021:

Dr Note Receivable – MyRatu Boutique√ RM6,000√

Cr Account Receivable – MyRatu Boutique√ RM6,000√

(4√ x 1/2 = 2 marks)

c. The maturity date AND the maturity value of the Note Receivable:

Maturity Date: Maturity Value:

45 days√ Interest =RM6,000√x12%√45/360√
1/11/2021 (30-1): 29 days√ = RM90
Balance: 16 days√

Maturity date is: 16 Dec. 2021√ Maturity value = RM6,000√ + RM90of√

= RM6,090√

(10√ x 1/2 = 5 marks)

d. The amount of allowance for impairment of trade receivables AND the amount of net
trade receivables to be disclosed in their financial statement as at 31 December 2021:

No. of days Balances Expected credit AFITR

past due outstanding loss rate
0 days past due RM460,000 2% RM9,200√
1 – 30 days RM295,000 4% RM11,800√
31 – 90 days RM160,000 8% RM12,800√
Over 90 days RM5,000 100% Bad debts written off

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Statement of Allowance for Impairment of Trade Receivables as at 31 December 2021

RM
Bal b/d 50,000√
Less: Bad debt written off (5,000)√
Less: Reduction during the year (SOPL – Income: Decrease in AFITR 11,200
Bal c/d (9,200+11,800+12,800) 33,800√

The decrease in AFITR amounted to RM11,200 is recognised as income in SOPL.√

RM
Current Asset
Accounts Receivable (460k+295k+160k) 915,000√
Less: Allowance for Impairment of Trade Receivables (33,800)of√
Net realisable of receivables 881,200√

The net realisable of receivables to be recognised in Statement of Financial Position

as at 31 December 2021 is RM881,200.
(10√ x ½ = 5 marks)
(Total: 15 marks)

QUESTION 4
a. The unsold Sportex and Champz are items of inventories√ for SSB in accordance with
MFRS 102 Inventories as the items are held for sale in the ordinary course of business√
which is trading of sport equipments in Southern Malaysia√.
(3√ x 1 = 3 marks)

b. The examples of costs to be recognized as expenses in the period in which they are
incurred are:
1. Abnormal amounts of wasted materials, labour or other production costs;
2. Storage costs unless those costs are necessary in the production process before
a further production stage.
3. Administrative overheads that do not contribute to bringing inventories to their
present location and condition; and
4. Selling costs.
(Any 3√ x 1 = 3 marks)

c. The value of inventories at 31/12/2021 will be:

Net Closing
Gro
Cost realisable Inventories
up
value Value
[RM120 + (RM4,500/450) + (5% x RM120)] x
Sportex
[450 – 410]
(Outdoor RM138 x 40
= [RM120√ + RM10√ + RM6√] x 40√ RM5,440
Sport = RM5,520√
= RM136 x 40
Equipments)
= RM5,440
[RM80 + (RM3,500/700) + (5% x RM80)] x [700
Champz
– 650]
(Indoor RM75 x 50
= [RM80√ + RM5√ + RM4√] x 50√ RM3,750
Sport = RM3,750√
= RM89 x 50
Equipments)
= RM4,450
Total Value of Closing Inventories RM9,190
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MFRS102 Inventories requires that inventories shall be measured at lower of cost and net
realisable value√. Hence amount to be disclosed in Statement of Financial Position of SSB
as at 31 December 2021 is at net realizable value of RM9,190√ written down by RM700
from its cost of RM9,890.
(12√ x ½ = 6 marks)
(Total: 12 marks)

QUESTION 5

a. Cash Flow Statement

Pitzer Bhd
Statement of Cash Flow for the year ended 31 December 2021
RM RM
Cash Flow from Operating Activities√
Net profit before tax 213,640√

Adjustment for Non Cash and Non-operating items:

Depreciation on plant & machinery 21,200√
Gain on disposal of land (RM200,000 – RM100,000) (100,000)√

Operating profit before working capital changes 134,840

Increase in inventories (52,000-44,000) (8,000)√√

Increase in accounts receivables (97,200-86,400) (10,800)√√
Decrease in accounts payables (62,340-69,780) (7,440)√√

Cash generated from operations 108,600

Tax Paid (57,360-6,000-9,960) (41,400)√√

Net cash inflow from operating activities 67,200

Cash Flow from Investing Activities√

Purchase of land (477,000+100,000-386,000) (191,000)√√
Proceed from disposal of land 200,000√
Purchase of plant & machinery (212,000-182,000) (30,000)√√
Net cash outflow from investing activities (21,000)

Cash Flow from Financing Activities√

Proceeds from issuance of OSC (364,000-264,000) 100,000√√
Payment of loan (169,400-135,400) (34,000)√√
Dividend paid (57,400)√
Net cash inflow from financing activities 8,600
Net increase in cash & cash equivalent for the year 54,800
Cash and cash equivalents at the beginning of the year 19,600*
Cash and cash equivalents at the end of the year 74,400*

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*Cash and cash equivalent = bank + fixed deposits – bank overdraft

Beginning End
Bank 13,000√ 55,000√
Fixed deposits 20,000√ 27,000√
Less: bank overdraft (13,400)√ (7,600)√
19,600 74,400
(30√ x ½ mark =15 marks)

Freehold Land
RM RM
b/d 386,000 Disposal 100,000
Cash/bank 191,000
c/d 477,000

Plant & Machinery

RM RM
b/d 182,000
Cash/bank 30,000
c/d 212,000

Acc.Depr.-Plant & Machinery

RM RM
b/d 72,000
Depr - SOPL 21,200
c/d 93,200

Statement of Disposal
Freehold Land (RM)
Cost 100,000
Bank/Cash (Proceeds received) 200,000
Gain on disposal - SOPL 100,000

Tax
RM RM
Cash 41,400 b/d -
Recoverable 6,000 SOPL 57,360
c/d 9,960

b. TWO (2) benefits of cash flow information:

1. Liquidity
It provides information that enable users to evaluate the liquidity of an enterprise, changes in
net assets (current assets-current liabilities) and timing of cash flow. With cash on hand,
business will be able to handle fluctuations in the day-to-day business needs.

2. Ready for any opportunities or challenges ahead

Knowing the business have available cash enable the business to finance whatever
opportunities or challenges lie ahead. It is use as an indicator of the amount, timing and
certainty of future cash flow.

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3. Productivity
When cash flow is under control, business will actually spend less time managing business
finances such as accounts receivable, accounts payable, and bank deposits. This can free up
more time to devote to key accounts, customer service, and new business development
opportunities.

4. Re-invest in the Business

Improved cash flow can help the business to put more of the hard-earned money back into
the business. The business will have more opportunities to add employees, expand current
assets, build new facilities, and invest in new processes and technologies to make the
business more productive, profitable and competitive.

5. Reduce Debt
When the business has enough cash on hand, it allows the business to pay down debt, thus
reducing monthly financial commitments such as high-interest rates and potential late-
payment fees.

(1 point–1 mark each, explanation–1 1/2 marks each; accept any reasonable answer
=5 marks)
(Total: 20 marks)

END OF SUGGESTED SOLUTION

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