Advanced Financial Accounting and Reporting (AFAR)

SET A SEPTEMBER 2015

SUGGESTED SOLUTION

QUESTION 1

a) Labian Bhd
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2015
RM’000
Revenue (176,400 + 105,840) – 50,000 232,240
Cost of sales (136,800 + 88,200) – 50,000 + 10,000 (185,000)
Gross profit 47,240
Operating expenses (21,240 + 4,860) + 275 (26,375)
Finance cost (252 + 180)  (432)
Share of Associate’s profit (2,955 x 30%) 886.5
Profit before tax 21,319.5
Taxation (4,527 + 3,150)  (7,677)
Profit after tax 13,642.5
Other comprehensive income
Decrease in NCI (W1)  (590)
Total comprehensive income 13,052.5

Profit attributable to:

Equity holders of Labian Bhd 11,752.5
NCI 9,450 x 20% 1,890
13,642.5
TCI attributable to:
Equity holders of Labian Bhd 11,162.5
NCI 1,890
13,052.5

Workings

W1 Decrease in NCI (1 July 2014). Transaction between owners

RM000 RM000
Consideration transferred 2,400
Less:
Fair values of net assets acquired
Ordinary shares  4,000
General reserves 400
Retained profits (3000 – 550)  2,450
Asset revaluation reserve 2,200
9,050
20% 1,810
Loss on acquisition (decrease in NCI) 590

(20  x ½ = 10 marks)

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 Advanced Financial Accounting and Reporting (AFAR)

b) Labian Bhd
Consolidated Statement of Financial Position as at 30 June 2015
Non-current assets RM’000
Goodwill (W5)  1,340
Property, plant and equipment (40,800 + 19,000)  + 2,200 - 825 61,175
Investment in Campin Bhd 1,650 + 886.5 2,536.5
Loan to Campin Bhd 2,000
Current assets
Inventory (12,750 + 6,300) – 10,000 9,050
Bills receivable 50 - 30 20
Accounts receivable (14,940 + 4,450) - 50 19,340
Bank (4,000 +1,000) 5,000
100,461.5
Equity
Ordinary shares of RM1 each 21,000
General reserve 2,000
Retained profit 20,670 + 11,752.5 – 590 - 400  31,432.5
54,432.5
NCI 3,620 + 1,890 – 1,810 - 60  3,640
Non-current liabilities
7% Bank loan 4,000
10% Debenture 2,000
Current liabilities
Bills payable 50 - 30 20
Accounts payable (24,109 + 11,850) - 50 35,909
Ordinary dividends payable 400 + 60 460
100,461.5

W5 Goodwill on consolidation (1 July 2012) - Bintu

RM000 RM000
Consideration transferred 6,200
NCI (8,100 x 40%) 3,240
9,440
Fair value of net assets acquired
Ordinary shares 4,000
Retained profits  1,500
General reserves 400
Asset revaluation reserve 2,200 8,100
Goodwill 1,340

(30  x ½ = 15 marks)
[Total: 25 marks]

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 Advanced Financial Accounting and Reporting (AFAR)

QUESTION 2

A. The convertible loan stocks are compound financial instruments . According to

MFRS 132, compound financial instruments are to be separated into their liability
components and equity components and will be presented under the respective
sections in the statement of financial position. Therefore, the convertible loan
stocks will be presented as follows:

Alami Bhd
Statement of Financial Position (extract)
as at 30 June 2015
Non-current liability RM000
6% Convertible loan stocks 8731.88

Equity
Convertible loan stock reserve 1,268.12

Workings:
Period Discount Interest Principal Total Present
ending factor payment repayment value
10% 6%
30 June RM000 RM000 RM000 RM000
2015 0.9091 600 600 545.46 
2016 0.8264 600 600 495.84 
2017 0.7513 600 600 450.78 
2018 0.6830 600 10,000 10,600 7,239.80 
Liability component 8,731.88
Proceeds 10,000.00
Equity component 1,268.12 

(16  x ½ = 8 marks)

B. In year ended 30 June 2015, the company should recognise the bonds as held-to-
maturity financial assets as the bonds are intended to be held to its maturity date
and the company planned to collect the cash flows arising from the bonds.
Initially, it should be recognised at RM85.6 million and subsequently it should be
recognised at amortised cost using the effective interest rate of 8.67%. The
changes in values between opening balance and closing balance are to be
recognised in profit or loss .

End of year Opening Effective Interest Closing

balance interest rate receivables Balance
8.67%
30 June 2015 85,600.000  7,422.000  5,000.000  88,022.000 

(10  x ½ = 5 marks)

C. A joint operation is a joint arrangement whereby parties that have joint control of the
arrangement have rights to the assets, and obligations for the liabilities relating to
the arrangement . The contractual arrangement establishes the revenue and
expenses of the arrangement on the basis of the performance of each party .
Those parties are called joint operators .

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 Advanced Financial Accounting and Reporting (AFAR)

A joint venture is a joint arrangement whereby parties that have joint control of the
arrangement have rights to the net assets of the arrangement . The contractual
arrangement establishes each party’s share of the profit or loss relating to the
activities of the arrangement . Those parties are called joint venturers.

(12  x ½ = 6 marks)

D. For the year ended 30 June 2015, the company has a taxable temporary
difference from the PPE of RM2,400,000 (RM20,400,000 – RM18,000,000)  and
a deductible temporary difference from the provision of warranty of RM4,000,000
(RM16,000,000 – RM12,000,000) , resulting in a net deductible temporary
difference of RM1,600,000 (RM4,000,000 – RM2,400,000) . This will give rise to a
deferred tax asset of RM 400,000 (RM1,600,000 x 25%). Since it is not
probable for the company to have sufficient profits to utilise all of the deductible
temporary difference (RM4,000,000) , under MFRS 112, the amount that can be
recognised is restricted to the amount of taxable temporary difference of
RM2,400,000. The net effect is no deferred tax carried forward as at 30 June
2015 and a deferred tax income of RM500,000 will be recognised in profit or
loss.

(12  x ½ = 6 marks)

QUESTION 3

Aqil Containers Bhd

Statement of changes in equity for the year ended 30 June 2015

Share Share ARR Retained Total

capital premium profit
RM’000 RM’000 RM’000 RM’000 RM’000
Balance as at 1 July 2014 110,000 14,280 13,720 45,070 183,070
Prior year adjustment:
Depreciation of building //120 120
(24,000,000 x 20%/40yrs)
Balance restated 110,000 14,280 13,720 45,190 183,190
Interim dividend paid /(12,500) (12,500)
Profit for the year /1,710 1,696
Issue of new shares /10,000 //30,000 40,000
Deficit on revaluation of land /(1,800) (1,800)
Balance as at 30 June 2015 120,000 44,280 11,920 34,400 210,586

8/ x ½ = 4 marks

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 Advanced Financial Accounting and Reporting (AFAR)

Aqil Containers Bhd

Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2015

RM’000
Revenue 120,000 /
Cost of sales (48,320) /
Gross profit 71,680
Other income:
Investment income 920 /
72,600
Administration and distribution costs (37,880 + 850 + 16,200) (54,930) //
Impairment loss on NCA held for sale (29,700 – 24,600) (5,100) /
Retirement benefit expenses (480) ///
Profit from operation 12,090
Finance cost (830) /
Profit before tax 11,260
Taxation (9,500) /
Profit for the year 1,760

Other Comprehensive Income

Actuarial loss (50) ///////
TOTAL COMPREHENSIVE INCOME 1,710

18/ x ½ = 9 marks

Aqil Containers Bhd

Statement of Financial Position as at 30 June 2015
RM’000
Non-current assets
Property, plant and equipment 138,810
Investments / 10,500
149,310
Current assets
Inventory 57,200 /
Trade receivables 72,014 /
Cash and bank balances (4,200 – 730) 3,470 /
132,684

Non-current assets held for sale / 24,600

306,594

Financed by:
Share capital 120,000
Retained earnings 34,400
Other reserves / 56,200
210,600
Non-current liabilities
5% debentures 15,000 /
4% long-term loan 2,000 /
Deferred tax liabilities 1,760 /
Retirement benefit liability 100 // 18,860

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 Advanced Financial Accounting and Reporting (AFAR)

Current liabilities
Tax payable 434 ///
Trade payables 76,700 / 77,134
306,594

24/ x ½ = 12 marks

Notes to the financial statements

1. Property, plant and equipment

Land Building P&M Total

Cost/valuation: RM’000 RM’000 RM’000 RM’000
Balance as at 1 July 2014 32,600 71,800 138,000 242,400
Prior year adjustment: Error /4,800 /(4,800)
Balance restated 37,400 67,000 138,000 242,400
Addition - - 24,000/ 24,000
Classified as held for sale - /(33,000) (33,000)
Deficit on revaluation /(1,800) - - (1,800)
Balance as at 30 June 2015 35,600 34,000 162,000 231,600

Accumulated depreciation:
Balance as at 1 July 2014 - 14,160 65,000 79,160
Prior year adjustment: Error - /(120) (120)
Balance restated - 14,040 65,000 79,040
Charge for the year - /850 16,200/ 17,050
Classified as held for sale - /(3,300) (3,300)
Balance as at 30 June 2015 11,590 81,200 92,790
Net carrying amount as at 30 June 2015 35,600 22,410 80,800 138,810

Workings:

1. Retirement Benefits

PV of Retirement liability

RM
Bal b/f 2,900,000
Current service cost 450,000
Interest cost (10% x 2,900,000) 290,000
(-) Benefit paid (240,000)
3,400,000
Bal c/f 3,500,000
Actuarial loss (100,000)

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 Advanced Financial Accounting and Reporting (AFAR)

FV Plan Asset

RM
Bal b/f 2,600,000
Contribution paid 730,000
Expected return (10% x 2,600,000) 260,000
(-) Benefit paid (240,000)
3,350,000
Bal c/f 3,400,000
Actuarial gain 50,000

Retirement benefit expenses

RM
Current service cost 450,000
Interest cost 290,000
(-) expected return (260,000)
480,000

Disclosure in SOFP

PV of retirement liability 3,500,000

FV of Plan Asset 3,400,000
Retirement liability 100,000

Tax Payables a/c

RM RM
Balance b/f 546 SPL 9,500
Tax paid 8,000
Deferred tax (1,760 – 1,240) 520
Balance c/f 434
9,500 9,500

SOLUTION TO QUESTION 4

A.

a) The patent has to be capitalised as an asset and shown in the statement of

financial position as intangible asset of RM300,000. The patent will also be
amortised over a period of 10 years and the amortisation expenses of RM30,000
per year will be charged to the statement of profit or loss.

(3 marks)

b) Under MFRS 138, internally generated goodwill and brand cannot be capitalised
as asset. The cost incurred in generating internal goodwill and brand should be
written off as expenses in the statement of profit or loss.

(3 marks)

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 Advanced Financial Accounting and Reporting (AFAR)

c). This is a development cost. Since the management is very certain that it will bring
future economic benefits and the fact that the company has received few orders
from its regular customers as well as plans to launch the new product early next
year, it indicates that the company has tested the viability and marketability of the
products, therefore under MFRS 138 the development cost of RM800,000 should
be capitalised as intangible asset and will be amortised over its useful life.
(3 marks)

B. a) The lease should be classified as a financial lease as it meets the

requirement of MFRS 117 with requires the risks and rewards of
ownership to be transferred to the lessee.
(3 marks)

b) A non-current asset is recorded at the fair value RM22,840 (subject to

depreciation).

 Depreciation is over the ten years’ useful life. (Note that this is shorter
than the lease term which is taken to include both the initial four years
and the indefinite secondary period).

 Annual depreciation charge = 1/10 x RM22,840 = 2,284

 The total financial charge is RM32,000 – 22,840 = RM9,160.

Allocation of this to each rental payment and the consequent capital
sum outstanding is calculated as follows:
2 marks
Working:

Period Liability at Finance Subtotal Rental Liability at

(year start of charge at paid end of
ended 30 period 15% p.a. period
June)
RM RM RM RM RM
2015 √ √ 22,840 √ 3,426 √ 26,266 √ (8,000) √ 18,266
2016 √ √ 18,266 √ 2,740 √ 21,006 √ (8,000) √ 13,006
2017 13,006 1,951 14,957 (8,000) 6,957
2018 6,957 1,043 8,000 (8,000) -
9,160 32,000

Extract of Statement of Profit or Loss for y/e 30 June 2015

Finance change RM3,426 √

SOFP (extract) as at 30 June 2015

Non-Current liability
Fin lease payable 13,006 √

Current Liability
Fin lease payable √
(18,266 – 13,006) 5,260
√15 x 1/3 = 5 marks
(sub-total: 7 marks)

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 Advanced Financial Accounting and Reporting (AFAR)

C. a) The five criteria are:

1. Significant risks and rewards of ownership of the goods have been

transferred to the buyer.
2. The seller neither continues managerial involvement associated with
ownership nor retains effective control over the goods sold.
3. The amount of revenue can be measured reliably.
4. It is probable that economic benefits associated with the transaction will
flow to the entity.
5. The cost incurred or to be incurred in respect of the transaction can be
measured reliably.
(any 3 of the above)
(3 marks)

b) MFRS 118 Revenue requires revenue to be measured at the fair value of the
consideration received or receivable, taking into account the amount of any trade
discounts and volume rebates allowed by the entity //.

Rempahratus Sdn Bhd should, therefore, recognize revenue net of volume

rebates (gross sales value less volume rebates). The 5% sales discount should
not be netted against revenue. Instead, it should be reflected as an expense in
the income statements ///.

(5 marks)
[Total: 25 marks]

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