MIAQE AFAR SEPTEMBER 2016 SUGGESTED SOLUTION QUESTION 1

Size: px

Start display at page:

Download "MIAQE AFAR SEPTEMBER 2016 SUGGESTED SOLUTION QUESTION 1"

Rhoda Paul
5 years ago
Views:

1 MIAQE AFAR SEPTEMBER 2016 SUGGESTED SOLUTION QUESTION 1 Goodwill NCI GRP RMmill RMmill RMmill RMmill Bazaar Bhd CT (20%) 1,050 +) FV of previous holding (40%) 1,800 +) NCI (40% x 4,490) 1,796 1,796 4,646 -) FVNA (1 Jan 2016) OSC 3,000 RP [(1, ) x 18] 1, SP 200 RR (150) (4,490) Goodwill 156 Cadet Bhd CT (600xRM2.50) 1,500 +) NCI (40% x 2,100) ,340 -) FVNA (1 July 2015) OSC 1500 RP 432 SP 168 (2,100) Goodwill 240 Ret profit (Bazaar) Bal 1,650 -) Pre (1,440) -) URP-Inv (600x25%x25/125) (30) +) Dep-Plant (150/3) _ (40%) 92 (60%) 138 Ret profit (Cadet) Bal 987 -) Pre (432) -) Ord div payable (45) 510 (40%) 204 (60%) 306 Ret profit (Aqua) Bal 1,200 -) URP-Property (200) +) Dep-Property 20 +) Ord div receivable Bazaar 54 +) Ord div receivable Cadet 27 +) FV change (1,800-1,500) 300 CSOFP 2,932 1,845 (28 x ½ = 14 marks)

2 Consolidated Statement of Financial Position of Aqua Bhd as at 30 June 2016 Non-current Assets RMmill Property, plant and equipment [5,999+5,151+2,775] ,645 Goodwill schedule 396 Current assets Inventories [1, ] -30 2,736 Accounts Receivable [ ] 1,350 Cash & Bank [ ] +15 1,018 19,145 Equity Ordinary shares [7, ] 8,150 Retained Profit Schedule 1,845 Share premium [ ] 967 NCI Schedule 2,932 Non current liability 8% Debenture [975+1, ] 2,895 Current liabilities Accounts Payable [1, ] 2,161 Ord div payable [141 +(90-54 )+(45-27 )] ,145 (22 x ½ = 11 marks) (Total 25 marks) QUESTION 2 Part A. a) Classification of leases : Machinery A is an operating lease because the lessor (Beaver Bhd) would undertake all maintenance and repair. Thus risk and reward incidental to the ownership of the machinery were not transferred to the lessee. Machinery B is a finance lease because i) the lease was for a specialized asset ii) lease term is for the major part of the useful life. (5 x 1 = 5 marks) b) Total interest = (60m x10) 468m = 132m Sum of digit = (10 x 11)/2 = 55 Interest allocation: m x 10/55 = 24m m x 9/55 = 21.6m m x 8/55 = 19.2m m x 7/55 = 16.8m

3 Fin. Year Op. bal Interest Payment Cl. bal 30 June ,000,000 24,000,000 60,000, ,000, ,000,000 21,600,000 60,000, ,600, ,600,000 19,200,000 60,000, ,800, ,800,000 16,800,000 60,000, ,600,000 Awesome Bhd Statement of financial position (extract) as at 30 June Non-current Asset Property plant and equipment 468,000, ,000,000 Accumulated depreciation 46,800,000 93,600,000 Non-current Liability Lease creditor 393,600, ,800,000 Current Liability Lease creditor 38,400,000 40,800,000 (10 x ½ = 5 marks) Part B: Deferred Tax a) Based on MFRS112, temporary differences are differences between the carrying amount of an asset or liability in the statement of financial position and its tax base. Temporary differences can be a taxable temporary difference (TTD) or deductible temporary difference (DTD). The standard requires that a deferred tax liability shall be provided for TTD and deferred tax asset shall be recognized for DTD. (3 x 1 = 3 marks)

4 b) Transaction Carrying Tax Base TTD DTD amount RM RM RM RM Building 3,000,000 3,000,000 Acc Depreciation 3,000,000 / 40 (75,000) Initial allowance (300,000) 10% * 3,000,000 Annual allowance 5%*3,000,000 (150,000) Surplus on revaluation 3,500,000 2,925, ,000 - CA as at 30 June ,500,000 2,550, ,000 Research and Development cost 450, ,000 Trade receivables 500, ,000 Doubtful debts 10%*500,000 (50,000) - CA as at 31 Dec , ,000 50,000 1,400,000 50,000 Net TTD 1,350,000 Deferred tax 25% 337,500 (14 x ½ = 7 marks) Part C Under deferred income method, the government grant received will be treated as deferred income which is a liability. The deferred income of RM3,000,000 will be recognized in statement of profit or loss on a systematic basis over the useful life of the asset of 10 years. Therefore, the amount of RM300,000 will be recognised as income in SOPL annually. The liability of RM2,700,000 will be shown as liability in SOFP as at 30 June 2016; RM300,000 of the amount will be shown as current liability and the balance of RM2,400,000 will be shown as non-current liability. (10 x ½ = 5 marks) (Total: 25 marks)

5 QUESTION 3 Golden Bhd Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2016 RM000 RM000 Revenue 108,000 6,000(W1) 102,000 COS 45,540 4,800(W1) + 26,500(W2) (67,240) Gross profit 34,760 Distribution costs (10,590) Administration expenses (11,880) Profit from operations 12,290 Finance costs: Interest on loan to Silver Bhd (180) Interest on loan (W4) 2, ,281 1,250 (2,431) Add: Investment income 1, (W3) 2,075 Profit before tax 11,754 Tax (W5) (7,740) Profit for the year 4014 Other comprehensive Income Items that may not be reclassified to profit or loss: Revaluation gain 1,500 Total comprehensive income for the year 5,514 ( 22 x ½ = 11 marks) Golden Bhd Statement of Financial Position as at 30 June 2016 Non-current assets Property, Plant and Equipment (W2) 110,000 Investment Property (W3) 23, ,175 Current assets Inventory (9, ,800 (W1)) 14,300 Trade receivables 11,250 Bank 14,750 40, ,475 Equity Share capital 45,000 Retained earnings (50, , )(W2) 54,574 Revaluation (1, ) 1,400 Non-current liabilities 6% Loan note (W4) 40,031 Deferred tax 3,240 43,271 Current liabilities Loan from Silver 6,000 Accrued interest on sale and repurchase loan 180 Tax payable 11,700 Trade payables 11,350 29, ,475 ( 26 x ½ = 13 marks; presentation 1 mark)

6 Workings: 1. Substance over form This is not a true sale but a short-term loan received from Silver Bhd with a finance cost of RM180, Remove sale and treat as loan: Dr Revenue - SPL RM6,000; Cr Loan from Silver Bhd SFP RM6, Bring goods back into inventory (at cost): Dr Closing Inventory SFP RM4,800; Cr COS SPL RM4, Account for finance cost: Dr Finance cost SPL RM18; Cr Accrued interest SFP RM Property, plant and equipment Carrying value at 1 July ,000 Revaluation (6,000 4,500) 1,500 Depreciation (26,500) Carrying value at 30 June ,000 Depreciation: Revalued building (6,000 / 15 years) 400 Other PPE (135, ,500 rev 6,000) x 20% 26,100 26,500 Transfer of excess depreciation from ARR to SPL: 1,500/15 years = Investment property Bal at 1 July ,500 Bal at 30 June 2016 (22,500 x 1.03) 23,175 Gain of FV change 675 Dr Investment Cr Investment Income 4. Loan note The discount and direct issue cost should not be treated as finance costs but spread over the life of the loan using the effective interest rate. Dr Loan note 1,250 Cr Finance costs 1,250

7 Loan note accounted for using amortised cost basis: Year Opening balance Effective 9.5% Interest Closing balance 30 June ,750 (40,000-1,250) 3,681 (2,400) 40, Taxation Year end estimate 11,700 Decrease in DT (W6) (3,060) Over provision ( 900) P/L 7, Deferred Tax Bal at 1 July ,300 Decrease in DT required (3,060) Bal at 30 June ,240 (10,800 x 30%) (Total: 25 marks) QUESTION 4 Part A (a) According to MFRS 137, provision for future expenditure can be recognized if the entity: i) has a present obligation either legal (required by the law) or constructive (valid expectation arose) to perform as a results from past events. ii) is probable to transfer economic benefit to settle the obligation. iii) Can reliably estimate cost of the provisions. To qualify a provision as a probable event, it should be highly like to occur rather than not. The constructive obligation (not because of legal requirement) to the entity arose due to the pattern of past practices, published policies or specific current statement made and will result a valid expectation by the counterparty that the entity will discharge or perform the responsibilities e.g. a retail store that has a long-standing policy of allowing customers to return merchandise within a 30-day period. While contingent liabilities are referring to: Any future expenditures that is possible to occur (i.e. mere likely) is considered as contingent liabilities. The occurrence of contingent liabilities will depend on other uncertain future events that are beyond the entity s control.

8 The future obligation will become contingent when it is not probable to reliably estimate either the settlement amount or the timing of settlement. (4 ½ marks) (b) There was a present obligation due to constructive obligation made by Platinum Bhd for warranties as it create valid expectation for their customers. Thus, the provision for warranties should be made in the financial statement for the year ended. However, according to MFRS 137, provisions for large populations of events (warranties, customer refunds) are measured at a probability-weighted expected value. In this case, Platinum Bhd had made the provisions based on the previous year claims and this is not representing the best estimation for the year. The best estimation for the year should reflect the weighted average of the expected cost that was provided by the customer service department. Thus, the provisions for warranties should be RM2.25 million ((5% x RM5 million)+(10% x RM20 million)) and the recognised RM2 million as provision should be replaced with the above estimation. (3 1/2 marks) Part B 1. The brand is an internally generated intangible asset rather than a purchased one. MFRS 138 prohibits the recognition of internally generated brands as asset on the grounds that they cannot be reliably measured in the absence of a commercial transaction. Prime is therefore cannot recognize the brand as intangible asset in its statement of financial position. 2. The patent is amortised to a nil residual value at RM500,000 per annum based on its acquisition cost of RM7 million and remaining useful life of 14 years. The patent cannot be revalued under MFRS 138 as there is no active market for a patent. MFRS 138 does not permit revaluation without an active market as the value cannot be reliably measured in the absence of a commercial transaction. 3. The advertising campaign is treated as an expense normally classify under distribution costs. Advertising expenditure cannot be capitalized as intangible asset under MFRS 138 as the economic benefits it generates cannot be clearly identified and, therefore, no intangible asset is created. (9 marks)

9 Part C Step 1 Compute the results from Discontinuing Operation i.e. Roses Disclosure notes for the computation of Roses RM 000 Revenue 640/ Cost of sales (300)/ Gross profit 340 Admin. costs (220)/ Distribution costs (180)/ Operating loss (60) Loss on disposal (152)/ Redundancy costs (74)/ Loss from DO (286)/ Step 2 Prepare the profit or loss statement for the year ended 30 June 2016 PROFIT OR LOSS STATEMENT - EXTRACT RM 000 Continuing operations: Revenue 1,300/ Cost of sales (640)/ Gross profit 660 Admin. costs (240)/ Distribution costs (120)/ Operating profit 300 Reorganisation costs (196)/ Finance costs (34)/ PBT 70 Income taxes (62)/ Profit from continuing operations 8 Loss from DO (Step 1) (286)/ Loss for the year (278)/ (16 x ½ = 8 marks) (Total 25 marks)

Advanced Financial Accounting and Reporting (AFAR)

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 000 Revenue (176,400 + 105,840)