FAR460 – JAN 2018

FAR460 (JANUARY 2018)

Suggested solution

QUESTION 1
a.
Pegaga Bhd
Statement of Profit and Loss and Other Comprehensive Income
for the year ended 30 June 2017

RM’000
Sales 157,200 √
Cost of sales (70,400+3,122) (73,522) √√
Gross profit 83,678
Other income 34,000 √
Income from investment 7,000 √
Selling & distribution costs (15,350) √√
Administrative costs (18,750) 5√
Finance costs (175) √√
Profit before tax 90,403
Income tax expense (2,500) √
Profit after tax 87,903

Other comprehensive income: √

Surplus on revaluation of building 4,900 √
Total comprehensive income √ 92,803

(18√ x ½ = 9 marks)

Workings:
Admin Dist Finance
RM’000 RM’000 RM’000
As per draft 11,450√ 10,550√ 100√
Wages and salaries 4,000√
Directors fees 1,000√
Depreciation on building 1,400√
Depreciation on motor vehicles 4,800√
Accrued interest on bank loan 75√
Provision for damages 900√
Total 18,750 15,350 175

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 FAR460 – JAN 2018

b.
Pegaga Bhd
Statement of changes in equity for the year ended 30 June 2017

6% Non-
cumulative Asset
Ordinary preference Retained revaluation
shares shares earnings reserves
RM’000 RM’000 RM’000 RM’000
Bal as at 1 July 2016 √ 100,000 √ 10,000 √ 22,310
Prior year adjustment √ (300)
Restated balance 100,000 10,000 22,010
Surplus √ 4,900
Current year profit √ 87,903
Dividend paid √√ (2,300)
Bal as at 30 June 2017 100,000 10,000 107,613 4,900
(8√ x ½ = 4 marks)

c.
Pegaga Bhd
Statement of Financial Position as at 30 June 2017

Non-current assets RM’000

Property, plant and equipment √ 127,158
Investment property 14,000 √
Investments 50,000 √
Biological assets 10,000 √
Intangible assets 15,000 √216,158

Currents assets
Inventories 3,400 √
Trade receivables (9,450-300) 9,150 √√
Bank (13,600-2,820) 10,780 √√23,330
239,488
Equity
Share capital √ 110,000
Retained earnings √ 107,613
Other reserves √ 4,900 222,513

Non-current liabilities
5% bank loan √ 3,500

Current liabilities
Trade payables 11,700 √
Tax payable 800 √√
Provision for damages 900 √
Accrued interest on bank loan 75 √ 13,475
239,488
19√

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 FAR460 – JAN 2018

c.
Note on PPE
Land Buildings Plant and Motor Total
equipment vehicles
Cost/valuation RM’000 RM’000 RM’000 RM’000 RM’000
As at 1 July 2016 √ 50,000 √ 40,000 √ 35,500 √ 24,000
Elimination of acc dep √ (6,400)
Surplus √ 4,900
Addition √√ 2,820
As at 30 June 2017 50,000 38,500 38,320 24,000 150,820
Accum Depreciation
As at 1 July 2016 - √ 5,000 √ 7,100 √ 8,640
Current year depn - √ 1,400 √ 3,122 √ 4,800
Elimination of acc dep √ (6,400)
As at 30 June 2017 - 0 10,222 13,440 23,662
Carrying amount 50,000 38,500 28,098 10,560 127,158
15√
(34√ x ½= 17 marks)
(Total: 30 marks)

QUESTION 2

a. The costs incurred that may be part of the initial costs of the machine are:

RM
Invoice price √ 2,003,000√
Installation costs√ 25,000√
Cost of site preparation√ 30,000√
Testing costs√ 10,000√
Import duties√ 22,000√
Total 2,090,000

(10√ @ ½ = 5 marks)

b.
i. On 1 July 2015, the new component of RM350,000√ is capitalised√ and added to the
carrying amount of the machinery√. This is because this cost incurred met the criteria
of asset recognition√ as the production capacity of the machinery is expected to
increase√. Future economic benefits will flow into the entity√ and the cost can be
measured reliably√. The carrying amount of the old component of RM208,000√√√
(RM260,000 – (RM260,000/10 x 2)) will be derecognised√ and treated as an
expense in the SOPL√.

(Any 10√ x ½ = 5 marks)

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ii.

DR (RM) CR (RM)
Machinery √ √ 350,000
Bank/Liability √ 350,000

Profit or loss √ √√ 208,000

Machinery 208,000

Depreciation expense √ √√√ 226,750

Accum depreciation 226,750

Working: 2090 – 418 = 1,672 + 350 – 208 = 1,814/8 = 226.75

(10√ @ 1/2 = 5 marks)

c i.
The company adopts the cost model. √
An item of PPE√ is measured at its cost√ less accumulated depreciation√ less
accumulated impairment loss√.

The alternative treatment is revaluation model. √

An item of PPE√ whose fair value can be measured reliably shall be measured at its
revalued√ amount less subsequent accumulated depreciation√ less subsequent
accumulated impairment loss√.

In the absence of its fair value may result in the company using the costs model.
(10√ @ ½ = 5 marks)

c ii.
Fair value less selling costs = RM1,330,000 √
Value in use = RM1,407,000 √

RA will be the higher √ RM1,407,000

Compared √ with CA on 1.7.2016 (1,814,000-226,750) RM1,587,250 √√

There is an impairment loss √ of RM180,250

CA on 30 June 2017 = RM1,206,000

RA RM1,407,000 √ less depn exp of RM201,000 (1,407,000/ 7 years √√)
(10√ @ ½ = 5 marks)
(Total: 25 marks)

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QUESTION 3

a. A contingent liability is:

a. possible obligation that arises from past events and whose
existence will be confirmed only by the occurrence or non-
occurrence of one or more uncertain future events not wholly
within the control of the entity √√; or

b. a present obligation that arises from past events but is not

recognised √ because:
(i) it is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation√;
or
(ii) the amount of the obligation cannot be measured with
sufficient reliability √.
(5√ = 5 marks)

b.
i. Berlian Bhd had to recognise a provision for clean-up costs√ since the company
had present obligation due to past event√ that would result in a probable outflow
of resources√ and reliable estimate√.
There was no legal obligation√ as no law existed√. It was a constructive
obligation√. The company claimed to be a socially and environmentally
responsible corporate citizen√ that was established policy regarding environment
to rectify the environmental damage.
A provision of RM7,800,000√ would have to be made and shown as a liability√.
Insurance compensation receivable of RM4,000,000√ would be treated as a
separate asset√.
(Any 10√ x ½ = 5 marks).

ii. Berlian Bhd should not recognise a provision for future operating losses√ since
future operating losses did not meet the definition of a liability √ under MFRS 137
Provisions, Contingent Liabilities and Contingent Assets√.

Berlian Bhd could not recognise a provision on 20 June 2017 because there was
no present obligation√ (legal or constructive) due to a past event that would
result in probable outflow of economic benefits√. In addition, the amount could
not be measured reliably√. Thus RM300,000 would not be recognised and a
provision should not be disclosed in the statement of financial position√.
(Any 5√ = 5 marks)

c. Berlian Bhd should not recognised a provision√ because there was no present
obligation (legal or constructive) √ since the restructuring plan had not been
announced to the affected employees or other interested parties√.

There must be a detailed formal plan√ and those affected or interested parties
must be informed of the restructuring plan√.
(5√ = 5 marks)
(Total: 20 marks)

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 FAR460 – JAN 2018

QUESTION 4
a.
Indah Bhd
Statement of Cash Flows for the year ended 30 June 2017
RM’000 RM’000
Cash flows from operating activities:
Cash receipts from customers 25,700 √√√
Payments to creditors (1,770) 5√
Payment for expenses (7,560-250-400-1,300-75-3,600) (1,935) 5√
Cash generated from operation 21,995
Interest paid (1,220) √√√
Income tax paid (1,550) √√√
Net cash flows from operating activities 19,225

Cash flows from investing activities:

Purchase of property, plant and equipment (16,550) 5√
Purchase of IP (1,690) 3√
Proceeds from sale of machinery (950-75) 875 √√
Purchase of biological assets (15,000) √
Acquisition of intangibles (2,900) √√√
Interest income received 330 √√
Net cash flows from investing activities (34,935)

Cash flows from financing activities:

Proceeds from issuance of share capital 20,000 √√
Proceeds from issue of debentures 2,100 √√
Dividend paid (5,980) √
Net cash flows from financing activities 16,120
Net increase in cash and cash equivalent 410
Cash and cash equivalent beginning of year 1,440
Cash and cash equivalent end of year 1,850
(40 / x ½ = 20 marks)

Workings:

Cash and cash equivalent

2016 2017
RM’000 RM’000
Cash 1,940 2,400
Bank overdraft (500) (550)
1,440 1,850

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 FAR460 – JAN 2018

Trade receivables
RM’000 RM’000
Balance bld 3,550√ Bank 25,700
Sales 25,830√ Balance c/d 3,680√
29,380 29,380

Purchases = 2,120+1,500-1,200=2,420

Trade payables
RM’000 RM’000
Bank 1,770 Balance b/d 350√
Bal c/d 1,000√ Purchases 2,420√
2,770 2,770

Property, plant and equipment

RM’000 RM’000
Balance b/d 43,000√ Disposal 950√
Surplus 5,000√ Depreciation 3,600√
Bank 16,550 Balance c/d 60,000√
64,550 64,550

Investment properties
RM’000 RM’000
Balance b/d 8,560√ FV loss 250√
Bank 1,690 Balance c/d 10,000√
10,250 10,250

Interest payable
RM’000 RM’000
Bank 1,220 Balance b/d 100√
Balance c/d 180√ SOPL 1,300√
1,400 1,400

Taxation
RM’000 RM’000
Balance b/d 100√
Bank 1,550
Balance c/d 250√ SOPL 1,900√
1,900 1,900

Interest income receivable

RM’000 RM’000
Bank 330
SOPL 550√ Balance c/d 220√
550 550

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Intangible assets
RM’000 RM’000
Balance b/d 10,000√ SOPL – lmpairment 400√
loss
Bank 2,900 Balance c/d 12,500√
12,900 12,900

b.

 The net increase in cash and cash equivalents shows that the company’s liquidity
position is good. √

 The company has enough cash to meet its obligations. √

 The company’s operating performance shows a positive cash flow. √

 The company is doing well in its main operating activities. √

 The company able to collect large cash from its customers resulted in positive cash
flows for operating activities. √

 The cash generated from operating activities were able to cover the investing
activities. √

Or any relevant answers

(Any 5 √ = 5
marks)
(Total: 25 marks)

END OF MARKING SCHEME