CONFIDENTIAL AC/JUL 2022/FAR320

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE FINANCIAL ACCOUNTING 5

COURSE CODE FAR320
EXAMINATION JULY 2022
TIME 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions.

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) an Answer Booklet - provided by the Faculty

5. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 7 printed pages
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QUESTION 1

Ace Bhd acquired shares and debentures in Best Bhd on 1 January 2020. On that date, the
balance in general reserve and retained profit of Best Bhd were RM60,000 and RM75,000
respectively. Below are the statements of financial position of Ace Bhd and Best Bhd as at 31
December 2021.

Ace Bhd Best Bhd

RM RM
Assets
Land and building 1,500,000 500,000
Plant and equipment at carrying value 1,200,000 750,000
Motor vehicles at carrying value 320,000 350,500
Investment in Best Bhd at cost:
1,400,000 ordinary shares 1,120,000
240,000 10% preference shares 240,000
RM100,000 10% debentures 100,000
Inventories 195,000 120,000
Account receivables 60,000 55,000
Bills receivables 120,000 80,000
Bank 385,000 1,389,500
5,240,000 3,245,000
Equities and liabilities
Ordinary share capital 1,800,000 875,000
10% preference share capital 500,000 600,000
General reserves 450,000 250,000
Retained profits 1,675,000 850,000
10% Debentures 600,000 500,000
Bills payable 95,000 60,000
Account payables 120,000 110,000
5,240,000 3,245,000

Additional information:

1. Share capital and debentures of Best Bhd on the date of acquisition were as follows:
RM
1,750,000 ordinary shares 875,000
600,000 10% preference shares 600,000
10% debentures 500,000

2. The non-controlling interest is measured at the proportion of fair value of net assets of
Best Bhd on the date of acquisition.

3. During the year 2021, Ace Bhd had invoiced inventories to Best Bhd at a profit
margin of 20%. At the end of the year, the remaining amount of such inventories in the
account of Best Bhd was valued at RM28,000.

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4. Ace Bhd sold an equipment to Best Bhd on 1 January 2021 amounted RM350.000. The
carrying amount of such equipment was RM300.000. Both companies depreciate plant
and equipment at 15% per-annum on reducing balance method, yearly basis.

5. At the end of the year, the directors of both companies decided to declare dividend for
the preference shares.

6. Debenture interest for both companies has not yet been provided.

7. Bills payable of Best Bhd were in favour of Ace Bhd and Ace Bhd had discounted
RM8,500 of the bills.

8. Goodwill on consolidation (if any) is impaired by 10%.

Required:

Determine Consolidated Statement of Financial Position of Ace Bhd and its subsidiary, Best
Bhd as at 31 December 2021. (Show all workings).
(Total: 30 marks)

QUESTION 2

a. State any TWO (2) criteria that need to be satisfied before expenditures can be classified
as an intangible asset based on MFRS138 Intangible Assets.
(2 marks)

b. Merbok Bhd is principally engaged in the manufacturing of electrical goods. In 2021,

Merbok Bhd incurred research and development costs of RM4,800,000 on the project
to develop a new product. RM1,600,000 was incurred during the four (4) months
research phase beginning 1 January 2021. In May 2021, development on the new
product began and the cost incurred during the phase was evenly spread. Beginning of
August 2021, the company was confident of the success and potential profits of the
product. The development phase was completed in December 2021. Commercial
production of the new product will only begin in April 2022.

On 1 January 2021, Merbok Bhd acquired customer lists from one of its competitors at
a cost of RM360.000 to increase sales of the the new product in the next six years.

On 1 July 2021, Merbok Bhd acquired a patent for a product design at a cost of
RM3,200,000. The patent is believed to have an estimated useful life of 10 years.
However, on 31 December 2021,.similar product by a rival company had led to a
significant decline in cash flows. The present value of future cash inflows was estimated
at 80% of the initial cost and the fair value less cost to sale is estimated at RM2,600,000.
Financial year ends on 31 December every year.

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Required:

i. Assess the accounting treatment of the research and development costs for the
year ended 31 December 2021.
(10 marks)

ii. Illustrate the Statement of Financial Position (extract) as at 31 December 2021.

(3 marks)
(Total: 15 marks)

QUESTION 3

Trader Bhd had incurred exceptional losses and was unable to pay dividend for several years.
The company passed a special resolution and to undertake a capital reduction scheme as to
reduce the severe financial risk. The following is the statement of financial position as at 31
December 2021.

RM
Non-current assets
Property, plant and equipment 420,000
Research and development 180,000
Investment 100,000

Current assets
Inventory 160,000
Trade receivables 60,000
Bank 90,000
Total assets 1,010,000

Ordinary share capital 1,550,000

10% Preference share capital 450,000
Profit or loss (1,210,000)

Current liabilities
Trade payables 220,000
Total equity and liabilities 1,010,000

Notes:

1. The fair values of the assets were as follows:

Property, plant and equipment 450,000
Investment 80,000
Inventory 100,000

2. Accumulated loss and intangible assets are to be written-off.

3. 10% preference dividend were three years in arrears.

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Required:

a. Explain THREE (3) ways for company to reduce its capital in accordance with Section
116 of the Companies Act 2016.
(5 marks)

b. Indicate the actual loss of the company.

(5 marks)
(Total: 10 marks)

QUESTION 4

a. State THREE (3) examples of biological assets and its agriculture produce.
(3 marks)

b. Best Farm Bhd is in the business of livestock farming which started the business with
150 of 1 year old calves. They had provided the following information regarding the
livestock for the year ended 31 December 2021:

Date Details
1 January 2021 Hold 150 calves aged 1 year old
1 January 2021 Purchased 100 calves aged 1.5 years old
30 June 2021 Purchased 50 calves aged 2 years old
1 July 2021 10 calves were born

Fair value less cost to sell per livestock was as follows:

2021 Details RM
1 January 1 year old 470
1 January 1.5 years old 500
1 January 2 years old 640
30 June 2 years old 650
1 July New born 300
31 December 1 year old 550
31 December 1.5 years old 590
31 December 2 years old 680
31 December 2.5 years old 710
31 December 6 months old 450
31 December New born 350

Required:

Compute the revenue from managing the livestock for the year ended 31 December
2021. Show all necessary workings for the changes in the fair value less cost to sell due
to the price changes and physical changes.
(12 marks)
(Total: 15 marks)

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QUESTION 5

Below are the Statements of Profit or Loss and Other Comprehensive and Statement of
Changes in Equity of Blue Bhd and Brown Bhd for the year ended 31 December 2021.

Statement of Profit or Loss and Other Comprehensive Income for the year ended
31 December 2021
Blue Bhd Brown Bhd
RM RM
Sales 3,600,000 3,300,000
Cost of sales (1,500,000) (1,000,000)
Gross profit 2,100,000 2,300,000
Profit on sale of motor van - 17,500
Other operating income 330,000
Consultant services 6,600
Debentures interest from Brown Bhd 10,000
Interest income 19,000 6,000
2,465,600 2,323,500
Administrative expenses (250,000) (200,000)
Selling and distribution expenses (200,000) (100,000)
Finance costs (100,000) (50,000)
Operating profit before taxation 1,915,600 1,973,500
Taxation (470,900) (490,300)
Profit for the year 1,444,700 1,483,200

Statement of Changes in Equity (extract) for the year ended 31 December 2021
Blue Bhd Brown Bhd
RM RM
Retained profit as at 1 January 2021 405,000 180,000
Net profit for the year 1,447,000 1,483,200
1,852,000 1,663,200
Appropriations:
Interim ordinary dividend (20,000) (20,000)
Preference dividend (18,000) (9,000)
Transfer to general reserve (20,000) (10,000)
Balance as at 31 December 2021 1,794,000 1,624,200

Additional information:

1. On 1 January 2020, Blue Bhd acquired 90% of the ordinary shares of Brown Bhd when
the retained profit of Brown Bhd had a debit balance of RM15,000. Blue Bhd had also
acquired RM100,000 debentures in Brown Bhd at that date.

2. At the date of acquisition, Blue Bhd and Brown Bhd had the following share capital and
debentures:

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CONFIDENTIAL AC/JUL 2022/FAR320

Blue Bhd Brown Bhd

RM RM
Ordinary share capital 2,000,000 1,000,000
6% Preference share capital 600,000 300,000
10% debentures - 300,000

3. On 1 October 2021, the board of directors of both companies declared the final ordinary
dividend as follows:

Blue Bhd : RM10,000

Brown Bhd : RM9,000

4. Blue Bhd charges Brown Bhd for consultancy services of RM550 per month. The amount
paid by Brown Bhd is included in its administrative expenses.

5. During the year, Blue Bhd sold inventories costing RM600,000 for RM900,000 to Brown
Bhd. Brown Bhd has not sold any of these goods.

6. During the year Brown Bhd sold motor van to Blue Bhd at RM17,500 above its carrying
value. Depreciation has been provided at 20% on carrying value on yearly basis.

7. Goodwill on consolidation was RM80.000 of which RM40.000 was impaired on 31

December 2020. At the end of the current year another RM16,000 of the goodwill was
impaired.

Required:

a. Determine the Consolidated Statement of Profit or Loss and Other Comprehensive

Income of Blue Bhd and its subsidiary Brown Bhd for the year ended 31 December 2021.
(Show all workings.)
(20 marks)

b. Determine the Consolidated Statement of Changes in Equity (extract) for the year ended
31 December 2021 showing the retained profit and non-controlling interest column only.
(Show all workings.)
(10 marks)
(Total: 30 marks)

END OF QUESTION PAPER

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