SOLUTION/FAR460/FEB 2022

SOLUTION 1

a. Statement of Profit or Loss and Comprehensive Income for the year 30 June 2020

RM’000
Revenue 720,000
Cost of sales (430,000)
Gross profit 290,000
Administration cost (133,250)
Distribution cost (45,500)
Profit from operation 111,250
Investment income 1,100
Finance cost (2,730)
Profit before tax 109,620
Taxation (4,200)
Profit after tax 105,420
Others Comprehensive Income
Surplus on revaluation (30,000 + 18,000) 48,000
Total Comprehensive Income 153,420

Working
Admin (RM’000
As per Trial balance 100,000
Fraud loss (1,000-750) 250
Directors’ remuneration 580
Impairment loss of BA (20-18) 2,000
Deprecation Building (6,750 + 5,400) 12,150
Depreciation P & M (16,000 + 500) 16,500
Loss of inventories (300-30) 270
Provision for restoration 1,500

133,250

Note: Please give the same mark if the student puts loss of inventory in the cost of sales
column.

b. Statement of Changes in Equity for the year 30 June 2020

Ordinary Retained General Asset revaluation

shares Profit reserves reserves
RM’000 RM’000 RM’000 RM’000
Balance b/d 450,000 102,200 38,500 -
PY Adj -Fraud loss (750)
Restated balance 450,000 101,450
Profit after tax 105,420
Surplus on revaluation 48,000
Transfer (18000/20) 900 (900)
Balance c/d 450,000 207,770 38,500 47,100

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(8 x ½ = 4 marks)

c. Statement of Financial Position as at 30 June 2020

Non-current asset RM’000

Property, plant and equipment 460,350
Biological asset (20,000 – 2,000) 18,000
Investments 160,000

Current assets
Inventories (45,000 – 300) 44,700
Trade receivables (53,000 – 1,000) 52,000
Bank 65,690
Other receivables 30
Tax recoverable (5,000 – 4,200) 800
Total Assets 801,570

Equity
Shares capital 450,000
Retained earnings 207,770
Other reserves 85,600

Current liabilities
Trade payables 46,700
Other payables 10,000
Provision for restoration 1,500
Total Equities and Liabilities 801,570

Note on Property, Plant and Equipment

Land Building Plant & Machinery
RM’000 RM’000 RM’000
Cost/Valuation
As at 1 June 2019 150,000 250,000 80,000
Revaluation 30,000 18,000
Elimination of ACD (10,000)
Addition 10,000
As at 30 June 2020 180,000 258,000 90,000

Accumulated Depreciation
As at 1 June 2019 - 25,000 24,000
Elimination of ACD - (10,000)
Current year depreciation - 12,150 (W1) 16,500 (W2)
As at 30 June 2020 - 27,150 40,500

Carrying value 180,000 230,850 49,500

180,000+230,850+49,500 = 460,350

(Total: 30 marks)

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W1 – Building

Remaining Life at 1/7/19 20 20

(years) Building 1 Building 2 Total
Cost 150,000 100,000 250,000
ACD (1/7/19) (15,000) (10,000) (25,000)
CV (1/7/19) 135,000 90,000 225,000
Revaluation (1/7/19) 108,000
ARR 18,000

With ARR
Building 1 Building 2 Total
Cost 150,000 100,000 250,000
ACD (1/7/19) (15,000) (10,000) (25,000)
ARR 18,000 18,000
CV (1/7/19) 135,000 108,000 243,000
Current year depreciation (6,750) / (5,400) / (12,150)
(135000/20) & (108,000/20)
Carrying Value @ 30 Jun 2020 128,250 102,600 230,850

W2 – Plant and Machinery

Deprecation rate 20% 20%

Old New Total
Cost 80,000 10,000 90,000
ACD (1/7/19) (24,000) - (24,000)
CY (80000*20%) & (10000*20% *3/12) (16,000) / (500)/ (16,500)
CV (30/6/2020) 40,000 9,500 49,500

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SOLUTION 2
a. The new building can be recognised when:
• It is probable that the future economic benefits associated with the item will flow
to the entity - the building is to be used in production of goods; and
• The cost can be measured reliably.

b. The subsequent measurement model available:

• Cost model.
• An item of PPE is measured at its cost less accumulated depreciation less
accumulated impairment loss.
• The alternative treatment is revaluation model.
• An item of PPE whose fair value can be measured reliably shall be measured
at its revalued amount less subsequent accumulated depreciation less
subsequent accumulated impairment loss.
• In absence of its fair value, the company may use the costs model.

c. The cost of the machine should comprise:

• Its purchase price of material, direct cost including contractor, labour, engineering,
architect cost and non-refundable purchase taxes after deducting trade discount
and rebates.
• Any cost attributable to bringing the asset to the location and condition for its
intended use.
• The initial estimate of costs for dismantling and removing the items and restoring
the site on which it is located.

Initial measurement:
RM
Contractor cost 1,500,000
Demolish the old building 200,000
Less: Sold of scraps (20,000)
Direct material 800,000
Less: Material wastage (80,000)
Architect fees 150,000
Labour cost in construction 350,000
Engineer cost 185,000
Present value of dismantling cost 15,000
Initial cost 3,100,000

d. The accounting treatment regarding the repair and maintenance works:

• The expenditure is considered as revenue expenditure.
• Under the recognition principle in paragraph 7 of MFRS 116, an entity does not
recognise in the carrying amount of an item of property, plant and equipment
the costs of the day-to-day servicing of the item.
• Rather, these costs are recognised in profit or loss as incurred.
• In addition, this expenditure does not increase output, reduce the cost, extended
of useful life so does not make a criteria of capital expenditure.
• The amount of RM300,000 should be written off to the Statement of Profit or
Loss as an expense.

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e. Carrying value of the building as at 30 June 2021

• Fair value less cost to sell = RM2,300,000

• Value in use = RM2,700,000

RA will be higher RM2,700,000

Compared with CV on 1 July 2020 (3,100,000 – 310,000) = 2,790,000
Impairment loss of RM90,000

New CV on 30 June 2021 = RM2,700,000 (3,100-(3,100/10) – 90)

(Total: 25 marks)

SOLUTION 3

a. Provisions are a subset of liabilities. They are distinguished from other liabilities such
as trade payables and accruals because they are characterised by uncertainty about
the timing or amount of the future expenditure required in settlement.

Trade payables are liabilities to pay for goods or services that have been received or
supplied and have been invoiced or formally agreed with the supplier. Trade payables
are trade creditors and related to the cost of sales account.

Provisions are non-trade creditors and are linked to account expenses in the profit or
loss statement.

b. Lawsuit filed by OrgaBest Bhd is classified as contingent asset under MFRS137

Provisions, Contingent Liabilities and Contingent Assets.

A contingent asset is a potential asset that arises from past events and whose existence
will be confirmed only by the occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the entity.

It is a contingent asset since the company is suing another party (Fresh Nature Sdn
Bhd) and the inflow of economic benefits is probable, but not virtually certain.

Contingent assets are not recognised in financial statements since this may result in
the recognition of income that may never be realised. MFRS 137 requires a contingent
asset is to be disclosed in the notes to financial statements.

Where an inflow of economic benefits is probable, an entity shall disclose a brief

description of the nature of the contingent assets at the end of the reporting period
(Para 89 MFRS 137) .

c. According to MFRS 137 Provisions, Contingent Liabilities and Contingent Assets, there
is no present obligation (to pay compensation) as a result of a past event (the food
poisoning and subsequent medical treatment of the 50 customers) .

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Through legal advice, the company would probably win the case and there is only a
possible liability.

Therefore, it will be disclosed as a contingent liability unless the probability of transfer

is regarded as remote. If that the case, the company should do nothing.

With regard to this contingent liability, the following should be disclosed in a note to the
financial statements:
• A brief description of the nature of contingency.
• An estimate of its financial affect and its indication of uncertainties.
• The possibility of any measurement.

d. Future operating losses do not meet the definition of a liability under MFRS 137. It is
inappropriate to recognise a provision for expected future losses, because the entity
has no present obligation to incur those losses (where for example, the entity could
cease the operations that will generate the future losses). It is important to bear in mind,
however, that the expectation of losses may be an indicator that some of the entity’s
assets are impaired.

OrgaBest Bhd cannot recognise the expected losses in 2021 as a provision for the year
ended 31 December 2020 since no present obligation (legal or constructive) due to past
event that will result in probable outflow of economic benefits. Thus, the estimated cost
of RM20,000 will not be charged against the current profits and a provision will not be
made on the statement of financial position.
.

(Total marks: 20 marks)

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SOLUTION 4

a.Statement of Cash Flow of PayaRawa Bhd for the year ended 31 December 2021
RM’000
Cash Flows from Operating Activities:
Loss before tax (3,650)
Adjustments for:
Loss on disposal of machinery 800
Depreciation expense 3,300
Amortization – development exp 7,300
Interest income (800)
Finance costs 545
Fair value gain on investment property (10,000)
Operating loss before working capital changes (2,505)
Working capital changes:
Changes in inventories 10,500
Changes in trade receivables (44,400)
Changes in trade payables (11,150)
Changes in provision (1,750)
Cash used in operation (49,305)
Finance cost paid (545)
Taxes paid (5,750)
Net cash flows from operating activities (55,600)

Cash Flows from Investing Activities:

Purchase of PPE (15,300)
Proceeds from disposal of machinery 3,250
Purchase of intangible assets (4,300)
Purchase of investment property (30,000)
Interest income received 200
Net cash flows from investing activities (46,150)

Cash Flows from Financing Activities:

Issue of shares (148.5 – 121) 27,500
Dividend paid (1,550)
Bank loan (89.3 – 45.75) 43,550
Net cash flows from financing activities 69,500

Net changes in cash and cash equivalent (32,250)

Cash and cash equivalent at the beg of the year 75,750
Cash and cash equivalent at the end of the year 43,500

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Workings:
Cash and cash equivalent
2020 2021
RM’000 RM’000
Cash 37,250 21,850
Bank overdraft - (4,150)
Short term investment 38,500 25,800
75,750 43,500

PPE
Bal b/d 234,000 Depreciation 3,300
Revaluation 10,050 Disposal (3250 + 800) 4,050
Bank 15,300
Bal c/d 252,000

Intangible assets
Bal b/d 73,000 Amortise 7,300
Cash 4,300 Bal c/d 70,000

Investment property
Bal b/d 20,000
Cash 30,000
FV gain 10,000 Bal c/d 60,000

Revaluation reserve
Bal b/d 26,750
Bal c/d 36,800 PPE 10,050

Tax payable
Bal b/d 3,500
Bank 5,750 SOPL 2,000
Bal c/d 250

Interest receivables
Bal b/d 20,450 Bank 200
SOPL 800 Bal c/d 21,050

Retained earnings
Loss before tax 3,650 Bal b/d 244,750
Dividend paid 1,550
Tax expense 2,000
Bal c/d 237,550

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b. Evaluate the cash flows from investing and financing activities of PayaRawa Bhd.

• Investing: The company has acquired new PPE, investment property and
intangible asset which resulted in negative cash flows in its investing activities.
It seems that the company has used the cash generated from financing activities
to cover the investing activities.

• Financing: Positive cash flows from financing activities are from issue of new
shares and addition loan obtained during the year. The cash proceeds were
used to cover operating activities and investing activities. This situation is
acceptable for the new company. However, if this continues, the company might
be facing problems in future.

(Total:25 Marks)

END OF SOLUTION