FAR560 – JUNE 2016

Suggested solution

Question 1

a) External sources of information

(i) A decline in the market value of the asset and the decline is more than that would
be expected as a result of the passage of time or normal use.
(ii) Significant changes that have occurred during the period which have adverse
effects on the business entity e.g. downturn in economy.
(iii) Significant adverse changes that affects technology, market, economy or legal
environment in which the business entity operates
(iv) Increases in market rates
(v) The carrying amount of the net assets of the reporting business entity is more
than its market capitalization
(Any 3 explanations, 5 marks)

b) VIU is the present value of estimated cash flows √√ expected to be derived from the
continued use of the asset √√ and from its disposal √ at the end of its useful life. Cash
flow projections should be based on reasonable assumptions that reflect the asset in its
current conditions and represent management’s best estimate √ of the economic
conditions √ that will exist over remaining useful life of the asset. The cash flow
projections are to be based on the recent financial budget √ or forecast √ approved by
the management √.
(10√ x ½ = 5 marks)

c) (i) The impairment loss (if any) for the machine as at 31 December 2013

RM RM
Cost (1/1/11) 980,000
Depreciation (31/12/2011) 980,000 x 18% 176,40 √
0
Depreciation (31/12/2012) (980,000 – 176,400) 18% 144,64 √
8
Depreciation (31/12/2013) (980,000 – 176,400 –
144,648)18% 118,61 √ 439,659
1
Carrying Amount 540,341
(31/12/2013)

Recoverable amount will be the higher of fair value less cost to sell and Value-in-Use.

Value in Use as at 31/12/2013

Year Estimated Discount Discounted
Cash flow (8%) Amount
RM RM
2014 111,800 0.909 101,626 √
2015 106,080 0.826 87,622 √
2016 103,880 0.751 78,014 √
2017 102,120 0.683 69,748 √
2018 305,200 0.621 189,529 √
Value in use 526,539

Fair value less cost to sell = 535,000

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 FAR560 – JUNE 2016

Value in Use = 526,539

Recoverable amount (the higher of) = RM 535,000√

Since CA > RA, there is an impairment loss of = 540,341 – 535,000 = 5,341√

(10√ x ½ = 5 marks)

(ii)The impairment loss or reversal for the year ended 31 December 2015

RM RM
CA (1/1/2014) 535,000√
Less: Depreciation (31/12/14) 535,000 x 18% 96,300√
(31/12/2015) (535,000 – 96,300) x 18% 78,966√√ 175,266
Carrying amount (31/12/2015) 359,734

Recoverable Amount
Fair value less costs to sell = RM450,000√
Value in Use = RM410,000√
Recoverable amount (the higher of) = RM 450,000√

Since CA < RA, there is an indication of reversal of impairment loss for the machine. √

Calculation of the reversal amount:.

The value of asset without impairment loss test

RM RM
Cost (1/1/2011) 980,000√
Less depreciation :
2011 980,000 x 18% 176,400√
2012 (980,000 – 176,400) 18% 144,648√
2013 (980,000 – 176,400 – 144,648)18% 118,611√
2014 (980,000 – 176,400 – 144,648 –
118,611)18% 97,261√√
2015 (980,000 – 176,400 – 144,648 – 118,611
– 97,261)18% 79,754√√ 616,674
Carrying amount 363,326
(31/12/2015)

CA without impairment < RA 450,000; therefore the new CA is RM363,326 (whichever is

lower) √

Reversal amount
CA without impairment 363,326
CA with impairment 359,734
Reversal amount 3,592√

Since RM3,592 is lower than the original impairment amount of RM5,341√, the amount that
can be reversed is only RM3,592√.
(20√ x ½ = 10 marks)

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 FAR560 – JUNE 2016

(Total = 25 marks)

Question 2

(a) (i) Year 2014

RM RM
31.12.14 Increase in fair value less point of
sale cost due to price change
20 x (550-500) – 2 years 1,000√
5 x (300-200) – 6 months 500√ 1,500

Increase in fair value less point of

sale cost due to physical change
20 x (800-550) – 2 to 3 years 5,000√
5 x (400-300) – 0.5 to 1 year 500√ 5,500
Amount recognised as income 7,000

Year 2015

RM RM
31.12.15 Increase in fair value less point of
sale cost due to price change
3-yr old: 20 x (950-800) 3,000√
1-yr old: 5 x (420-400) 100√
Newborn: 4 x (140-100) 160√
3,260

Increase in fair value less point of

sale cost due to physical change
4-yr old: 20 x (1,000-950) 1,000√
2-yr old: 5 x (650-420) 1,150√
6-mth old: 4 x (220-140) 320√
2,470
Amount recognised as income 5,730
(10 √ x ½ = 5 marks)

(a) (ii)

RM
31.12.14 20 x 800 (3 year old) √√16,000
5 x 400 (1 year old) √√2,000
Carrying amount 18,000

31.12.15 20 x 1,000 4 year old √√20,000

5 x 650 2 year old √√3,250
4 x 220 6 months √√880
Carrying amount 24,130

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 FAR560 – JUNE 2016

Alternative solution

2014 RM
1/1 Balance b/d 20 x 500 √10,000
1/7 Purchase 5 x 200 √√1,000
31/12 FV gain (price + physical change) OF √7,000
Carrying amount (Balance c/d) 18,000

2015
1/1 Balance b/d √√18,000
1/7 FV gain (newborn) 4 x 100 √√400
31/12 FV gain (price + physical change) OF √√5,730
Carrying amount (Balance c/d) 24,130

(10 √ x ½ = 5 marks)

b)
i) Beef cattle are classified as consumable biological assets (CBAs) √.

CBAs are the biological assets intended to be grown or nurtured and then
harvested and sold as agricultural produce or products √. Since the beef cattle
are grown and then slaughtered and sold as beef/meat √√, they are CBAs.

ii) Dairy cattle are bearer biological assets (BBAs). √

BBAs are living plants or animals used in the production or supply of

agricultural produce √; is expected to bear produce for more than one period √
and has a remote likelihood of being sold as an agricultural produce √. Since
dairy cattle are grown to produce milk which is then sold to the market √√,
they are BBAs.

(10√ x ½ = 5 marks)

c) Factors to be considered in determining fair value:

i. Grouping: Grouping them according to significant attributes like age group or
quality√
ii. Contract price√
iii. Existence of an active market: use quoted price of that market√
iv. No active market, use most recent market transactions or market prices of
similar assets or sector benchmark eg per kg chicken√
v. No active market in present condition of the asset: Use present value of the
expected cash flows from the asset discounted at “current market-determined
pre tax rate”. √
(5√ x 1 = 5 marks)

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 FAR560 – JUNE 2016

Question 3

a) Aru Bhd has only 45% equity interest in Nemu Bhd  which generally would not give it
control over Nemu Bhd . However, in this case, Aru Bhd also has 50% convertible
debentures of Nemu Bhd which, when converted, would increase its interest in Nemu
Bhd to 65% . Under MFRS 10, potential voting rights has to be taken into
consideration in determining whether an entity has control over another entity.
Therefore, taking into consideration its potential voting rights, Aru Bhd does have
control over Nemu Bhd although it does not have the majority voting rights in Nemu
Bhd . This means that Nemu Bhd is a subsidiary of Aru Bhd .
(10 x ½ = 5 marks)

b) Aru Bhd
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 2015 

RM’000
Revenue (4,000 + 3,600)  + 2,400 – (400 9,200.00
x125%) - 300
COS (800 +700)  + 600 – 500 – 300 + (URP
100 x ½) + (URP 300 x 25/100 x ¼) (1,368.75)
Gross profit 7,831.75
Income from quoted
investments 400 + 30 430.00
Gain on disposal - bldg **nil
Dividend from Hana (18-18) **nil
Dividend from Nemu (9-9) Nil
Operating expenses (800 + 500) + 360 – (overdepn 20/4)  (1,655.00)
Goodwill impairment (1,900  X 10%) (190.00)
PBT 6,416.25
Taxation (710 + 610)  + 360 (1,680.00)
PAT 4,736.25
OCI
Revaluation surplus  30.00
TCI 4,766.25

Profit attributable to:

Parent 3,538.75
NCI Hana: (1,820-50) x 40%  708.00
Nemu: (1,080 x 55%) – gw imp (190 X 55%) 489.50 1,197.5
4,736.75

TCI attributable to:

Parent 3,556.75
NCI 1,197.5 (OF)  + (30  x 40%) 1,209.50
4,766.25

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 FAR560 – JUNE 2016

**award these marks even if the student does not show these items in the statement.
(40 x ½ = 20 marks)

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 FAR560 – JUNE 2016

c) Analysis of the components of GRP and NCI

GRP NCI
RM’000 RM’000
Balance 1/1/15 Aru 240 Balance 1/1/15:
Hana: 90  x 54 FV on DOA
60%
Nemu: (bal b/d 70 Hana: 4,000  x
–Pre-acqn10)  x 40%  x 1.25 2,000
45% 27
Nemu: 2,000 x
55%  x 2  2,200
Post-acquisition profit
Hana: 90 x 40% 36
______ Nemu: 60 x 55% 33
321 4,269
PAT for the year 3,538.75
TCI for the year  1,209.5
Dividends paid  (40) Dividends paid:
Hana: 15  x 40% (6)
_____ Nemu: 20 x 55% (11)
Balance 31/12/15 3,819.75 5,461.5

(20 x ½ = 10 marks)

Question 4

PART A

i) To comply with the requirements of MFRS 134 Interim Financial Reporting , the
company has to prepare the following sets of statements of profit or loss and other
comprehensive income for the 2nd quarter of the year ended 31 December 2015:

Reporting Reporting dates

period
Set 1
Current period  3 months  30 June 2015 
Comparative period  3 months  30 June 2014 

Set 2 (Year - to - date)

Current period 6 months  30 June 2015 
Comparative period 6 months  30 June 2014 

(10  x ½ = 5 marks)

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 FAR560 – JUNE 2016

ii) Carrying amounts of machinery as at 30 Sept 2015

RM000 RM000
Cost 1/1/2015 20,000
Disposal 1/4/2015 (600) 
Acquired on 30/9/2015 300 19,700

Accum. Dep 1/1/2015 12,000

Disposal 1/4/2015 (600-240) (360)
11,640
Accumulated depn for three quarters ended 30
Sept 2015 (19,700  x 20%) x (3/4)  2,955
Acc. Dep as at 30 Sept 2015 14,595
Carrying amount as at 30 Sept 2015 5,105
(10  x ½ = 5 marks)

PART B

a) Threshold test:

i. Reported revenue of a segment, including both sales to external customers and

intersegment sales or transfers, is 10 percent or more of the combined revenue of all
operating segments.
ii. The amount of reported profits or loss of the segment is 10 percent or more than the
combined reported profits of all profit making segments or the combined losses of all
loss making segments, whichever is greater in absolute amount.
iii. The assets of the segment are 10 percent or more of the combined assets of all
operating segments.
(1 mark each x 3 = 3 marks)

b)
Shoes Sports Equipment Jerseys Total

RM million RM million RM million RM

million

External sales 225 250 375

Inter-segment sales 25 65 300

√ 250 √315 √ 675 √1,240

250 315 675

x 100 x 100 x 100
1,240 1,240 1,240

¿ 20.2 %√ ¿ 25.4 % √ ¿ 54.4 % √

Segment result (profits) 36 74 294 √404

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 FAR560 – JUNE 2016

36 74 294
x 100 x 100 x 100
404 404 404
¿ 8.9 % √ ¿ 18.3 % √ ¿ 72.8 % √
Segment assets 315 525 650 √1,490

315 525 650

x 100 x 100 x 100
1,490 1,490 1,490
¿ 21.1 %√ ¿ 35.2 %√ ¿ 43.6 %√

Using revenue as the basis, all three segments are reportable segments as their revenue
exceed the 10% threshold. √√

Using segment result as the basis, only sports equipment and jerseys are reportable
segments as these two segments exceed the 10% threshold. √√

Using segment assets as the basis, all three segments are reportable segments as their
assets exceed the 10% threshold. √√

(21√ x 1/3 = 7 marks)

(Total = 20 marks)