SUGGESTED ANSWERS

SET A
QUESTION 1
Acquisition of Hobbit in Summer on 1 July 2009

Consideration transferred
FVNCI at date of acquisition
FVNA at date of acquisition:
Equity
Retained earnings
FV adjustment
OCE

Parent
RM million
100

125
9/
8/
6/
-------148

Goodwill
Goodwill impaired

NCI
RM million
80

Total
RM million
100/
80/

(88.8)
11.2
(1.8)/
9.4

(59.2)
20.8
(1.2)/
19.6

(148)
32
( 3)
29

Parent
RM million

NCI
RM million

Total
RM million

40/

84
40

(28.22)
11.78
(0.68)/
11.1

(83)
41
(2)
39

Acquisition in Sunny on 1 July 2011

Consideration transferred
- Direct
- Indirect 40 x 60%
FVNCI at date of acquisition
FVNA at date of acquisition:
Equity
Retained earnings

Goodwill
Goodwill impaired

60/
24/

80
3/
----83

(54.78)
29.22
(1.32)/
27.9

Acquisition in Autumn on 1 January 2012

RM million
Consideration transferred:
80 x 40% = 32 /4 x 2 x 3
FVNA at date of acquisition:
Equity
80
Retained earnings PFY 26 x 6/12 = 13/
a + n b/f
20
113 x 40%
Goodwill
Impaired 10%

48//

(45.2)
2.8
(0.28)/
2.52
RM million
48

Consideration transferred
Share of post acquisition profits:
26 x 6/12 x 40%
Goodwill impaired
URP 1/125 x 25 x 40%
Carrying value of investment in associate

5.2/
(0.28)/
(0.08)/
52.84

Analysis of retained earnings

Balance b/d
Pre acquisition profits
Post acquisition profits
URP
Depreciation : 1.6 x 3 years
Dividends proposed
Dividends receivable :
From Summer 3.75 x 60%
Sunny
2.4 x 30%
2.4 x 60%
Goodwill impaired:
Summer
Sunny
Autumn
Post acquisition profits
Share of post acquisition profits:
Summer 13.39 x 60%/
Sunny
24.6 x 66%/
Autumn 13 x 40%/
To CSFP

Hobbit
RM million
41

(0.08)/
(12)/

Summer
RM million
31
(9)
22
(1.5)/
(4.8)//
(3.75)/

Sunny
RM million
49
(3)
46

Autumn
RM million
46
(33)
13

(2.4)/

2.25/
0.72/
1.44/
(1.8)/
(1.32)/
(0.28)/
13.39
8.03
28.78
5.2
70.5

43.6

13

NCI - Summer 40%

RM million
80

FVNCI at date of acquisition

Share of post acquisition profits:
13.39 x 40%
OCE
Goodwill impaired
Indirect investment
40 x 40%
To CSFP
NCI - Sunny

5.36/
1.6/
(1.2)/
(16)/
69.76

34%
RM million
40

FVNCI at date of acquisition

Share of post acquisition profits:
43.6 x 34%
Goodwill impaired
To CSFP

14.82/
(0.68/)
54.14

Analysis of OCE

Balance b/d
Pre acquisition
Share of post acquisition
4 x 60%
To CSFP

Hobbit
RM million
7

Summer
RM million
10
(6)
4

2.4
9.4

Consolidated statement of financial position of Hobbits Group as at 30 June 2012

PPE
Goodwill
Investment in associate
ITA

130 + 110 + 119 + FV 8 depreciation 4.8

39 + 29

CA
Total assets

58 + 56 + 34 1.5 /

Equity
Share premium
OCE
Retained earnings

240 + shares issued 16/

NCI
NCL
CL
Dividends proposed Hobbit

7 + 2.4/

69.76 + 54.14
20 + 10 + 15
45 + 35 + 9

RM million
362.2//
68/
52.84/
5
146.5
634.54
256
32/
9.4
70.5
123.9
45
84
12/

Dividends to NCI
Total equity and liabilities

3.75 x 40% + 2.4 x 10%

1.74//
634.54

Consolidated statement of comprehensive income for the year ended 30 June 2012

Revenue
COS

250 + 180 +125 -10

(80 + 60 + 40 10 + URP1.5 + URP
depreciation 1.6

Gross profit
Other income
Operating expenses
Share of net profit of associate
Profit before tax
Taxation
Profit for the year
OCI
Total comprehensive income for the year

2+3
68 + 47 + 29 + goodwill impaired 3 + 2
26/2 x 40% - goodwill impaired 0.288
- URP 0.08
(25 + 16 + 10)
5+4

Profit for the year attributable to:

NCI

: Summer
Sunny

60 1.5(URP) 1.6(Deprn) goodwill impaired

3 x 40%
46 goodwill impaired 2 x 34%

Parent /

Total comprehensive income attributable to:

NCI : Summer
Sunny

64 -1.5 (URP) 1.6(Deprn) goodwill impaired

3 x 40%
46 goodwill impaired 2 x 34%

RM
million
545/
(173.1)/////
371.9
5/
(149)/
4.84//
232.74
(51)/
181.74
9/
190.74
RM
million
21.56//
14.96/
145.22
181.74
RM
million
23.16//
14.96/

Parent/

152.62
190.74

Retained profit b / fwd

Hobbit
Summer (29 preacq [9] Deprn [1.6 x 2] x 6%
PFTY
Dividend (Hobbit)
Retained profit c / fwd

RM
(38)
(24.72)
145.22
(12)
70.5

75/3 = 25 marks

QUESTION 2
Petroco Bhd
Statement of Comprehensive Income for the year ended 30 June 2012

RM
Revenue
22,425,000
Cost of sales (W1)
(12,987,000)
Gross profit
9,438,000
Income from investments
260,000
Administrative expenses (W1)
(2,128,100)
Distribution expenses
(1,860,000)
Other operating expense (W1)
(2,281,300)
Profit from operations
3,428,600
Finance expense (W1)
(125,650)
Profit before tax
3,302,950
Taxation (435,000 + 60,000)
(495,000)
Profit for the year
2,807,950
Other Comprehensive Income
Revaluation surplus - land
500,000
Total comprehensive Income
3,307,950

20 x = 10 marks

Petroco Bhd
Statement of changes in equity for the year ended 30 June 2012

As at 1 July 2011
PYA
Profit for the year

Interim dividend
Revaluation surplus
As at 30 June 2012

Share
capital
RM

7,650,000

Share
premium
RM

827,000

Revaluation
reserve
RM

100,000

Retained
earnings
RM

1,182,000

(100,000)
2,807,950

(90,000)

7,650,000

827,000

500,000
600,000

3,799,950

Total Reserves: 5,226,950

8 x - 4 marks

Petroco Bhd
Statement of financial position as at 30 June 2012
RM
Non - Current Assets:
Property, plant and equipment (W2)
Investments
Intangibles: license
Patents and trademarks
Current Assets:
Inventories
Trade receivables
(1,883,000 200,000)
Bank and cash
(1,750,000 77,500)

RM
7,228,400
3,250,000
8,745,200
555,000
19,753,600

11

1,240,000

1,683,000


1,672,500


4,595,500

Non-Current Assets Held For Sale

(1,150,000 x 95%)

1,092,500
25,446,600

Equity and Liabilities

Share capital
Reserves

7,650,000

5,226,950
12,876,950

Non Current Liabilities

Long term loan
deferred tax liability
lease creditor
Current Liabilities
Trade payables
Accruals and provisions
(14,000 + 931,500 + 93,150)
lease creditor
Other payables

500,000

560,000

77,500

1,137,500

246,000

1,038,650


167,500


10,000,000

11,452,150
25,466,600

33 x 1/3 = 11
(Total 25 marks)

Note: The ticks () are counted based on the face of financial statements. The ticks () in the
workings are only for reference.
Workings:

(W1) Allocation of expenses

cost of sales
As per question
Interim dividend
Lease interest see below
Depreciation - building
Depreciation - machinery
Depreciation - vehicles
Depreciation- leased machinery
Amortisation - licence
Impairment - NCAHFS
Bad debt written off
Interest unwinding cost

admin

others

12,735,000 1,682,000

finance
100,000

(90,000)


22,500

83,100

192,000
163,000

60,000
2,186,300

95,000

200,000

12,987,000 2,128,100

2,281,300

93,150
125,650

(W2) Leased Machinery

Year
1 July 2011
30 June 2012
1 July 2012

Cash
(-) payment
Balance c/f
(+) Interest (10% x 222,500)

30 June 2013

(-) payment
Balance c/f

RM
300,000
(77,500)
222,500
22,500
245,000
(77,500)
167,500

(W3) Property, Plant and equipment

Cost/Valuation
As at 1 July 2011

Reclassification to NCAHFS
Revaluation surplus
Addition
As at 30 June 2012
Accumulated depreciation
As at 1 July 2011
Eliminations to NCAHFS
Charge for the yearsee
below
As at 30 June 2012
Carrying amount as at 30
June 2012

Total PPE = 7,228,400

Land

Building

1,500,000

4,780,000
(1,250,000)

500,000
2,000,000

Plant &
Machinery

Motor
Vehicles

1,920,000

815,000

1,920,000

815,000

191,000
(62,500)

384,000

326,000

83,100


211,600

192,000

576,000

3,530,000

2,000,000 3,318,400

1,344,000

163,000

489,000
326,000

Leased
Machinery

300,000
300,000

60,000

60,000
240,000
11

Depreciation charge building

NCAHFS before classification
(1,250,000 x 6/12)
50
Remaining: 3,530,000
50

12,500

70,600
83,100

Acc. Depreciation eliminated due to reclassification to NCAHFS:

1,250,000 x 21/2 = 62,500
50
(W4) Intangible NCA: License and Provision for restoration landscape:
The PV of RM1,500,000 discounted at 10% over 5 years:
RM1,500,000 x 0.621 = 931,500
Intangible NCA: License = RM10,000,000 + 931,500

= RM10,931,500

Amortisation

= RM10,931,500
5
Carrying amount at 30 June 2012

= RM 2,186,300

Finance cost: Unwinding discount (931,500 x 10%)

= RM93,150

= RM8,745,200

QUESTION 3
1.

The change in the useful lives of the asset and a change in accounting method of
depreciation is a change in accounting estimates. The effect of the change in the
accounting estimate should be included in the determination of the net profit or loss in:
-

The period of the change, if the change affects only that period; or
The period of the change and future periods, if the change affects both.

The change in the useful life of the equipment will affect both the current period and the
future depreciation charge. Therefore the depreciation charged for the current year
should be calculated as below:
300/10 x 2 years
= 60 p.a
NBV at 1 July 2011 = 240/5 years = 48 p.a for current year and future period/
The change in depreciation method from straight line method to reducing balance
method is allowed and be treated as a change in accounting policy only if the change will
result in a more appropriate presentation of events or transactions in the financial
statements of the company. The accounting treatment is to apply the change
retrospectively. However, if the company is unable to determine the cumulative effect,
then it can apply the new method prospectively and adjust the comparative information
from the earliest date practicable//.

2.

A non-current asset held for sale is measured at the lower of carrying amount and fair
value less cost to sell and classify under current assets. No depreciation is charged on
these assets and the company is not allowed to make use of the asset as it must be
available for immediate sale. (MFRS 5)/
Since the economy has improved and the company is using the plant to help cope with
the demand, there is a change of plan and therefore the plant must be re classify as a
non current asset (PPE) subject to depreciation as required by MFRS 116./
On re classification, the asset should be measured at the lower of:

Carrying amount before classification as held for sale less depreciation, as if the
asset were never classified as held for sale, and /

Its recoverable value/

The above adjustment to the carrying amount of the non current asset may result in a
gain or loss. This amount will be included in profit or loss from continuing operations./

3.

The sale of goods and the sale of the car are related party transactions. MFRS 124
requires disclosure of transactions with key personnel and sales of assets to directors
where control exists. An important aspect of MFRS124 is the assessment of both the
materiality and significance of the transactions to the reporting company. Transactions
need only be disclosed if they are material. Transactions are material where the users of
financial statements might reasonably be influenced by such transactions///
In this case, Johan has purchased RM360,000 of goods from the company and a car for
RM50,000 with a market value of RM60,000. Johan effectively controls Wellness.
Although neither of these transactions is material or significant to the company or the
directors, in the spirit of good corporate governance, transactions with directors are
extremely sensitive and therefore disclosure would be recommended.//

4.

The cost of an item comprises of the initial purchase price, including taxes, duties after
deducting trade discounts, and any other directly attributable costs incurred in bringing
the asset into working condition and intended location and use and decommissioning
costs./
Finance expenses of RM30,000 should be expensed to statement of comprehensive
income. It cannot be capitalized as it is not related to a qualifying asset. The deferred
payment has to be discounted to present value.

Gross cost:
Less discount

RM000
2,000
(200)
1,800
RM000

Initial cost of machinery:Site preparation

Rectification cost
Payment on delivery:
1,800 x 6%

60
15

1,080

Deferred payment
720 x 0.909 =

654/
1,809

SCI (extract) for year ended 30.6.2012

Finance expenses
Depreciation 1809/5
Financial cost

30/
361.8/
65.4/

SFP (extract) as at 30.6.2012

PPE
Acc deprn

1,809
(361.8)
1,447.2

Current liability
Deferred payment:
654 + 65.4 =

720/
(9/3 = 3 marks)

5. This a sale and leaseback arrangement and cannot be treated as a sale as in substance
Wellness still enjoy the economic benefits of using the asset .The proceeds from the
sale should be treated as a secured loan as it is a financing arrangement . As the lease
back is an operating lease and the selling price is greater than the fair value, the gain is
not recognised immediately but is defer and amortize //
Dr Bank
Accumulated depreciation
Cr Machine
Deferred gain
Statement of comprehensive income

800,000/
150,000/
800/
50/
100

Dr Lease rental expense

Cr Bank

200,000/
200,000/

Dr Deferred gain
Cr Statement of comprehensive income

10,000/
10,000/
(Total: 9/3 = 3 marks)

QUESTION 4
(a)

(i)

The two accounting concepts:

Accruals The effects of transactions and other events are recognized when
they occur (and not as cash or its equivalent is received or paid) and they are

recorded in the accounting records and reported in the financial statements in the
period to which they relate.

(ii)

Prudence In the preparation of financial statements, prepare need to be

cautious in the exercise of judgement to ensure that income and assets are not
overstated and expenses and liabilities are not understated.
(1 each: total 3 marks)
Accounting inventory by adjusting purchases for the opening and closing
inventories is a classic example of the application of the accruals principle
whereby revenues earned are matched with costs incurred. Closing inventory is
by definition an example of goods that have been purchased, but not yet
consumed. In other words the entity has not yet had the benefit (i.e. the sales
revenue they will generate) from the closing inventory; therefore the cost of the
closing inventory should not be charged to the current years income statement.
At the year end, the value of an entitys closing inventory is, by its nature,
uncertain. In the next accounting period it may be sold at a profit or a loss.
Accounting standards require inventory to be valued at the lower of cost and net
realisable value. This is the application of prudence. If the inventory is expected
to sell at a profit, the profit is deferred (by valuing inventory at cost) until it is
actually sold. However, if the goods are expected to sell for a (net) loss, then that
loss must be recognized immediately by valuing the inventory at its net realisable
value.
Note: other appropriate examples would be acceptable.
(5 marks)

(b)

(i)

Calculation of impairment loss for the machine as at 30 June 2012

Cost 1 July 2010

Acc. Depreciation (1 July 201030 June 2012)
Carrying amount 30 June 2012
Recoverable amount: higher of:
Net selling price RM525,000
Value in use
RM443,224
Impairment loss

RM
880,000
176,000
704,000
525,000
179,000

Value in Use as at 30 June 2012

Year

2013
2014
2015
2016
2017

Estimated
Cash flow
RM
123,660
122,300
115,350
112,330
107,000

Discount
rate (10%)
0.909
0.826
0.751
0.683
0.621
VIU

Discounted
Amount
RM
112,407
101,020

86,628

76,722

66,447
443,224

Statement of Financial Position as 30 June 2012

Machine
Cost
Accumulated depreciation.
Impairment loss
Carrying amount

RM
880,000
(176,000)
179,000)
525,000

(10
x = 5 marks)

(c)

(ii)

Any 4 indicators of impairments:

(a) Market value declines
(b) Negative changes in technology, markets, economy, or laws
(c) Obsolescence or physical damage
(d) Worse economic performance than expected and other relevant indicator

(i)

Initial recognition of the HFT investment is at cost and the transaction costs
are charged to the Income Statement:
Dr.

HFT Investment
Cr. Bank

RM5,600,000

RM5,600,000

(Being recognition of investment: 1,000,000 shares x RM5.60)

Dr.

Income Statement
Cr. Bank

RM28,000

RM28,000

(Being transaction costs (RM5,600,000 x 0.5%) taken through profit and loss
because the investment is classified as HFT)

Subsequent measurement is at fair value with gain or loss taken to profit and
loss:
Dr.

HFT Investment
RM400,000

Cr.
Income Statement
RM400,000

(Being the gain on HFT investment recognized in profit for the year)


8 x = 4 marks
(ii)

The investment made by LBS should be classified as held to maturity investment

since LBS would like to hold it until redemption date.
Initial measurement of the investment will be at fair value (which is its cost)
plus
any associated issue costs
. The journal entry will be:
DR.

Investment in HTM investment

RM8,400,000

Cr. Bank

RM8,400,000

Subsequent measurement will be based on amortised cost basis:

Year end

30 June 2011
30 June 2012

Opening
balance
RM000
8,400

8,474

Effective
interest 8.5%
RM000
714

720

Interest received
(8% x RM8m)
RM000
(640)

(640)

Closing
balance
RM000
8,474

8,554

The investment will be recorded at RM8,554,000 in the statement of financial

position as at 30 June 2012.

12 x = 6 marks