CONFIDENTIAL AC/JUL 2022/FAR570

UNIVERSITI TEKNOLOGI MARA

FINAL ASSESSMENT

COURSE : FINANCIAL ACCOUNTING AND REPORTING 4

COURSE CODE : FAR570
ASSESSMENT : JULY 2022
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions.

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

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

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

i. the Question Paper

ii. an Answer Booklet
5. Answer ALL questions in English.

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

This examination paper consists of 7 printed pages

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QUESTION 1
Aru Nirwana Bhd has the following information as at 1 January 2020.

RM
Ordinary shares @ RM1 each, issued and fully paid 15,000,000
8% Non-Cumulative Preference Shares @ RM0.50 each 5,000,000

The following information is also provided:

1. On 1 August 2020, Aru Nirwana Bhd issued RM1,500,000 6% Convertible Debentures

that can be converted into 100 ordinary shares for every RM100 debentures. As at 31
December 2020, none of the convertible debentures were converted.
2. Aru Nirwana Bhd bought back 1,000,000 ordinary shares on 1 December 2020.
3. On 31 March 2021, the company split the existing ordinary shares on the basis of 4 for
every 1 share held. The par value of the share after split is RM0.25 each.
4. On 1 September 2021, RM750,000 of the 6% Convertible Debentures were converted
into ordinary shares. On this date, the conversion rate of the 6% Convertible
Debentures was 200 ordinary shares for every RM100 debentures held.
5. On 15 December 2021, the company declared and paid preference dividends of
RM400,000. The profit after tax for the year ended 31 December 2021 was
RM21,280,000.
6. The profit attributable to equity holders for the year ended 31 December 2020 was
RM18,600,000.
7. The earnings per share (EPS) for 2019 was RM1.09.
8. The company tax rate for 2020 and 2021 was 24%.

Required:

a. Identify any three (3) earnings per share (EPS) information required to be disclosed in
financial statements under MFRS 133 Earnings Per Share.
(3 marks)

b. With reference to 31 March 2021, briefly explain the share split in accordance with
MFRS 133 Earnings Per Share.
(4 marks)

c. Compute the basic earnings per share (BEPS) for each of the financial years of 2020
and 2021 and the diluted earnings per share (DEPS) for year ended 31 December
2021. Restate the previous year’s EPS where applicable.
(13 marks)
(Total: 20 marks)

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QUESTION 2
Belalak Bhd operates a chain of restaurants in Kuching and Kota Samarahan. As at 1
January 2021, the company had a balance in the deferred tax asset of RM20,000. The net
profit before tax for the financial year ended 31 December 2021 was RM2,125,000. The tax
rate for 2021 was 24%.

The current year’s tax expense paid by the company was RM310,000. The taxable
temporary differences and deductible temporary differences for assets and liabilities
identified for the year ended 31 December 2021 were RM1,420,000 and RM1,570,000
respectively. However, the calculation of the temporary differences has not considered the
following items during the year.

1. The company owns a building used as a warehouse for storage of goods for export in
Pending which was acquired on 1 January 2015 at RM2,000,000. The building has an
estimated useful life of 30 years. It was revalued on 1 January 2020 at a fair value of
RM1,950,000. For tax purposes, an annual allowance of 10% is allowed.
2. As at 1 January 2021, the carrying amount and the tax base of the company’s machine
were RM60,000. The machine is depreciated at 20% per annum on a reducing balance
basis. For tax purposes, an initial allowance of 20% and annual allowance of 14% is
allowed.
3. On 1 January 2021, the company entered into an agreement with its existing
employees to provide retirement benefits to retirees. For the year ended 31 December
2021, the entity recognised RM15,000 as an expense for this plan. No payments to
retirees were made in 2021. Retirement benefits are deductible for tax purposes when
payments are made to retirees.

Required:

a. Briefly explain the determination of temporary differences with reference to MFRS 112
Income Taxes.
(4 marks)

b. Deferred tax assets arising on carry forward losses (business losses) and unused tax
credits can be recognised only if it is probable that future taxable profit will be available
against which the unused tax losses and unused tax credits can be utilized.

Explain briefly four (4) criteria in assessing the probability in accordance with MFRS
112 Income Taxes.

(4 marks)

c. Determine the deferred tax expense as at 31 December 2021. (Show all workings)

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(12 marks)
(Total: 20 marks)

QUESTION 3
The following information relates to Rainbow Bhd for the year ended 31 December
2019,2020 and 2021.

1. On 1 January 2019, Rainbow Bhd granted 40 employees in the marketing

department an option to buy 500 shares. If sales for the year increase by 10%, the
option granted would increase by 5% and if the sales increase by 15%, the option
granted would increase by 10%. The option has a life of 3 years. At the grant date,
the fair value of the option was estimated at RM7.00. It was initially estimated that 7
employees would leave the entity before the end of the vesting period.

In the year 2019, the sales were 18% higher than the previous year’s sales and 4
employees left the marketing department. In the year 2020, Rainbow Bhd estimated
that the sales would increase by 5% and a total of 5 employees left the marketing
department. It is expected that 9 employees would leave in the remaining two years.
However, no employees left until the end of the vesting period.

The fair value of each option was as follows:

Share price
Date
RM
1 January 2019 7.00
31 December 2019 7.20
31 December 2020 7.50
31 December 2021 7.60

2. On 1 April 2021, Rainbow Bhd signed a sale and purchase agreement to acquire a
plant. The plant was shipped to the company on 1 May 2021 but was received by
Rainbow Bhd on 1 July 2021. Rainbow Bhd issued its ordinary shares on 1 August
2021. The fair value of the plant is measured based on 250,000 ordinary shares of
Rainbow Bhd. The market values of the company’s ordinary shares were as follows:

Share price
Date
RM
1 April 2021 3.10
1 May 2021 3.20
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1 July 2021 3.30

1 August 2021 3.40

4. Rainbow Bhd entered a contract with Patrick Bhd to acquire inventories. The terms of
the agreement allow Rainbow Bhd to pay for the inventories either by issuing
100,000 ordinary shares at payment’s due date or cash which is equivalent to the
market value of 100,000 ordinary shares. The general practice of the company is to
settle its obligation in cash unless requested otherwise by the counterparty. Details of
the transactions were as follows:

Date Particulars
Rainbow Bhd negotiates with Patrick Bhd to purchase the
25 February 2022 inventories. Rainbow Bhd’s share price was at a fair value of
RM3.50
The inventories were received by Rainbow Bhd. Rainbow Bhd’s
10 March 2022
share price was at a fair value of RM3.80.
Payment due date. Rainbow Bhd’s share price was at a fair value
10 May 2022
of RM4.20.

Required:

a. Compute the employee benefit expense and the equity (cumulative employee benefit
expense) that should be recognized at the end of 2019, 2020, and 2021.
(6 marks)

b. Determine the type of settlement and the initial measurement for the acquisition of plant
by Rainbow Bhd in accordance with MFRS 2 Share-Based Payment (show relevant
journal entries at initial recognition and settlement date).
(9 marks)

c. Explain how Rainbow Bhd should treat the share-based payment transaction for the
acquisition of inventories with Patrick Bhd in accordance with MFRS 2 Share-Based
Payment.
(5 marks)
(Total: 20 marks)

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QUESTION 4
BIM Bhd issued 100,000 units of 6% convertible debentures at a price of RM200 per unit on
1 January 2021. Each debenture could be converted into 100,000 units of ordinary shares in
3 years’ time. As at that date, the market rate of non-convertible debentures was 9%. The
present value of RM1 at 6% and 9% were as follows:

Year 6% 9%
1 0.9434 0.9174
2 0.8900 0.8417
3 0.8396 0.7722
4 0.7921 0.7084
5 0.7473 0.6499

During the year, the company acquired a debt instrument worth RM500,000 from Infinity Bhd
and made an investment in acquisition of 50,000 units of ordinary shares of Meija Bhd at
RM5.60 per share. For the investment in Infinity Bhd, the company intended to collect
contractual cash flows from the investment and will sell them when it matures while for the
investment in Meija Bhd, the company intended to sell the ordinary shares in the near future
when the price is favourable. In addition, BIM Bhd had incurred RM10,500 brokerage fees
for each investment as at the acquisition date.

Required:

a. Prepare an extract of statement of financial position of BIM Bhd as at 31 December

2021 showing the equity and liability component of the 6% convertible debentures.
(Show all necessary workings)
(6 marks)

b. Discuss the classification and the initial measurement of the investment on debt
instruments in Infinity Bhd and ordinary shares in Meija Bhd in accordance with MFRS
9 Financial Instruments.
(9 marks)

c. In January 2021, BIM Bhd has entered into an agreement with a financial institution for
a loan of RM 400,000. The company planned to settle the loan through the remittance
from its receivables in 2 years’ time. However, for the financial year ended 31
December 2021, one of its receivables defaulted and were not able to pay on time.
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Justify whether BIM Bhd may derecognise the loan and the receivables as at 31
December 2021 in accordance with MFRS 9 Financial Instruments.
(5 marks)
(Total: 20 marks)

QUESTION 5
Straits Bhd has a funded defined benefit scheme for its employees. The following are the
balances for the financial year ending 31 December 2020 and 31 December 2021.

Fair Value Plan Asset PV Plan Obligation

31 December 2020 1,620,000 3,300,000
31 December 2021 3,900,000 3,420,000

For the year ended 31 December 2021, based on actuarial valuation, the current service
cost for the year is RM864,000. The entity has also incurred a past service cost due to plan
amendment amounting to RM1,440,000, and paid RM3,180,000 contribution to the plan
asset while RM1,380,000 is paid for retired employees during the year.

The expected rate of return on investment is 12% while the interest rate on the market yield
of corporate bonds is 8%. The asset ceiling is determined to be at RM360,000. The entity
has determined that the actuarial gain on defined benefit obligation is RM1,134,000 while
actuarial gain on plan asset is RM237,000.

Required:

a. Determine the net defined benefit liability or asset to be recognised in the Statement of
Financial Position as at 31 December 2021.
(4 marks)

b. Determine the defined benefit cost that should be recognised in Statement of Profit or
Loss for the year ended 31 December 2021.
(4 marks)

c. Explain the requirements when an asset ceiling is applied in the recognition of a net
defined benefit asset in the Statement of Financial Position showing clearly all the
workings.
(7 marks)

d. “Pension plans are vulnerable to the effects of fluctuation in financial market”. Why do
you think that pension plans are affected by an economic downturn? Discuss.
(5 marks)
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(Total: 20 marks)

END OF QUESTION PAPER

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