FAR570

TEST

OCTOBER 2021 – JANUARY 2022

Suggested Answer

QUESTION 1

Earnings per share are the share value per share which a company makes from issuing each share √.
EPS helps in understanding the company performance√ by evaluating the share value√. EPS is a
useful business statistic because the data of the company is gathered through the share value per
share which will help to evaluate the performance of the company√ in order to take the decision in
investing in the company√.

(√5 x 1 mark = 5 marks)

B.

BEPS (2020) = PAT – PREF DIV = 72,500,000 – 1,000,000√ = RM0.942 @ 94.2 sen

WANOS 75,939,285.71 (W1)

W1 – Calculation of Weighted Average number of shares (WANOS) for BEPS

Date No of OSC Time held Bonus fraction WANOS

1/1/2020 Balance b/d 60,000,000 x 3/12 2.20/ 2.10 (W1) 15,714,285.71

1/4/2020 Rights issue (1:3) 20,000,000√

80,000,000 x 3/12√ 20,000,000

30/6/2020 Convertible 450,000√√√

debentures

1,000,000 x 150/100 x
30%

Total as at 30/6/2020 80,450,000 x 6/12√ 40,225,000

WANOS FOR BEPS 75,939,285.71

W1 – Calculation of theoretical ex rights price (TERP)

Initial holding of 3 shares, at cum-rights price 3 shares x RM2.20 = RM6.60

Rights subscribed, one share at issue price 1 share x RM1.80 = RM1.80

4 shares RM8.40
Therefore TERP = RM8.40/4 = RM2.10√

Bonus fraction = 2.20/2.10 √

Restatement BEPS 2019 = RM1.02 x 2.10/ 2.20 = RM0.974 sen√ @ 97.4 sen

(√10 x ½ = 5 marks)

b.

WANOS

As per basic EPS 75,939,285.71

Potential shares

1/1/2020– 30/6/2020 Convertible debentures 750,000

(RM1,000,000 x 150/100) x 6/12√√√

1/7/2020 – 31/12/2020 Convertible debentures 525,000

(RM1,000,000 x 150/100 x 70%) x 6/12√√√√

77,214,285.71

Earnings

As per basic EPS 72,500,000

Preference divided (1000,000)

+ Assumed saving in interest on 10% x 1,000,000 x 76% x 6/12√√√√ 38,000

conversion of debenture (1/1/20-
30/6/20)

+ Assumed saving in interest on 10% x 700,000 x 76% x 6/12 26,600

conversion of debenture (1/7/20
– 31/12/20)

71,564,600
DEPS = 71,564,600 = RM0.926 √ @ 92.7 sen

77,214,285.71

(√12 x ½ = 6 marks)

c.

Particulars Earnings WANOS EPS (RM)

As per basic EPS 72,500,000– 1,000,000 75,939,285.71 0.94

Option

(5,000,000 x (2-1.50) x 2/12 - 208,333√√√

71,500,000 76,147,618.71 0.94

+ Interest on conversion 64,600 1,275,000

(38,000 + 26,600) (750,000 + 525,000)

DEPS 71,564,600 77,422,618.71 0.924

Impact of Options

DEPS will be reduced√ from RM0.927 to RM0.924.

(√4 x 1/2 = 4 marks)

(Total: 20 marks)

QUESTION 2

a.

1. Taxable temporary difference

2. Deductible temporary difference

( 2√ x 1 = 2 marks)

b. It is a permanent / difference that the company reports for accounting purposes / that it
can’t / (and never will be able to) report for tax purpose /.

(4 x 1/2 mark = 2 marks)

Examples of the expense item

1. penalties and fines,

2. donations to unapproved institutions,

3. interest on municipal bonds,

4. life insurance proceeds,

5. approved research expenses

6. accrued meals and entertainment expenses

Or any other example. ( Do not accept the example of income items such as tax-free dividend)

(Any 2 x 1/2 mark = 1 marks)

c.

i. the taxable or deductible temporary differences

Carrying Tax base Taxable Deductible

amount as Temporary Temporary
per SOFP difference difference
RM RM RM
Non-Current Assets

Plant and machinery 800,000 800,000 - -

at cost
Less: accumulated (160,000) √ - - -
depreciation
Less: Initial allowance (160,000) √ - -
at 20% , 2019
Less: Annual (224,000) √ -
allowance,
14% x 2 years
Total 640,000 416,000 224,000√
Current Assets
Inventories 200,000 200000 - -
Dividend receivables 22,000 22,000 √ Nil

Trade receivables 40,000 40,000 √ nil

Less: General (800) √ - - 800√
allowance for doubtful
debts
Less: Specific (1,200) √ (1,200) √ -
allowance for doubtful
debts
38,000 38,800
Non-Current
Liabilities
5% Long-term loan 200,000 200,000 √ nil
Provision for warranty 14,000 Nil √ - 14,000
 expense
Current Liabilities
Prepaid rental income 30,000 Nil √ - 30,000
Accrued interest 10,000 Nil √ - 10,000
Accrued meals and 80,000 80,000 √ - -
entertainment
expense
Total 224,000 54,800

ii.

The deferred tax liability = Net taxable temporary differences x tax rate
= RM224,000 – RM54,800
= RM169,200 x 24%√
= RM40,608

iii. Computation of deferred tax expense

Deferred tax liability a/c

RM RM
Bal b/d 40,000√

SOPL √ Deffered Tax 608

Bal c/d 40,608
40,608 40,608

iv. Computation of tax expense for the year ended 31 December 2020.

RM
Current income tax expense: [24% x RM300,000] 72,000 √
Deferred tax expense related to origination of temporary (608) √
difference

Tax expense for the year 71,392

(20 x ½ = 10 marks)
(Total = 15 marks)

QUESTION 3
Indonesia is the principal market for this machine since that is the market with the greatest
volume and level of activity for the asset, the fair value of the asset would be measured using the
price that would be received in that market, after taking into account the transport costs, that is
RM 48,000)./

The most advantageous market is the market that maximises the amount that would be received
to sell the asset, after taking into account transaction costs and transport costs (ie the net
amount that would be received in the respective markets)./ Because Hanim Berhad would
maximise the net amount that would be received for the machine in Thailand (RM44,000), the fair
value of the asset would be measured using the price in that market (RM50,000), less transport
costs (RM4,000), resulting in a fair value measurement of RM46,000. /

Although transaction costs are taken into account when determining which market is the most
advantageous market, the price used to measure the fair value of the asset is not adjusted for
those costs (although it is adjusted for transport costs)./

Since there is a principal market in this case, the fair value of 200 units of machine is
RM9,600,000. /

(5√ x 1 mark each = 5 marks)