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EBA3033/GroupProject/April2017

FACULTY OF ECONOMICS AND BUSINESS


DEPARTMENT OF ACCOUNTING AND FINANCE

SUBMISSION OF ASSIGNMENT

Course Code: EBA3033


Course Name: Advanced Financial Accounting and Reporting 2
(AFAR 2)

Lecturer: ------------------------------------------

Date: ------------------------------------------------

By submitting this form and signing below, we declare that:

The attached assignment is our own work. Any material copied verbatim
is properly cited.
We have complied with the rules of ethical conduct in completing this
assignment.
We have taken all reasonable precautions to ensure that our work has not
been copied by other students, including the protection of our files from
access by other students.

Submitted by:
No. Group Members Name Matric No. Signature
EBA 3033 ADVANCED FINANCIAL ACCOUNTING AND REPORTING 3
GROUP ASSIGNMENT: Financial Statements Suitable for Publication
Semester 2, 2016/2017

Instructions to students:-

1. Use the assignment cover sheet to submit your assignment.


2. This assignment carries 10% of the overall assessment.
3. Form a group of not more than 5 students.
4. Only ONE copy of the report is required from each group.
5. Write the names and the matric number of all the group members on the front page
of the report.
6. Submission date: by Friday, 26th May 2017 (12.00 noon). Any submission after the
due date will be subjected to a penalty of 25% - 100% of the marks allocated, depending
on how late the submission was.
7. Submission is to be made (i) by uploading through the turnitin on Morpheus, as well
as (ii) a printed hardcopy. For the hardcopy, pages are to be stapled together. NO
additional mark will be given for spiral or tape binding.
8. Any assignment that is more than five working days late will not be accepted for
marking.

Group work Ethics:

A group assignment is the collective responsibilities of an entire group members. Each


member is expected to participate in the completion of the assignment.

Reminder - Do not plagiarize!! Any suspicion of plagiarism committed will subject the
groups involved (the receiver and the giver) to a penalty of being assigned zero mark.

Esmie/EBA3033/GroupProject/April 2017
QUESTION

Galaxy Bhd was incorporated in 2005. The authorized share capital of the company is RM750
million, consisting of 500 million ordinary shares of RM1 and 125 million 5% preference
shares of RM2 each. The issued and fully paid capital is RM360 million consisting of 300
million ordinary shares and 30 million 5% preference shares.

The statement of financial position as at 30 June 2016 is as follows:

Galaxy Bhd
Statement of Financial Position as at 30 June 2016

RM000
Assets
Property, plant and equipment 316,000
Intangibles 3,500
Inventories 35,000
Trade receivable 45,000
Bills receivable 5,000
Service charge receivable 500
Cash and bank 190,000
595,000

Equity and Liabilities


Share capital 360,000
Reserves 130,000
Bank loan 41,000
Trade payables 38,000
Bills payable 23,000
Accruals 3,000
595,000

On 1 February 2015, Galaxy Bhd got listed on the Bursa Malaysia. Following the listing on
Bursa Malaysia, Galaxy Bhd offered its shares for public subscription and raised capital of
RM150 million, which the company used to finance the following acquisitions of new
companies during the year ended 30 June 2017. Details of the acquisitions are:

On 1 July 2016, Galaxy Bhd acquired Pluto Bhd through an acquisition of 80% of the
ordinary shares of RM1 each. On the same date, Galaxy Bhd acquired two-third of the
6% debentures at par for RM50 million. The purchase consideration for both securities
was in cash. At that date, the land of Pluto Bhd was found to be undervalued by RM3
million and a brand was fair valued to RM1.5 million. The intangible asset has an
indefinite useful life. Both revaluation were not yet recognized.

Esmie/EBA3033/GroupProject/April 2017
On 1 October 2015, Galaxy Bhd acquired 25 million ordinary shares of Mars Bhd for
RM15 million when the retained profit was RM5.5 million. On 1 January 2017, Galaxy
Bhd acquired additional shares in Mars Bhd:
- 35 million ordinary shares of RM1 each
- 20 million of the 5% cumulative preference shares of RM1 each at par.

Total consideration for both acquisitions were cash of RM4 million and the issue of 50
million ordinary shares in Galaxy Bhd at a premium of 10%. Cash consideration was
accordingly recorded in the books. However, Galaxy Bhd has not recorded the issue of
shares.

On 1 January 2017, the fair value of the 25 million shares acquired on 1 October 2015
was RM17.5 million.

The non-controlling interest in Pluto Bhd was valued at its proportionate share in the net
assets of Pluto Bhd. However, the company decided to value the non-controlling interest
in Mars Bhd at fair value of RM20 million.

On 1 April 2017, Galaxy Bhd had a joint arrangement with Star Bhd and Moon Bhd to
undertake a project supplying construction materials for a railway track linking Lundu
to Limbang. A company, Venus Engineering was established with an issued share capital
of 12.5 million ordinary shares of RM1 each, of which 5 million ordinary shares were
acquired by Galaxy Bhd. Galaxy Bhd, Star Bhd and Moon Bhd each has joint control over
the financial and operating policies of Venus Engineering.

Given below are the financial statements of Galaxy Bhd, Pluto Bhd, Mars Bhd, Venus Bhd
and Jade Bhd.

Statement of Financial Position as at 30 June 2017


Galaxy Pluto Mars Venus
RM000 RM000 RM000 RM000
Assets
Property, plant and equipment 304,500 249,000 132,000 60,000
Intangibles 3,500 1,000 3,000 -
Investments in:
Pluto 245,000
Mars 19,000
Venus 7,000
Inventories 25,000 43,000 47,000 5,000
Trade receivables 15,000 32,500 43,000 12,000
Bills receivable 10,000 29,000 28,500 -
Cash and bank 20,500 22,000 500 2,500
649,500 376,500 254,000 79,500

Esmie/EBA3033/GroupProject/April 2017
Equity and Liabilities
Share capital 360,000 190,000 120,000 12,500
Reserves 169,500 79,000 4,000 17,000
6% debentures - 75,000 - -
Bank loan 39,000 - 92,000 30,000
Trade payables 55,000 20,000 22,500 20,000
Bills payable 23,000 10,500 13,000 -
Accruals 3,000 2,000 2,500 -
649,500 376,500 254,000 79,500

Statement of Profit or Loss for the year ended 30 June 2017


Galaxy Pluto Mars Venus
RM000 RM000 RM000 RM000
Revenue 236,500 136,500 70,000 36,600
Cost of sales (140,000) (75,000) (47,000) (11,500)
Gross profit 96,500 61,500 23,000 25,100
Loss on disposal of property, -
plant and equipment (500) - -
Investment income 7,000 - - -
Interest income 2,000 - - -
Administration expenses (21,000) (19,500) (11,000) (5,000)
Other operational expenses (20,500) (11.500) (10,000) (3,500)
Finance cost (3,500) (3,000) (7,000) -
Profit before tax 60,000 27,500 (5,000) 16,600
Taxation (10,000) (5,000) - (2,600)
Profit/(Loss) for the year 50,000 22,500 (5,000) 14,000

Galaxy Bhd
Statement of Changes in Equity for the year ended 30 June 2017
Ordinary Preference Share Retained
shares shares premium profit
RM000 RM000 RM000 RM000
Balance as at 1 July 2016 300,000 60,000 30,000 100,000
Profit for the year 50,000
Ordinary dividend paid (7,500)
Preference dividend paid (3,000)
Balance as at 30 June 2017 300,000 60,000 30,000 139,500

Esmie/EBA3033/GroupProject/April 2017
Pluto Bhd
Statement of Changes in Equity for the year ended 30 June 2017
Ordinary Preference Share Retained
shares shares premium profit
RM000 RM000 RM000 RM000
Balance as at 1 July 2016 150,000 40,000 15,000 51,000
Profit for the year 22,500
Ordinary dividend paid (7,500)
Preference dividend paid (2,000)
Balance as at 30 June 2017 150,000 40,000 15,000 64,000

Mars Bhd
Statement of Changes in Equity for the year ended 30 June 2017
Ordinary Preference Share Retained
shares shares premium profit
RM000 RM000 RM000 RM000
Balance as at 1 July 2016 100,000 20,000 - 10,000
Profit for the year (5,000)
Ordinary dividend paid -
Preference dividend paid (1,000)
Balance as at 30 June 2017 100,000 20,000 - 4,000

Venus Bhd
Statement of Changes in Equity for the year ended 30 June 2017
Ordinary Preference Share Retained
shares shares premium profit
RM000 RM000 RM000 RM000
Balance as at 1 July 2016 - - - -
Issue during the year 12,500 - 5,000 -
Profit for the year 14,000
Ordinary dividend paid (2,000)
Balance as at 30 June 2017 12,500 - 5,000 12,000

Additional information:

1) Goodwill of Pluto Bhd was impaired by RM1.5 million at 30 June 2017.

Esmie/EBA3033/GroupProject/April 2017
2) Property, plant and equipment
Galaxy Bhd
Land Building Plant Equipment Total
RM000 RM000 RM000 RM000 RM000
Cost/Valuation
As at 1 July 2016 51,000 200,000 110,000 60,000 421,000
Acquisition/ Revaluation - - 15,000 - 15,000
Disposal - - - (10,000) (10,000)
As at 30 June 2017 51,000 200,000 125,000 50,000 426,000
Accum. depreciation
As at 1 July 2016 - 20,000 55,000 30,000 105,000
Current year charge - 4,000 12,500 5,000 21,500
Disposal - - - (5,000) (5,000)
As at 30 June 2017 - 24,000 67,500 30,000 121,500
Carrying value as at
30 June 2017 51,000 176,000 57,500 20,000 304,500

Pluto Bhd
Land Building Plant Equipment Total
RM000 RM000 RM000 RM000 RM000
Cost/Valuation
As at 1 July 2016 44,500 150,000 80,000 50,500 325,000
Acquisition/ Revaluation - - - 4,500 4,500
Disposal - - - - -
As at 30 June 2017 44,500 150,000 80.000 55,000 329,500
Accum. depreciation
As at 1 July 2016 - 12,000 32,000 20,000 64,000
Current year charge - 3,000 8,000 5,500 16,500
Disposal - - - - -
As at 30 June 2017 - 15,000 40,000 25,500 80,500
Carrying value as at
30 June 2017 44,500 135,000 40,000 29,500 249,000

Mars Bhd
Land Building Plant Equipment Total
RM000 RM000 RM000 RM000 RM000
Cost/Valuation
As at 1 July 2016 39,000 75,000 60,000 45,000 219,000
Acquisition/ Revaluation 5,000 - - - 5,000
Disposal - - (20,0000 - (20,000)
As at 30 June 2017 44,000 75,000 40,000 45,000 204,000
Accum. depreciation
As at 1 July 2016 - 15,000 48,000 18,000 81,000
Current year charge - 1,500 4,000 4,500 10,000
Disposal - - (19,000) - (19,000)
As at 30 June 2017 - 16,500 33,000 22,500 72,000
Carrying value as at
30 June 2017 44,000 58,500 7,000 22,500 132,000

Esmie/EBA3033/GroupProject/April 2017
The policy of the group is to provide full depreciation in the year of acquisition and none
in the year of disposal for all assets, at the following rates:
- on building at 2% per annum
- on plant and equipment at 10% per annum.

3) Apart from a sale made by Galaxy Bhd to Venus Bhd amounting to RM2.5 million and
the payment of dividend, there was no other transaction between these two companies.
The sale to Venus Bhd was at a margin of 25%. At 30 June 2017, 10% of inventories
remained unsold.

4) During the year ended 30 June 2017, the following transactions took place:

Galaxy Bhd disposed an equipment to Pluto at a loss of RM0.5 million.

Pluto Bhd sold goods on credit to Galaxy Bhd for RM5 million, with a profit margin of
20%. On 30 June 2017, 50% of these goods remained in the closing inventories of
Galaxy Bhd, and by that date, Galaxy has settled only 60% of the amount due to Pluto
Bhd.

After the acquisition of Mars Bhd, Mars Bhd purchased goods on credit from Galaxy
Bhd at invoice price of RM3 million, which was fully settled by Mars Bhd. The cost of
the goods to Galaxy Bhd was RM2.25 million. During the year, Mars Bhd sold one-
third of these goods for RM1.75 million.

5) Details on dividends and interest on debt instruments are:

Galaxy Bhd and Pluto Bhd have paid and recorded the dividend on preference shares
and the interim ordinary dividend. Galaxy Bhd has taken credit of its share of Pluto
Bhds dividends.

Galaxy Bhd and Pluto Bhd declared final ordinary dividend of RM10 million and RM5
million respectively on 30 June 2017. Both companies have not recorded these
proposed dividends.

Mars Bhd did not propose or pay ordinary dividend due to the loss incurred during
the year. However, Mars Bhd has paid in full dividend of the 5% cumulative
preference shares on 30 June 2017. BothGalaxy Bhd and Mars Bhd have recorded
this transaction.

Pluto Bhd paid interest on the 6% debentures for the first 8 months of the year, and
Galaxy Bhd received its share. However, no adjustment was made for the remaining
4 months interest.

6) Details of the inter-company balances:

The whole bills payable of Mars Bhd is amount due to Galaxy Bhd. In June 2017,
Galaxy Bhd discounted RM3 million of the bills receivable from Mars Bhd.

RM8 million of the bills receivable of Mars Bhd was due from Pluto Bhd. Pluto Bhd
issued a cheque in full settlement to Mars Bhd on 29 June 2017. The cheque was
received by Mars Bhd on 2 July 2017.
Esmie/EBA3033/GroupProject/April 2017
Required:
a. Briefly explain, with reasons, the appropriate method that Galaxy Bhd should
account for the investment in Pluto Bhd, Mars Bhd and Venus Bhd.

b. Compute goodwill/bargain purchase on acquisition of Pluto Bhd and Mars Bhd, using
appropriate schedule.

c. Compute the non-controlling interest (NCI) and group retained profits as at 30 June
2017.

d. Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive


Income for the year ended 30 June 2017.

e. Prepare the Consolidated Statement of Changes in Equity for the year ended 30 June
2017.

f. Prepare the Consolidated Statement of Financial Position as at 30 June 2017.

(SHOW ALL WORKINGS)

Esmie/EBA3033/GroupProject/April 2017