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CONFIDENTIAL AC/DEC 2023/FAR510

UNIVERSITI TEKNOLOGI MARA

PRE-TEST

:FINANCIAL ACCOUNTING AND REPORTING 3

COURSE
:FAR 510
COURSE
:DECEMBER 2023
CODE
:1 HOUR 30 MINUTES
EXAMINATIO
N
TIME

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of two (2) questions.

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

i) the Question Paper

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

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

This examination paper consists of 3 printed pages

1
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 CONFIDENTIAL AC/DEC 2023/FAR510

Question 1

KH Bhd is a local coffee farmer where the main operation of the company is to produce
and distribute the processed coffee bean. The company entered into a 5 years non-
cancellable contract agreement with KP Bhd which operates in German. The contract
stated that KH Bhd has the full right to decide how many hours the machine would be
used per day and where to locate the machine throughout the period of use. However,
subject to restrictions specified in the contract. These restrictions prevent KH Bhd from
locating the machine at high potential of float area.

The agreement started on 1 January 2022. KH Bhd would pay an annual lease payment
of RM10,000 commencing 31 December 2022 for 5 years. KH Bhd incurred RM2,000 for
legal fees and RM1,000 for transportation cost. The machine had a useful life of 5 years
and the effective interest rate was 8%. It is the KH Bhd’s policy to allocate the interest
using the effective interest method.

The present value table for RM1 at 8% interest is as follows:

Period 1 2 3 4 5
Discount factor 0.92 0.857 0.794 0.735 0.681
6

Required:

a. Determine and explain whether the contracts above contain a lease.

(3 marks)

b. Determine the amount of Right of Use (ROU) Asset.

(4 marks)

c. Prepare the lease payment schedule. (Round up to the nearest RM)

(5 marks)

d. Prepare an extract Statement of Profit or Loss for KH Bhd as at 31 December 2022

and 2023.
(3 marks)

e. Prepare an extract Statement of Financial position for KH Bhd as at 31 December 2022

and 2023.
(6 marks)
(Total: 20 marks)

2
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 CONFIDENTIAL AC/DEC 2023/FAR510

Question 2

KH Bhd is a local coffee farmer where the main operation of the company is to produce
and distribute the processed coffee bean. Unfortunately, the dry season happened lasted
longer than usual and it farm badly. Due to this adverse event, equipment like water
pumps also need major repairs and a few parts needed to be replaced. The management
decided to provide for impairment loss for the year ended 30 June 2022 for the water
pumps.

KH Bhd purchased the water pumps on 1 July 2021 for RM500,000. The water pumps has
an estimated useful life of 5 years. The selling price of the water pumps as at the date was
RM246,200 and the cost to sell the water pump were RM6,300. The management
projected cash inflows from the water pumps were as follows:
Year ended 30/6/2023 30/6/2024 30/6/2025
Projected cash inflows (RM) 125,000 102,500 92,500

The dry season ended on March 2023 and management started repair and maintenance
work on that date. At 30 June 2023 the maintenance was completed. The carrying amount
of major parts of the water pumps that has been replaced was RM150,000 without taking
into account the impairment loss and RM125,000 after taking into account of impairment
loss calculated previously. The new parts which cost of RM200,000 has been replaced.
The management believes it will improve the efficiency and performance of the water
pumps.

The management also has introduced new system for water supply and the system
introduced was very successful to increase farm production. The recoverable amount of
the water pumps as at 30 June 2023 was estimated to be RM450,000.

It is the KH Bhd Bhd’s policy to:

i. Allocate no salvage value on asset.
ii. All assets are depreciated using straight line method.
The company’s incremental borrowing rate was 14%. The present value table for single
sums, where i = interest and n = years is given below:
Years (n) 1 2 3 4 5
Interest (i) 0.877 0.769 0.675 0.592 0.519

Required:

a. Calculate the impairment loss (if any) for the boats for the year ended 30 June 2022.
(7 marks)

b. Decide on the amount of impairment loss or reversal of impairment loss for the year
ended 30 June 2023.
(9 marks)

3
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 CONFIDENTIAL AC/DEC 2023/FAR510

c. Prepare an extract Statement of Financial Position for the year ended 30 June 2022
and 2023 (4 marks)

END OF QUESTION

4
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