CONFIDENTIAL 1 AC/FEB 2023/FAR210/SS

UNIVERSITI TEKNOLOGI MARA

SUGGESTED SOLUTION

COURSE : FINANCIAL REPORTING 3

COURSE CODE : FAR210
DATE : FEBRUARY 2023

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Question 1

a(i)

Dabong Bhd
Statement of Profit or Loss and Other Comprehensive Income for the
year ended 31 December 2022
Revenue 659,300 √
Cost of sales (393000+3000) (396,000) √ √
263,300
Administration cost (138,500) W1
Selling and distribution cost (37,500) W1
Operating Profit 87,300
Finance Cost (19,300)
Investment income 6,200 √
Net Profit before tax 74,200
Taxation (20,400) √
Net Profit after tax 53,800
Other Comprehensive income
Surplus on revaluation 25,000 √
Total Comprehensive Income 78,800

W1 : Expenses Admin. S&D Finance cost

As per trial balance 45,500 √ 31,000 √ 19,300√
Depreciation:
Building (437,500x2%) 8,750 √
Equipment (195,000x5%) 9,750 √
Plant (333,000x10%) 33,300 √
Motor vehicle (65,000x10%) 6,500 √
Impairment of TR [1,500-(1,700-1,400)] 1,200 √√
Audit fee 40,000 √
138,500 37,500 19,300

16 √ x ½=8 marks

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a(ii)

Dabong Bhd
Statement of Changes in Equity for the year ended 31 December 2022
Retained
Share capital Earning ARR
Balance as at 1 January 2022 722,000 √ 302,900 √
Profit for the year √ 53,800
Surplus on revaluation √ 25,000
Interim Dividend (17,700)√
722,000 339,000 25,000
364,000
5 √x1 = 5 marks
a(iii)

Dabong Bhd
Statement of Financial Position as at 31 December 2022
Non Current Asset
Property, Plant and Equipment √ 872,950
Intangible Asset 11,500 √
Investment 287,500 √
1,171,950
Current Asset
Inventory (112,000-3,000) 109,000 √
Bill Receivable 52,000 √
Trade Receivable (94,500-1,400 -1,500) 91,600 √
Bank (157,300 - 65,000) 92,300 √
Tax recoverable (23,400 - 20,400) 3,000 √ 347,900
1,519,850
Equity
Share capital √ 722,000
Reserve 364,000 1,086,000

Non Current Liability

7% debentures 120,000 √
Bank loan 111,000 √ 231,000

Current Liability
Bills payables 59,500 √
Trade payables 92,050 √
Accruals (11,300+40,000) 51,300 √ 202,850
1,519,850
14 √ x ½ = 7 marks

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b)
Property, plant and Freehold
equipment land Building Equipment Plant MV
Cost/Valuation
Balance 1 January 2022 210,000 √ 437,500 √ 195,000 √ 333,000 √ -
Surplus on revaluation 25,000 √ - - - -
Acquisition - - - - 65,000 √

Balance 31 December 2022 235,000 437,500 195,000 333,000 65,000 1,265,500

Freehold
Accumulated Depreciation land Building Equipment Plant MV
Balance 1 January 2022 - 70,500 √ 97,500 √ 166,250 √ -
Charge for the year √ - 8,750 9,750 33,300 6,500

Balance 31 December 2022 - 79,250 107,250 199,550 6,500 392,550

Carrying value 235,000 358,250 87,750 133,450 58,500 872,950

10 √ x ½ = 5 marks
Total: 25 marks

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Question 2
a. Two (2) subsequent measurement models for property, plant and equipment:
Entity shall choose either:
1. Cost model √
- After initial recognition, an item of PPE shall be carried at its cost√ less any
accumulated depreciation and any accumulated impairment losses √

2. Revaluation model √
- After initial recognition, an item of PPE shall be carried at revalued amount√ at the
date of revaluation less any subsequent accumulated depreciation and
subsequent impairment loss √
(6 √ x ½ = 3 marks)

b. The initial cost of the self-constructed new office building for Rayyan Bhd on 1 February
2022:
The initial cost to be capitalised shall include:
i. All costs that relate specifically to the construction of the new office building √ such
as direct materials and labour used in the construction√. However, any cost
inefficiencies such as material wastage shall not be included√.
ii. Costs that relate to the construction in general and can be allocated to the new office
building√ such as engineering and technical costs√.
iii. Costs of borrowings such as interest on loan taken to finance the construction of the
new office building√. The interest to be capitalised is the interest on loan incurred
during the construction period only√.
The initially capitalised cost of the self-constructed new office building shall not exceed
its estimated recoverable amount which is the purchase price of an equivalent purchased
office building √.
(8 √ x ½ = 4 marks)

c. Find the initial cost of the self-constructed new office building for Rayyan Bhd:

RM
Contractor’s cost 300,000√
Architect’s fee 100,000√
Direct material & labour used in costruction 84,000√
Less: direct material wastage 4,000√ 80,000
Engineering & technical costs 50,000√
Electrical & cabling 40,000√
Interest on loan to finance construction 32,000√
Cost of construction 602,000√

The initially capitalised cost of the self-constructed new office building shall not exceed the
estimated recoverable amount√ (purchase price of a similar office building = RM580,000).
Thus, the initial cost of the self-constructed new office building is RM580,000√.
(10 √ x 1/2 = 5 marks)

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d. Determine the accounting treatment for the subsequent cost incurred during the financial year
ending 31 December 2022 on the self-constructed new office building. :
The accounting treatment for the subsequent costs incurred during the financial year ending
31 December 2022 depends on the nature of the expenditure.
Subsequent costs are treated as a capital expenditure only when it is regarded as capital in
nature that is, when the cost enhances the value of the property, plant and equipment i.e.
increase the future benefit of the existing asset beyond its originally assessed standards of
performance√.

Otherwise, the subsequent costs are treated as a revenue expenditure when it is regarded
as an expense that is, when the cost does not enhance the value of the property, plant and
equipment√.

The amount of RM100,000 for renovation cost incurred on 20 October is expected to increase
the operating capacity i.e. increase the future economic benefit √ of the building. Therefore,
this amount be treated as capital expenditure √ and to be added to the carrying value of the
building√ and presented in SOFP√.
(6√ x ½ mark = 3 marks)

e. Advise Rayyan Bhd on the accounting treatment for the revaluation of its land:
1. Adjust the gross carrying amount (RM140,000) of the land by RM60,000√ (RM200,000
– RM140,000) to reflect its new value (RM200,000).
2. Recognize the Revaluation Surplus of RM60,000√ (RM200,000 – RM140,000) in Other
Comprehensive Income √ and credited to Asset Revaluation Reserve√.
3. The revalued amount of RM200,000 is recognised in company’s Statement of Financial
Position√ (deemed to be the carrying value as at 1 January 2022).
(5 √ x 1 = 5 marks)

f. Assess if Rayyan Bhd can derecognize the motor vehicle from the company’s book of
accounts on 30 November 2022 in accordance with MFRS 116:
MFRS 116 requires that the carrying amount of an item of PPE shall be derecognized:
- On disposal √; or
- When no future economic benefits are expected from its use or disposal √

Rayyan Bhd can derecognized the motor vehicle from the company’s book of accounts on
30 November 2022√ because the motor vehicle was disposed√ when the company sold it
to Nine Sdn Bhd for RM45,000 cash√.
(5 √ x 1 = 5 marks)

(Total: 25 marks)

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Question 3

a. 3 advantages offering credit facilities to customers:

i. Increase in sales
ii. Increase customer loyalty
iii. Meet the competition
Or any relevant answer
(3√ x 1 = 3 marks)

b. The journal entry for the transaction on 8 April 2022:

Dr Notes Receivable√ 8,000√

Cr Sales√ 8,000√
(4√ x ½ = 2 marks)

c. Determine the maturity date AND maturity value of the promissory note from Sea Sdn Bhd
(Use 360 days a year):

Maturity Date Maturity Value

60 √ days RM8,000 x 6% x 60/360
April (30-8) 22 √ = RM80√ √ √
Bal. 38 √
May 31 √ Maturity value = RM8,000√ + RM80
Bal. 7 = RM8,080√
Maturity date is on 7 June 2022√

(10√ x ½ = 5 marks)

d. Recommend the management of Rusa Sdn Bhd the amount of impairment of trade
receivables to be recognized in the company’s Statement of Profit or Loss AND the net
realizable of receivables to be disclosed in the Statement of Financial Position as at 31
December 2022.

Balance Expected credit Expected credit

outstanding as at loss rate loss allowance
31 December 2022 (RM)
(RM)
Account not yet due 90,000 1% 900 √
1 – 30 days past due 21,500 2% 430 √
31 – 90 days past due 20,000 3% 600 √
Over 90 days 8,000 5% 400 √
2,330

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The movement of Allowance for Impairment of Trade Receivable

RM
Balance b/f 2,200 √
Add: Charge for the year (SOPL) 130 √
Balance as at 31 December 2022 2,330 (W1)

The amount of impairment of trade receivables to be recognized in the company’s Statement of

Profit or Loss as expense is RM130 (of)√.

Current Asset RM
Receivables 139,500 √
Less : Allowance for impairment of trade receivable (2,330) √
Net Reliasable of Receivables 137,170

The net realizable of receivables to be disclosed in the Statement of Financial Position as at 31

December 2022 is RM137,170√ (of).
(10√ x ½ = 5 mark)

(Total: 15 marks)

Question 4

a. The two (2) inventory systems commonly used in practice:

i. Perpetual inventory system√ .
ii. Periodic inventory system√ .
(2 √ x 1 = 2 marks)

b. Identify whether the sewing machines are items of inventories for Kajang Menjahit Sdn Bhd
in accordance with MFRS102 Inventories:
The sewing machines are items of inventories√ for Kajang Menjahit Sdn Bhd since the sewing
machines are held for sale in the ordinary course of business that is, selling of various type
of sewing machine to customers√.
(2√ x 1 = 2 marks)

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c. The value of inventories for both Model A and Model B as at 31 December 2022 for Kajang
Menjahit Sdn Bhd by applying the group of similar items valuation:

Sewing Cost NRV Closing

Machine inventories
Model A 4 x 1200 = 4800 √ 4 x 1050 = 4200 √ 4,200√
Model B 5 x 850 = 4250 √ (3 x 900) + (2 x (900-150)) 4,200√
= 2,700√√ + 1,500√√√
= 4,200
8,400

MFRS 102 requires that inventories shall be measured at the lower of cost and net realizable
value √.

Hence Model A will be valued at NRV of RM4,200 (written down by RM600), and Model B
will also be valued at NRV of RM4,200 (written down by RM50), thus the amount to be
disclosed in SOFP is RM8,400√of.
(12 √ x ½ = 6 marks)

(Total: 10 marks)

Question 5

a.
River Bhd
Statement of Cash Flow for the year ended 31 Dcember 2022 √
Cash Flow from operating activities √ RM'000 RM'000
Net profit before taxation 107,000 √
Adjustment:
Finance cost 9,000 √
Depreciation plant and machinery 34,500 √
Deficit on revaluation (352k-277k) 75,000 √
Profit on disposal of machine (5,000) √
Operating profit before working capital changes 220,500
Decrease in inventories (202.6k-339k) 136,400 √ √
Increase in trade receivable (150.3k-94k) (56,300) √ √
Decrease in trade payable (151.2k-232.45k) (81,250) √ √
Cash generated from operation √ 219,350
Interest paid (9,000) √
Taxes paid (24,950) √ √
Net cash inflow from operating activities √ 185,400

Cash flow from investing activities √

Acquisition of plant and machinery (43,450)√√√√
Disposal of plant and machinery 34,000 √√
Net cash outflow from investing activities √ (9,450)

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Cash flow from financing activities √

Proceeds from issue of shares
[(529k-350k)+(270k-240k)] 209,000√√√√
Proceeds from bank loan 90,000 √
Payment of dividend (66,000) √ √ √
Net cash inflow from financing activities √ 233,000
Net increase in cash and cash equivalents √ 408,950 √
Cash and cash equivalent at the beginning of period (100,550) √
Cash and cash equivalent at the ending of period 308,400 √

40 √ x ½ = 20 marks

Plant and Machinery

Bal b/f 192,000 √ Depreciation 34,500 √
Acquisition 43,450 Disposal 29,000 √
Bal c/f 171,950 √

Disposal - plant & machinery

plant and machinery 29,000 √ Bank 34,000
SOPL(gain) 5,000 √

Retained Earnings

Dividend paid 66,000 Bal b/f 54,000 √

Bal c/f 65,000 √ PAT 77,000 √
Tax payable

Tax paid 24,950 Bal b/f -

Bal c/f 5,050 √ SOPL 30,000 √

b. Briefly explain the following terms:

CASH EQUIVALENTS are short term, highly liquid investments that are readily convertible to
cash of which the maturity date is three months or less from the date of acquisition.√

BANK OVERDRAFT: Occurs when an account lacks the funds to cover a withdrawal, but the
bank allows the transaction to go through. It is repayable on demand and are cash equivalents.√

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OPERATING ACTIVITIES: are the principal or ordinary revenue-producing activities of an

enterprise such as sales of goods and services, cash receipts from cash sales, cash receipts from
customers, payment to suppliers, payment of salaries and other expenses. √

INVESTING ACTIVITIES: are the purchase (acquisition) and disposal (sale) of long-term assets
(non- current assets). E.g cash received from the sale of equipment. √

FINANCING ACTIVITIES: are activities of acquisition of share capital, long term borrowings and
also repayment of long term borrowing of an enterprise. E.g proceeds from the issue of shares,
issue of debentures. √
(5 √ x 1 = 5 marks)

(Total: 25 marks)

END OF SUGGESTED SOLUTION

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