Quiz 1 FAR270 June 2022

MFRS 108 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND

ERRORS
MFRS 110 EVENTS AFTER REPORTING PERIOD
MFRS 137 PROVISIONS, CONTINGENT LIABILITY, CONTINGENT ASSET

Section A – State whether the statement is true or false

1. There are two types of present obligation which are legal obligation and constitution
obligation. False
2. Changes in accounting estimates should be applied retrospectively False
3. The effect of contingent liabilities must be shown in the Statement of Financial
Position. False
4. Provision is liability with uncertain timing and amount. True
5. Possible contingent assets must be reported in notes to the financial statement.
False
6. An obligation of which its settlement can be enforced by law or contract is a legal
obligation True
7. Voluntary change in accounting policies is not allowed if changes is due to
management preferences and not provide more relevant information on entity’s
financial performance. True
8. The decision to change method in the valuation of inventories from LIFO to weighted
average is an example of changes in accounting estimates. False
9. Change in useful life of an asset is an example of accounting estimates True
10. Mistake in applying accounting policies for non-current assets is an example of error
True
(10 marks)

Section B – Choose the most suitable answer

1. Wallagiano Bhd was sued by one of its customers. However there is a very remote
chance that the Wallagiano Bhd will be held liable. The company must __________.
a. Disclose a contingent asset
b. Do nothing
c. Disclose a contingent liability
d. Declare a provision

2. Which of the following is TRUE:

a. MFRS 137 help reduce financial statement fraud
b. MFRS 108 require company to apply accounting policies consistently for similar
transactions and events
c. According to MFRS 137, contingent assets must be recognised in financial
statements
d. MFRS 108 do not allowed for any changes in accounting policies
3. Mamosa Bhd acquired a machine in 2019. The machine has been depreciated on a
straight line basis with 8 years estimated life. In June 2020, the company decided to
depreciate the machine for a total of 6 years rather than 10 years. This is

a. A prior period error and should be applied retrospectively.

b. A change in accounting policy and should be applied prospectively
c. A change of estimate and should be applied prospectively
d. A change in accounting policy and should be applied retrospectively

4. Which of the following is a change in accounting policy?

a. A change in measurement basis of trading investment from the lower of cost and
market model to fair value model
b. Change in residual value of a motor vehicles from RM8,000 to RM5,000
c. Change of calculation of warranty provisions from 2% to 4% of total sales.
d. Changes in bad debt provisioning

5. Which of the following statements is TRUE?

a. The effect of a change in accounting estimate is recognised retrospectively

b. To the extent practicable, an entity must correct a prior period error prospectively
in the first financial statements authorised for issue after its discovery.
c. When an entity discovers an error in its financial statements of a prior period, it
must immediately withdraw those financial statements and reissue them with the
error corrected.
d. To the extent practicable, an entity must retrospectively correct a prior period
error in the first financial statements authorised for issue after its discovery.

6. On 1 May 2021, Wowland Bhd discovered that during the year ended 31 December
2020, cash receipts of RM100,000 from a trade receivable were credited to the
discount received account. Determine the accounting treatment to be made by
Wowland Bhd in the year 2021.
a. Correction of prior year error and retrospective adjustment is to be made.
b. Correction of current year error and prospective adjustment is to be made.
c. Correction of prior year error and prospective adjustment is to be made
d. Correction of current year error and retrospective adjustment is to be made.

7. In July 2021, an accounting clerk discovered that payment to suppliers amounting to

RM20,000 in March 2019 was recorded as salaries paid to employees. The company
closed its account on 31 December. To correct the error, the accounting clerk needs
to:
a. Debit Account Payable; Credit Salaries Expenses
b. Debit Salaries Expenses; Credit Account Payable
c. Debit Retained Earnings; Credit Account Payable
d. Debit Account Payable; Credit Retained Earnings

8. A company was claimed for damage by one of its employees. After consulting its
lawyers, it is predicted that there is a 60% chance that the company could be liable
 for RM400,000 and 40% that the company could be liable for RM500,000. The
company should __________.
a. Disclose a contingent asset
b. Disclose a contingent liability
c. Recognise a provision of RM500,000
d. Recognise a provision of RM400,000

9. A manufacturer of electrical goods provides 2 years warranty for manufacturing

defects. Based on experience, the warranty cost claimed was 2% of the cost of sales.
During the current year, cost of goods sold was RM5,000,000. Which of the following
is TRUE regarding the above situation.
a. The manufacturer has not built a valid expectation that it will pay for warranty
claims on defective products
b. The manufacturer should treat warranty cost as a contingent liability and disclose
it in notes to the financial statements
c. The manufacturer should recognise warranty costs of 2% of the cost of sales as
a liability.
d. The manufacturer should ignore the warranty cost since the 2% of the cost of
sales is not materials

10. In an event where a reliable estimate cannot be made, an entity shall disclose the
probable obligation as __________.
a. contingent asset
b. contingent liability
c. going concern issue
d. provision

11. Which of the following is NOT non-adjusting events.

a. a major business combination after the reporting date
b. a pandemic that results in movement restrictions that affect the business
transaction after the reporting date
c. a declaration of bankruptcy of one of the customers after the reporting date
d. Major ordinary shares transaction after reporting date

12. On March 2020, the government introduced a new tax rate which caused an increase
in tax expenses and taxes payable for year 2020. The board of directors has
authorised the financial statement for the year ended 31 December 2019 on 10 April
2020. On 30 April 2020, shareholders approved the financial statements. Which of
the following is NOT TRUE about the above event.
a. Adjusting event for this company is between 31 December 2019 to 10 April 2020
b. Increase in tax payable due to a new tax rate is non-adjusting event
c. The company should make adjustment on new tax amount
d. This company should disclose this event in the note to the financial statement
13. A constructive obligation arises when an entity has:
i. established a pattern of practice.
ii. published particular policies or specific statements.
iii. indicated to certain parties that it will accept certain responsibilities.
iv. created a valid expectation to certain parties that it will discharge its
responsibilities.

a. i or ii
b. i and iii
c. i, ii, and iii
d. all of the above.

14. Contingent assets should be disclosed in the notes to the financial statement when:
a. the inflow of benefits is probable
b. the inflow of benefits can be measured reliably;
c. the timing of the inflow of benefits is certain
d. the inflow of benefits is virtually certain to occur.

15. In year 2020, JojoMove Bhd has been liable for one of its customer claims on
damages. However the amount liable is still unknown until the company closed its
account on 31 December. JojoMove disclosed this event in its financial statements.
Finally, in mid of February 2021, the court decided that JojoMoved needed to pay the
amount of damage of RM40,000 to its customer. The financial statements of
JohoMoves were authorised by the board of directors on 15 March 2021. Which of
the following is TRUE about the above event?
a. This is non-adjusting event
b. JojoMove should make additional notes to the financial statement about this
event.
c. JojoMove should record RM40,000 as an income in statement of profit and
loss
d. JojoMove should declare a provision of RM40,000 in Statement of Financial
Position

16. Which of the following is NOT an adjusting event if the financial year ended is on 31
December 2020 and the financial statement was authorised on 30 April 2021.
a. In January 2021, Hartadia Bhd discovered a fraud transaction made by its
accountant in 2017.
b. Mewah Holding sold inventories for RM18,000 in February 2021. During the
financial year ended December 2020, the carrying values of the inventories were
RM 21,500
c. Hololo Bhd announced a plan to dispose of its asset worth RM870,000 on 25
January 2021
d. One of Bergaya Berhad’s customers was declared bankrupt by the court on 2
February 2021. This customer owed Bergaya Berhad RM288,000.

17. Which of the following statement on MFRS110 Event after reporting period is FALSE
a. MFRS110 define events after reporting period as those unfavourable events that
occur between the end of the reporting period and the date the financial
statements are made available to the public.
 b. Adjusting events provide further evidence of a condition that existed at the end of
the reporting period
c. Impairment of assets is an example of adjusting events
d. The dividend proposed after the reporting date is non-adjusting events.

18. Contingent assets should be:

a. Recognised as an asset in the statement of financial position
b. Disclosed in notes to the financial statements when the amount is virtually certain
c. Disclosed in notes to the financial statement when the inflow of benefits is
possible
d. Ignored when the inflow of the benefits is possible

19. A provision is defined within the Framework as:

a. Unconfirmed liability
b. a liability of uncertain timing or amount
c. a liability with possible and probable outflow
d. an expected inflow of resources embodying economic benefits.

20. Piramida Bhd forecasted that its division would be making big losses in the next five
years in 2026 due to the uncertain effects of commodity prices. The future operating
loss is expected to be RM10,000,000. What is the accounting treatment in respect of
this loss?
a. Ignore the future loss
b. Make provision of RM2,000,000 every year starting from the year ended 2023
c. Disclose in the note to the financial statement of RM10,000,000 future loss
d. Recognised RM10,000,000 as expenses in SOPL.

(20 marks)
TOTAL = 30 Marks