AC/JAN 2024/FAR460

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UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION

COURSE FINANCIAL ACCOUNTING AND REPORTING 2

COURSE CODE FAR460
EXAMINATION JANUARY 2024
TIME 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of four (4) questions.

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

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

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

i) the Question Paper

ii) an Answer Booklet - provided by the Faculty

Answer ALL questions in English.

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

This examination paper consists of 8 printed pages
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QUESTION 1

PharmaHerbs Bhd is a publicly listed company engaged in the manufacturing of

pharmaceutical and healthcare products for the local and international markets.

The company's trial balance as of 30 June 2023 is as follows:

DEBIT CREDIT
RM'000 RM'000
Revenue 217,362
Cost of sales 103,785
Administrative expenses 22,400
Distribution expenses 6,787
Interest expenses 1,125
Interim ordinary dividend paid 965
Other income 2,125
Income from investment 1,500
Tax paid 11,350
Land at valuation on 1 July 2022 140,000
Building at valuation on 1 July 2022 90,000
Plant and machinery at cost on 1 July 2022 44,750
Accumulated depreciation as at 1 July 2022:
Building 6,000
Plant and machinery 23,375
Long-term investment 2,000
Investment property 64,450
Intangible asset 4,450
Inventory as at 30 June 2023 14,375
Trade and other receivables 18,200
Bank 20,750
Trade and other payable 19,900
8% Loan from Maya Bank 7,000
Tax payable as at 1 July 2022 12,625
Asset revaluation reserve 10,000
Ordinary share capital 208,000
Retained earnings 1 July 2022 37,500
545,387 545,387

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Additional Information:

1. On 1 July 2022, the company revalued both the land and the building, resulting in a
surplus from the revaluation of the land of RM1,000,000 and a deficit from the
revaluation of the building of RM2,500,000. However, these transactions have yet to
be recognised. The remaining useful life of the building at the date of revaluation is 20
years. The land and building of the company were previously revalued, resulting in a
surplus of RM4,000,000 and RM6,000,000, respectively.

On 1 December 2022, PharmaHerbs Bhd paid annual maintenance fees of

RM500,000 for the machines, but no records were kept.

The company's depreciation policy for property, plant and equipment is as follows:
• The land is not depreciated. The building is depreciated annually based on the
remaining useful life of the building.
• The plant and machinery are depreciated using the reducing balance method
at 10% per annum on a yearly basis.
• All depreciation expenses are to be classified as administrative expenses.

2. The following transactions were also discovered in the current financial year and must
be adjusted accordingly:

• The sales for the year ended 30 June 2022 were understated by RM3,000,000.
• Interest on a loan from Maya Bank for the fourth quarter of the year is still
outstanding.
• Administrative expenses amounted to RM120,000 and were incorrectly
recorded as distribution expenses.
• No records have been made to account for the income from investment of
RM500,000 to be received in the current year.

3. On 1 Mac 2023, PharmaHerbs Bhd received a letter from Nani, Oliver & Co, seeking
compensation of RM200,000 for a former employee who had been dismissed due to
disciplinary action. PharmaHerbs Bhd sought legal advice. There was a probability that
the case would be lost as the action was entirely the fault of the company.

4. The tax expense for the current year is estimated at RM14,375,000.

5. On 15 June 2023, the board of directors declared a final ordinary dividend of

RM8,000,000.

6. The financial statements of the company were approved by the board of directors on
30 September 2023.

Required:

Prepare the following financial statements of PharmaHerbs Bhd following the relevant
Malaysian Financial Reporting Standards (MFRS) and the Companies Act, 2016:

a. Statement of Profit or Loss and Other Comprehensive Income for the year ended 30
June 2023
(10 marks)
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b. Statement of Changes in Equity for the year ended 30 June 2023

(4 marks)

c. Statement of Financial Position as of 30 June 2023. (Note on Property, Plant and

Equipment is required)
(16 marks)
(Total: 30 marks)

QUESTION 2

Sipadan Bhd. is a manufacturer of school uniforms and accessories for school activities in
Kota Kinabalu. Due to the increased demand for school uniforms, Sipadan Bhd purchased a
new heavy-duty machine on 1 January 2016 at an invoice price of RM550,000. The payment
was made in three installments. The first payment was made on the date of purchase, while
the second and third payments were made on 1 January 2017 and 1 January 2018
respectively. Below is information on the payment of the installments:

RM
First payment 200,000
Second payment 200,000
Third payment 150,000

The present value of the deferred payments for the second and third instalments was
RM185,400 and RM128,350, respectively. The delivery and handling costs were RM5,000.
The heavy-duty machine was subjected to rigorous testing to ensure that it was suitable for its
intended use. The cost of testing and installation was RM10,000 and RM2,000, respectively.
Maintenance and insurance costs for the machine amounted to RM6,000 per year. The heavy-
duty machine has a useful life of 10 years, and Sipadan Bhd expected that the present value
for dismantling the heavy-duty machine would be RM5,000.

On 1 January 2020, Sipadan Bhd replaced one of the machine's components with a new
component at a cost of RM30,000 and paid by cheque. The cost of the old component was
RM25,000. After the replacement, the production capacity of the heavy-duty machine
increased by 70%.

After the COVID-19 pandemic, the demand for school uniforms increased. In late 2021,
Sipadan Bhd acquired a vacant building at a cost of RM2,000,000 and legal fees of
RM100,000. Sipadan Bhd decided to use the building as a second factory. The building was
still in good condition, but some parts needed renovation.

Sipadan Bhd incurred the following costs during the renovation process:

RM
Architect fees to design the renovation area 150,000
Construction costs 1,050,000
Overhead costs 50,000
Annual clean-up costs 30,000

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Half of the overhead costs was for renovation work, and the balance was for administrative
purposes.

The building was occupied by the company on 1 January 2022, with a useful life of 20 years.
As at 31 December 2023, Sipadan Bhd has revalued its building to RM2,200,000.

In December 2023, heavy rain has caused flash floods and damaged the heavy-duty machine.
The management of the company was informed that the fair value less costs to sell the
machine and its value-in-use as at 31 December 2023 were RM105,000 and RM95,000,
respectively.

Sipadan Bhd adopts the cost model for its machine and the revaluation model for the building.
The depreciation of both assets was calculated based on their estimated useful lives on an
annual basis.

Required:

a. Discuss whether the new component of the heavy-duty machine and the building can
be classified as property, plant and equipment of Sipadan Bhd under MFRS116
Property, Plant and Equipment.
(3 marks)

b. Discuss the initial measurement of the new component of the heavy-duty machine and
calculate the initial costs of the heavy-duty machine and the building.
(8 marks)

c. Prepare journal entries to recognize the transactions related to the heavy-duty

machine on 1 January 2016 and 1 January 2020.
(5 marks)

d. Explain the accounting treatment of the revaluation of the building and its related
expenses following the MFRS116 Property, Plant and Equipment for the year ended
31 December 2023. Show the necessary calculations.
(9 marks)
(Total: 25 marks)

QUESTION 3

Elecsa Bhd. is a well-known manufacturer of electrical appliances and has many factories
throughout Malaysia. The company operates three factories in Sabah. The company's
financial year ends on 31 December every year. Below are two cases faced by Elecsa Bhd for
the year ended 31 December 2023.

Case 1

Elecsa Bhd has entered into a 10-year contract with Manco Bhd to lease a factory in Tuaran
with an annual lease of RM3,000,000. During the year ended 31 December 2023, Elecsa Bhd.
relocated its operations to a new building in Papar. The lease for the factory in Tuaran will
continue for the next 3 years until 31 December 2026 as it is non-cancellable and the factory
cannot be leased to another user. However, the landlord agreed to accept a one-off payment
of RM8,500,000 on 31 December 2023, to settle the outstanding amount and terminate the
tenancy agreement.

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Case 2

A customer filed a claim of RM20.000 against Elecsa Bhd. The customer alleged that she
suffered personal injury as a result of using Elecsa Bhd's supersonic hair dryer. The customer
was unable to work for 2 months due to the injury and had to postpone her assessment for
promotion. After a series of discussions with the company's legal counsel, it was concluded
that the company has more than a 50% chance of losing the case.

Required:

a. Explain the difference between provisions and contingent liabilities following MFRS
137 Provisions, Contingent Liabilities and Contingent Assets.
(6 marks)

b. Determine the appropriate classification of Case 1 above following MFRS 137

Provisions, Contingent Liabilities and Contingent Assets.
(5 marks)

c. Determine the accounting treatment for Case 1 above in accordance with MFRS 137
Provisions, Contingent Liabilities and Contingent Assets.
(4 marks)

d. Explain the accounting treatment of Case 2 under MFRS 137 Provisions, Contingent
Liabilities and Contingent Assets.
(5 marks)
(Total: 20 marks)

QUESTION 4

Beryl Bhd is a public listed manufacturing company based in Sepang, Selangor. The financial
statements for the years ended 31 December are as follows:

Beryl Bhd
Statement of Profit or Loss for the year ended 31 December 2023

RM'000
Revenue 73,780
Cost of sales (35,000)
Administrative expenses (10,500)
Selling and distribution expenses (5,000)
Income from investment 2,200
Amortization of intangible assets (2,250)
Interest expenses (230)
Profit before taxation 23,000
Taxation (6,900)
Profit for the year 16,100

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Beryl Bhd
Statement of Financial Position as at 31 December

2023 2022
RM'000 RM'000
Non-current Assets
Property, plant, and equipment 53,520 42,600
Intangible assets 7,500 9,000
Investment properties 9,000 5,000
Investment in shares 10,800 16,680

Current Assets
Inventories 29,980 34,200
Trade receivables 40,320 24,000
Marketable securities 800 800
Bank 2,000 4,960
153,920 137,240

Equity
Share capital 47,400 39,800
Retained earnings 35,920 32,000

Non-current Liabilities
8% Loan from UBC Bank 28,000 30,000

Current Liabilities
Trade payables 40,800 32,760
Interest payables 200 100
Tax payables 1,600 2,580
153,920 137,240

Additional information:

1. Depreciation charged for the year amounted to RM3,450,000 and was included in
administrative expenses. There was no disposal and revaluation of property, plant and
equipment during the year.

2. The changes in intangible assets were due to amortisation and acquisition of a new
intangible asset.

3. The changes in share capital were due to the issue of new shares for the acquisition
of a new plant amounting to RM3,600,000, while the balance was due to the issue of
new shares to new ordinary shareholders.

4. During the year, Beryl Bhd leased out one of its owner-occupied buildings with a
carrying value of RM1,800,000 to Sweet Bhd. The fair value of the building at the date
of change of use was RM1,500,000. No disposal of investment properties during the
year

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5. Beryl Bhd applies the revaluation model and fair value model, respectively, for
subsequent measurement of its property, plant, and equipment, and investment
properties.

6. Investments in shares are measured at cost. During the year, the company disposed
of some of its investments in shares at cost. No gain or loss was recognised on this
disposal.

7. Marketable securities are classified as cash and cash equivalents.

Required:

a. Prepare the Statement of Cash Flow of the company for the year ended 31 December
2023 using the direct method in accordance with MFRS 107 Statement of Cash
Flows.
(20 marks)

b. Interpret the investing and financing activities of Beryl Bhd based on the Statement of
Cash Flow prepared above.
(5 marks)
(Total: 25 marks)

END OF QUESTION PAPER

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