FAR460 – DECEMBER 2014

FAR460 (Dec 2014)

Suggested solution

QUESTION 1
a.
Statement of profit and loss and other comprehensive income
for the year ended 30 June 2014

RM’000
Sales (9,819-15) 9,804,000 √√
Cost of sales (4,865+80-30+75) (4,990,000) √√√√
Gross profit 4,814,000
Distribution expenses √ (592,000) √√√
Administrative expenses √ (2,843,000) √√√√√√
Finance expenses (117,000) √
Other expenses (Loss on disposal of MV) (15,000) √
Profit before tax 1,247,000
Income tax expense (745,000) √
Profit after tax 502,000

Other comprehensive income:

- -
Total comprehensive income 502,000

(20 x ½ = 10 marks)

Workings:
Dist exp Admin exp Finance exp
RM’000 RM’000 RM’000
As per draft √ 490,000 √ 700,000
Wages and salaries √ 660,000
Interest on debenture √ 117,000
Depreciation of buildings √ 30,000 √ 45,000
Depreciation of motor vehicles √ 72,000 √ 18,000
Prov. for misleading advertisement √ 1,400,000
Bad debts √ 20,000
592,000 2,843,000 117,000

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 FAR460 – DECEMBER 2014
b.
Statement of financial position as at 30 June 2014

Non-current assets RM’000

Property, plant and equipment √ 5,815,000 √
Investment property 800,000 √
Biological assets 650,000 √
Intangible assets 1,500,000 √

Currents assets
Inventory (NRV) 800,000 √√
Receivables (400,000 – 20,000) 380,000 √√
Bank 210,000 √
10,155,000
Equity
Share capital √ 3,000,000
Retained earnings √ 550,000
Other reserves √ 2,700,000

Non-current liabilities
9% Debentures 1,300,000 √

Current liabilities
Payables 685,000 √
Tax payable 520,000 √
Provision for misleading advertisement √ 1,400,000 √
10,155,000
18√

c.
Statement of changes in equity for the year ended 30 June 2014

Ordinary Retained Other

shares earning reserves
RM’000 RM’000 RM’000
Bal as at 1 July 2013 √ 3,000,000 √ 78,000 √ 2,700,000
Prior year adjustment √√ (30,000)
Restated balance 48,000 2,700,000
Current year profit √ 502,000
Bal as at 30 June 2014 3,000,000 550,000 2,700,000
6√

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 FAR460 – DECEMBER 2014
d.
Note on PPE
Freehold Buildings Plant and Motor Total
land equipment vehicles
Cost/valuation RM’000 RM’000 RM’000 RM’000 RM’000
As at 1 July 2013 √ 3,000,000 √ 3,000,000 √ 800,000 √ 500,000
Disposal √√ (50,000)
As at 30 June 2014 3,000,000 3,000,000 800,000 450,000
Accumulated
Depreciation
As at 1 July 2013 √- √ 750,000 √ 160,000 √ 300,000
Disposal √√ (20,000)
Current year depn √- √ 75,000 √ 80,000 √ 90,000
As at 30 June 2014 3,000,000 825,000 240,000 370,000
Carrying amount 3,000,000 2,175,000 560,000 80,000 5,815,000
16√
40√ x ½= 20 marks
Total: 30 marks

QUESTION 2

a. The information is useful to assist the investors and lenders to:

o Assess an entity’s prospects for future net cash inflows √
o Assess how efficient entity’s management discharge responsibilities to
use the resources √
o and protect the resources from unfavourable economic effects √
o Make decision whether to invest or not √
o Assess the entity’s ability to pay back their debts as the assets can be
used as collateral. √
...or other relevant answer
(5√ = 5 marks)

b. The factory should be classified as PPE √ as it fulfils the definition as per MFRS
116:
o are held for use in the production or supply of goods and services, for
rental to others, or for administrative purposes √√
o are expected to be used during more than one period √
o not recognised as IP as it is not rented out or for capital appreciation √
(5√ = 5 marks)

c. The costs incurred that may be part of the cost of the factory are:
o the architect’s fees for the factory √
o cost of construction √
o demolishing quarters for the workers constructing the factory √
o However, the total initial costs are accounted after deduction √ of the
proceeds from salvage construction material sold √.
(5√ = 5 marks)

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 FAR460 – DECEMBER 2014

d. The renovation cost is a subsequent cost that fulfil the recognition criteria for an
asset √ as it is probable that future economic benefits associated with the item
will flow to the entity √ and the cost of the item can be measured reliably √.
The extensive renovation is to accommodate the company’s expansion
programmes where it’s expected to generate future economic benefit.
Therefore, the costs of RM1,200,000,000 √ will be added to the carrying amount
of the factory √.
(5√ = 5 marks)

e.
Land Factory
RM RM
1 Jan 2008 Initial costs √ 547,000 √ 612,000
Depreciation (612/30 x ½) - √ (10,200)
30 Jun 2008 CA 547,000 601,800
Depreciation (612/30 x 4) √ (81,600)
30 Jun 2012 CA 547,000 520,200
Depreciation (612/30 x ½) √ (10,200)
31 Dec 2012 CA 547,000 510,000
1 Jan 2013 Renovation √ 1,200,000
547,000 1,710,000
Depreciation (1710/25 x ½) √ (34,200)
30 Jun 2013 CA 547,000 1,675,800
1 Jul 2013 Increase in valuation √ 253,000 √ 39,200
800,000 1,715,000
Depreciation (1,715,000/24.5) - √ (70,000)
30 Jun 2014 CA 800,000 1,645,000

(10√ x ½ = 5 marks}

…assuming company’s policy is monthly basis for depreciation.

If year end basis, mark accordingly.
(Total: 25 marks)

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 FAR460 – DECEMBER 2014
QUESTION 3

a. The trademark is an intangible asset, a non-monetary asset without physical

substance. √√
It also meets the definition as per MFRS 138 as follows:
o Identifiability, it is separable and can be sold individually √
o Control, the entity has control of it √
o Future economic benefits are expected to flow to the entity resulting from its
use √
(5√ = 5 marks)

b. The trademark’s measurement at initial recognition will be the purchase cost √

incurred at RM1,000,000,000. √
From the date of acquisition, no amortisation needs to be provided √ as the
trademark can generate a net cash flow for an indefinite period √.
Therefore, the measurement after its initial recognition will be the same √ as
initial measurement of RM1,000,000,000.
(5√ = 5 marks)

c. The appropriate accounting treatment relating to the trademark on 1 May 2013:

The carrying amount RM1,000,000,000 on 1 May 2013 will be compared with
present value of RM600,000,000. √
The trademark need to be recorded at the recoverable amount of
RM600,000,000 which is lower than the carrying amount. √
The difference of RM400,000,000 √ is recognised as an impairment loss √ and
will be charged to statement of profit or loss, √
(5√ = 5 marks)

d. The subsequent measurement of the trademark for the year ended 30 June
2014:
RM’000
Recoverable amount on 1 May 2013 √ 600,000
Less: Amortisation expense as at 30 June 2013
(RM600,000,000/4 yrs x 2/12) √√ (25,000)
Less: Amortisation expense as at 30 June 2014
(RM600,000,000/4 yrs) √√ (150,000)
425,000

(5√ = 5 marks)
(Total: 20 marks)

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 FAR460 – DECEMBER 2014
QUESTION 4
a.
Statement of Cash Flows for the year ended 30 June 2014
RM’000 RM’000
Cash flows from operating activities:
Profit before tax 2,305 /
Adjustments for:
Depreciation 457 /
Loss on sale of plant 100 /
Gain on sale of patent (80) 2/
Provision for compensation 450 /
Interest income (320) 2/
Interest expense 450 /
Operating profit before working capital changes 3,362
Increase in inventories (200) 2/
Increase in trade receivables (60) 2/
Decrease in trade payables (200) /
Cash generated from operation 2,902
Interest paid (450) /
Income tax paid (300+650-450) (500) 3/
Net cash flows from operating activities 1,952

Cash flows from investing activities:

Purchase of property, plant and equipment (1,847) 5/
Proceeds from sale of plant 145 /
Capital expenditure on biological assets (115) /
Acquisition of patent (655) 3/
Proceeds from sales of patent 280 2/
Interest income received 320 /
Net cash flows from investing activities (1,872)

Cash flows from financing activities:

Proceeds from issuance of share capital 400 2/
(200+200)
Proceeds from long-term borrowing 110 2/
Dividend paid (300) 3/
Net cash flows from financing activities 210

Net increase in cash and cash equivalent 290

Cash and cash equivalent beginning of year 700
/
Cash and cash equivalent end of year 990
/
(40 / x ½ = 20 marks)
Workings:

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 FAR460 – DECEMBER 2014
Cash and cash equivalent
2013 2014
RM’000 RM’000
Bank 480 630
Marketable securities 220 360
700 990

Property, plant and equipment

RM’000 RM’000
Balance b/d / 2,130 Disposal / 245
Revaluation / 330 Depreciation / 457
Bank 1,847 Balance c/d / 3,605
4,307 4,307

Patent
RM’000 RM’000
Balance b/d / 600 Disposal / 200
Bank 655 Balance b/d / 1,055
1,255 1,255

Dividend payable
RM’000 RM’000
Balance c/d / 655 Balance b/d / 300
Bank 300 SOCE / 655
955 955

b.
Investing activities are transactions involving acquisition and disposal of non-
current assets. //

The separate disclosure of ‘cash flows from investing activities’ is important to

assess the extent to which the entity is expanding and the implication on the
future flows or income. //

Any one example /

Cash payment for acquiring an asset
Proceeds received from sale of an asset

Financing activities are transactions involving the obtaining and repaying

financial resources from investors and lenders // including paying return to the
providers / .

The segregation of ‘cash flows from financing activities’ is important as it may be

used in predicting the claims on future cash flows of the entity. /

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 FAR460 – DECEMBER 2014
Any one example /
Cash proceeds from issuing shares or other equity instruments
Cash payments to owners to acquire or redeem the entity’s shares

(10 / x ½ = 5
marks)

END OF MARKING SCHEME