BKAR3043 Financial Accounting & Reporting IV

BKAR 3043 Financial Accounting and Reporting IV

TUTORIAL 2 A202
Submission Date: 11/4/2021

QUESTION 1

On 31 December 2018, WWW Bhd acquired 80% interest in RRR Bhd at purchase
consideration of RM45,000,000. The building worth RM1,000,000 as at 31 December 2018
was not reflected in the RRR Bhd accounts. At the date of acquisition, net asset of RRR Bhd
represented by equity is as follows:

RM’000
Share Capital 30,000
Retained Earning 12,000
Revaluation reserve 10,000

Financial statement for both companies on 31 December 2020 are as follows:

RM ‘000 RM’000
Share Capital of RM1.00 each 100,000 30,000
Retained Earnings 41,000 28,000
Revaluation Reserves 25,000 12,000
166,000 70,000

RM ‘000 RM’000
Investment in RRR 45,000 -
Property, Plant & Equipment 80,000 40,000
Accounts Receivable 40,000 30,000
Cash 13,000 25,000
Accounts Payable (12,000) (25,000)
166,000 70,000

The profit for the for year ended 31 December 2020 for WWW Bhd is RM20,000,000. The
profit for the for year ended 31 December 2020 for RRR Bhd is RM5,000,000. The RRR
Bhd retained earnings as at 31 December 2019 was RM23,000,000. The non-controlling
interest in the WWW Bhd is measured at proportionate share of identifiable net assets
method.

REQUIRED
(a) Prepare consolidation journal entries of WWW Bhd and RRR Bhd.
(b) Prepare the consolidated financial statements of WWW Bhd and RRR Bhd as at 31
December 2020. [extract version for Consolidated Statement of Profit or Loss and
Other Comprehensive Income, full statement for Consolidated Statement of Financial
Position].

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QUESTION 2

Parent acquired subsidiary in 2018 with 80% interest at RM32,000. The accounting policy is
to measure non-controlling interest at proportionate share of the net identifiable assets.
During the year, the intragroup sales (subsidiary sold to parent) was RM40,000 and remained
in parent’s ending inventories of RM5,000 (Year 2020) & RM6,000 ( year 2019-prior). The
profit margin was 20% on selling prices. Profit for subsidiary is RM17,000 (year 2020).
Subsidiary: Pre acquisition retained earnings :RM10,000, retained earnings opening 2020 :
RM15,000, share capital RM30,000.

REQUIRED
Prepare the journal entries
a) Without tax effects
b) With tax effects (24%)

QUESTION 3

Parent acquired subsidiary in 2018 with 80% interest at RM32,000. The accounting policy is
to measure non-controlling interest at proportionate share of the net identifiable assets.
During the year, the intragroup sales (parent sold to subsidiary) was RM40,000 and remained
in subsidiary’s ending inventories of RM5,000 (Year 2020) & RM6,000 ( year 2019-prior).
The profit margin was 20% on selling prices. Profit for subsidiary is RM17,000 (year 2020).
Subsidiary: Pre acquisition retained earnings :RM10,000, retained earnings opening 2020 :
RM15,000, share capital RM30,000.

REQUIRED
Prepare the journal entries
a) Without tax effects
b) With tax effects (24%)

QUESTION 4

Globe Bhd had acquired 75% interest in the equity capital of Setia Bhd on 1 January 2017.
On the acquisition date, the retained earnings of Setia Bhd were RM12,000,000. A freehold
land and equipment of Setia Bhd recorded at cost of RM5,500,000 and 4,500,000
respectively. But the freehold land and the equipment was said to have a fair value of
RM8,000,000 and 4,000,000 respectively. There are no adjustment had been made in the
Setia Bhd’s accounts to reflect the fair values. The share price of Setia Bhd was fair valued at
RM1.60 per share. Setia Bhd’s shares were issued at RM1.00 per share. The financial
statements of both companies for the year ended 31 December 2019 are as follows:

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Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2019
Globe Bhd Setia Bhd
RM’000 RM’000
Turnover 65,250 39,000
Cost of sales (23,400) (17,550)
Gross profit 41,850 21,450
Gain from disposal of land - 1,120
Dividend income 7,882.5 -
Operating expenses (26,782.5) (10,310)
Profit before taxation 22,950 12,260
Tax expenses (5,967) (2,408)
Profit for the year 16,983 9,852
Other comprehensive income
Gains on revaluation of property 2,000 -
Total comprehensive income 18,983 9,852

Statements of Changes in Equity (Partial)

For the year ended 31 December 2019
Globe Bhd Setia Bhd
RM’000 RM’000
Retained earnings brought forward 92,750 22,500
+ Profit for the period 16,983 9,852
– Proposed dividend (14,300) (7,160)
– Dividend (8,400) (3,000)
Retained earnings carried forward 87,033 22,192

Statement of Financial Position

As at 31 December 2019
Globe Bhd Setia Bhd
RM’000 RM’000
NON-CURRENT ASSETS
Property, plant and equipment 217,300 89,000
Investments in Setia Bhd 78,000 -
Investment in Tower Bhd 15,000 -
Total non-current assets 310,300 89,000
CURRENT ASSETS
Inventories 35,250 14,081
Accounts receivable 5,625 15,919
Dividend receivable 5,370 -
Loan receivable from Setia Bhd 3,000 -
Cash and bank balances 16,500 12,122
Total current assets 65,745 42,122
TOTAL ASSETS 376,045 131,122
EQUITY
Share capital 200,000 80,000
Retained earnings 87,033 22,192
Revaluation reserves 19,500 -
Total equity 306,533 102,192

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NON-CURRENT LIABILITIES
Loan 29,000 8,105
Deferred taxation 7,212 3,275
Total non-current liabilities 36,212 11,380

CURRENT LIABILITIES
Accounts payable 19,000 7,390
Loan payable to Globe Bhd - 3,000
Dividend payable 14,300 7,160
Total current liabilities 33,300 17,550
TOTAL LIABILITIES 69,512 28,930
TOTAL EQUITY AND LIABILITIES 376,045 131,122

Additional information:
1. Setia Bhd sold inventories to Globe Bhd totalling RM7,500,000 during the year 2019.
Out of this amount, RM3,000,000 still remained in the ending inventories of Globe
Bhd at the year end. The corresponding closing inventories amount in the year 2018
was RM5,200,000 in the book of Globe Bhd. The profit margin is 20% on selling
price.
2. On 1 April 2018, Setia Bhd sold an equipment to Globe Bhd for RM10,800,000. The
equipment was bought by Setia Bhd on 1 March 2014 at a cost of RM14,000,000. The
group policy is to depreciate this type of equipment on a straight line basis over an
estimated useful life of 10 years and to provide a full year’s depreciation if the
equipment has been used for more than 6 months in the year.
3. Globe Bhd uses the proportionate share of the net identifiable assets method to
measure the non-controlling interest. Assume no changes in the share capital for both
companies.
4. Besides the proposed dividend, Setia Bhd also declared and paid dividend of
RM3,000,000
5. Globe Bhd had acquired 35% interest in the equity capital of Tower Bhd on 1 January
2019. Tower Bhd profit for the year 2019 is RM3,500,000 (after tax).
6. Tower Bhd declared and paid dividend of RM750,000 in year 2019.
7. On 31 December 2019, Tower Bhd has inventory balance with profit 30% on selling
price amounting to RM7,200,000. This inventory was purchased from Globe Bhd
amounting to RM18,000,000 in year 2019.
8. The company’s income tax rate for the year was 24%. The tax effects on unrealized
profit for intragroup transactions need to be accounted for.

REQUIRED:
(a) Calculate the goodwill on consolidation.
(b) Prepare the relevant consolidation journal entries at 31 December 2019.
(c) Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive
Income for Globe Bhd for the year ended 31 December 2019.
(d) Prepare the Consolidated Statements of Changes in Equity for Globe Bhd for the year
ended 31 December 2019.
(e) Prepare the Consolidated Statement of Financial Position for Globe Bhd for the year
ended 31 December 2019.

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QUESTION 5
XT Berhad (XT) bought a 70% holding in the voting equity of FD Berhad (FD) on 1 January
2019. The purchase price of the investment was agreed at RM2.5 million. The 30% non-
controlling interest in FD had a fair value of RM1 million at that date. FD’s identifiable net
assets had a fair value of RM3 million on 1 January 2019. It was decided to apply the fair
value method to calculate goodwill on acquisition, as permitted by MFRS 3 - Business
Combinations.
The following Statements of Profit or Loss and Other Comprehensive Income and Statements
of Financial Position are shown below for both companies as at 31 December 2020.

Statements of Profit or Loss and Other Comprehensive Income

for the financial year ended 31 December 2020
  XT FD
RM’000 RM’000
Sales revenue 3,500 1,260
Cost of sales (2,000) (320)
Gross profit 1,500 940
Operating expenses (210) (160)
Finance costs (30) (20)
Other income 320 -
Investment income 105 -
Profit before taxation 1,685 760
Taxation (150) (60)
Profit for the year 1,535 700

Movement of Retained Earnings for the year ended 31 December 2020

Balance brought forward 5,655 1,085
Profit for the year 1,535 700
Dividend paid - (100)
Balance carried forward 7,190 1,685

Statement of Financial Position as at 31 December 2020

XT FD
  RM’000 RM’000
Non-current assets:
Land 4,000 1,125
Property, plant and equipment 1,170 1,245
Investment in FD 2,500 -
7,670 2,370
Current Assets:
Inventories 1,200 1,142
Trade receivables 424 279
Cash and bank 555 84
2,179 1,505

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Total assets 9,849 3,875

Equity:
Equity share capital of RM1.00 each 1,190 1,200
Retained earnings 7,190 1,685
Revaluation reserve 1,000 850
9,380 3,735
Current liabilities:
Trade payables 386 102
Non-current liabilities:
Deferred taxation 60 38
Long term loan 23 -
83 38
Total equity and liabilities 9,849 3,875

Additional information:
1. During the post-acquisition period FD sold goods to XT for RM800,000. These goods
were sold at a gross margin of 25% of selling price. 30% of the goods remained in the
inventory of XT at 31 December 2020. The corresponding ending inventories amount
in the prior year was RM400,000.
2. FD declared a dividend of RM100,000 (net dividend) during the year from post-
acquisition profits. XT has recognized share of this dividend within ‘investment
income’.
3. On 1 November 2020, XT sold a land to FD for RM200,000. This land was bought by
XT on 1 February 2018 at cost of RM120,000. This profit is included within ‘other
income’ in the books of XT. Assume this transaction had no taxation impact.
4. On 30 June 2020, XT sold a plant to FD at its fair value of RM600,000, an increase of
RM200,000 on its carrying value. The estimated remaining life of the asset was 4 years
at that date, and the plant was depreciated on a straight-line basis. Group policy is to
provide a full year’s depreciation if the plant has been used for 6 months or more in the
year. XT record this profit within ‘other income’ and depreciation is charged within
‘operating expenses’.
5. XT has RM65,000 trade payables owing to FD at the year end.
6. Goodwill was reviewed for impairment on 31 December 2020 and a charge of 25%
should be applied. Goodwill impairments should be included within ‘operating
expenses’.
7. There is no post revaluation reserve incurred.
8. The tax effects on unrealized profit for inter-companies’ transactions need to be
accounted for unless specified.
9. The company’s income tax rate remains 25% throughout the years.

REQUIRED:
(a) Prepare the relevant consolidation journal entries for the year ended 31 December
2020.
(b) Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive
Income for XT Berhad and its subsidiary for the year ended 31 December 2020.
(c) Prepare the Consolidated Statement of Financial Position for XT Berhad and its
subsidiary as at 31 December 2020.