Session Programme Course Date of Examination Time Duration Special Instructions This paper consists of TWO (2) sections. Answer ALL the questions in SECTION A and any TWO (2) {questions in SECTION B. Answer in the answer booklet provided. INTL, Intemational University tauncae chow vs aK FINAL Examination Paper (COVER PAGE) : May 2017 Bachelor of Accountancy (Hons) ACC3201:; Financial Reporting 1 02 August 2017 0900 - 1210 Reading Time : _10 minutes 3 Hours 10 minutes Materials permitted Non- programmable Calculator Materials provided Nil Examine(s) Moderator : Mary Mathews _Madhavan Poduval, Salwa Abu Bakar & Christi This paper consists of 8 printed pages, including the cover page.ACC3201/ Page 1 of 7 INTI INTERNATIONAL UNIVERSITY BACHELOR OF ACCOUNTANCY (HONS) BACHELOR OF BUSINESS (HONS) ACCOUNTING ACC3201: FINANCIAL REPORTING 1 FINAL EXAMINATION: MAY 2017 SESSION ‘This paper consists of TWO (2) sections. Answer ALL, the questions in SECTION A and any ‘TWO (2) questions in SECTION B in the answer booklet provided. SECTION A: Answer ALL questions Question 1 ‘The following trial balance extracfs (i.e. it is not a complete trial balance) relate to Moston as at 30 June 2015: development costs (note ii) [Distribution costs vii) # | Investment income | Equity shares of RMI each (note vii) _ 5% loan note (note iv) [Retained earnings as at 1 July 2014 Revaluation surplus as at 1 July 2014 Other components of equity/s Property at [July 2014 | Financial asset equity investments at fair value T July 2014 (note v) ‘The following notes are relevant: () Revenue includes a RM 3 million sales made on 1 January 2015 of maturing goods which are not biological assets. The carrying amount of these goods at the date of sale was RM 2 million. Moston possession of the goods (but they have not been included in the inventory count) and has an unexercised option to repurchase them atGi) Gill) ww w) wi) ACC3201/ Page 2 of 7 any time in the next three years. In three years’ time the goods are expected to be worth RM 5 million. The repurchase price will be the original selling price plus interest at 10% per annum from the date of sale fo the date of repurchase. Moston commenced a research and development project on 1 January 2015. It spent RM I million per month on research until 31 March 2015, at which date the project passed into the development stage. From this date it spent RM 1.6 million per month until the year end (30 June 2015), at which date development was completed. However, it was not until 1 May 2015 that the directors of Moston were confident that the new product would be a commercial success. Expensed research and development costs should be charged to cost of sales. Non- current assets: Moston’s property is carried at fair value which at 30 June 2015 was RM29 million. ‘The remaining life of the property at the beginning of the year (1 July 2014) was 15, years, Moston does not make an annual transfer to retained eamings in respect of the revaluation surplus. Ignore deferred tax on the revaluation. Plant and equipment is depreciated at 15% per annum using the reducing balance method. No depreciation has yet been charged to any non-current asset for the year ended 30 June 2015. All depreciation is charged to cost of sales ‘The 52% loan note was issued on 1 July 2014 at its nominal value of RM 20 million incurring direct issue costs of RM500,000 which have been charged to administr expenses. The loan note will be redeemed after 3 years at a premium which gives the loan note an effective finance cost of 8% per annum, Annual interest was paid on 30 June 2015. At 30 June 2015, the financial asset equity investments had a fair value of RM 9.6 million, There were no acquisitions or disposals of these investments during the year. A provision for current tax for the year ended 30 June 2015 of RM 1.2 million is required, together with an increase of the deferred tax provision to be charged to profit or loss of RM 800,000. Moston paid a dividend of 20 cents per share on 30 March 2015, which was followed the day after by an issue of RM 10 million equity shares at their full market value of RM 1.70. The share premium on the issue was recorded in other components of equity. Required: (a) Prepare the statement of profit or loss for Morton for the year ended 30 June 2015ACC3201/ Page 3 of 7 (b) Prepare the statement of changes in equity for Moston for the year ended 30 June 2015. ‘Note: the statement of financial position and notes to the financial statements are NOT. required, (Total 25 marks) Question 2 (@) An assistant of yours has been criticized over a piece of assessed work that he produced for his study course for giving the definition of a non-current asset as a “physical asset of substantial cost, owned by the company, which will last longer than one year”. Required: Provide an explanation to your assistant of the weaknesses in his defi ion of non-current assets when compared to the Malaysian Financial Reporting Standards (MFRS 116) view of assets. (6 marks) (b) The same assistant has encountered the following matters during the preparation of the draft financial statements of Darby for the year ending 30 September 20x9. He has given an explanation of his treatment of them. @ Darby spent RM200,000 sending its staff on training courses during the year. This has already lad to an improvement in the company’s efficiency and resulted in cost savings. The organizer of the course has stated that the benefits from the training should last fora minimum of four years. The assistant has therefore treated the cost of the training as an intangible asset and charged six month’s amortization based on the average date during the year on which the training courses were completed. (6 marks) During the year the company started research work with a view to the eventual development of a new processor chip. By 30 September 2009 it had spent RM 1.6 million on this project. Darby has a past history of being particularly successful in bringing similar projects to a profitable conclusion. As a consequence the assistant has treated the expenditure to date on this project as an asset in the statement of financial position Darby was also commissioned by a customer to research and, if feasible, produce a computer system to install in motor vehicles that can automatically stop the vehicle if itis about to be involved in a collision, At 30 September 2009, Darby had spent RM 2.4 million on this project, but at this date it was uncertain as to whether the project would be successful. As a consequence the assistant has treated the RM 2.4 million as an expense in the income statement. (7 marks)ACC3201/ Page 4 of 7 ii) ‘The company carried out a development project that met the for recognition san asset on I April x9. Costs incurred till April x9 were RM4.5 million and RM3 million was incurred from April x9 till completion of the project on 30 September x9. The fair value of the development cost as at 30 September x9 was RMS.2 million. ‘The economic life of the asset is indefinite. (6 marks) Required: For each of the above items (i) to (iii) comment on the assistant’s treatment of them in the financial statements for the year ended 30 September 2009 Section B: Answer any TWO questions Questi Part A (@) The accounting treatment of investment properties is prescribed by MERS140 Investment Property. Required: Define investment property under MFRS140 and explain the difference in its accounting treatment from that of owner-occupied property. (5 marks) (b) Speculate owns an office building at 1 April 2012. The office building used by Speculate for administrative purposes with a depreciated historical cost of RM 2 million. At ! April 2012 it had a remaining life of 20 years. After a reorganization on 1 October 2012, the property was let to a party and reclassified as an investment property applying Speculate’s policy of the fair value model. An independent valuer assessed the property to have a fair value of RM 2.3 million at 1 October 2012, which had risen to RM 2.34 million at 31 March 2013. Required: Prepare extracts from Speculate’s entity statement of profit or loss and statement of financial position for the year ended 31 March 2013 in respect of the above property. Ignore deferred tax. (7 marks)ACC3201/ Page 5 of 7 Part B On 1 January x5, JJ Bhd raised finance amounting to RM400,000. The borrowing was to finance both a construction of a plant and for operations. On 31 December x5, the outstanding borrowings ‘were RM400,000 with no capital repayment in year x5. The borrowing were mainly used for the construction of the plant at a cost of RM300,000. JJ Bhd wants to capitalize borrowing costs on qualifying assets. The details of the borrowings were as follows: 31.12.x5 RM 12% loan stock 100,000 10% term loan 220,000 8% redeemable preference shares 80,000 Required: ‘Compute the capitalization rate and the amount of interest that qualifies for capitalization for the year ended 31 December x5 as per MFRS123. (13 marks) (Total 25 marks) QUESTION 4 Part A A washing machine sells for RMS00 with one year warranty. The dealer knows from experience that 15% of these machines develop a fault in the first year and that the average cost of repai RM100. He sells 200 machines. How does he account for this sale, under MFRS118? (5 marks) PartB Given that prudence is the main consideration, discuss under what might be recognized at the following stages of a sale (MFRS118). mstances, iPany, revenue (@) Goods are required by the business which is confidently expects to resell very ly, (b) A customer places a firm order for goods (©) Goods are delivered to the customer (d) The customer is invoiced for goods (20 marks) (Total 25 marks)ACC3201/ Page 6 of 7 QUESTION 5 Part A Indicate if the following events or transactions are adjusting or non-adjusting items as per MFRS110 . Ifthey ate adjusting items discuss the effect on the financial statements, Year-end was, 31 December 24 and the accounts were authorized for issue on 15 March x5. (a) Entity makes a provision for doubtful debt of 1% and the amount provided for at the end of 31 December x4 was RMS00,000. On 15 January, a debtor who owed the entity RM2 million become insolvent, G marks) (b) Closing inventory was determined as RMI.5 million based on cost. Part of the inventory of RM200,000 was damaged but the store keeper expected the goods to be sold above cost. However these goods were sold on 19 January for RM120,000. (3 marks) (©) Entity signed a contract to acquire a factory building on 10 January x4, The estimated cost of the building was RM130 million. 3 marks) (@) On 28 February x5, the entity decided to close down its shoemaking operation, which was identified as a separate operation from the rest of the entity’s business. (G marks) (©) The factory plant was damaged on 3 March x5 and the recoverable amount was estimated to be RMI.2 million and the carrying value was RMI,S million. (3 marks) (Entity proposed the final ordinary dividend on 1 March x5. (3 marks) PartB Advent is a public listed company. Details of Advent’s non-current assets at 1 October 20x6 were: Cost/valuation ‘Accumulated depreci ‘Net book value ‘The following information is relevant: ‘The land and building were revalued on 1 October 20x3 with RM80 million attributable to the land and rm200 million to the building. At that date the estimated remaining lifeACC3201/ Page 7 of 7 of the building was 25 years. A further revaluation was not needed until 1 October 20x8 when the land and building were revalued at RMB5 million and RM180 million respectively. ‘The estimated remaining life of the building at this date was 20 years. Require Prepare extract from the statement of financial position relating to Advent’s non-current assets as at 30 September 20x9, together with any disclosure (other than those of the accounting policies) under Malaysian Financial Reporting Standard. (7 marks) (Total 25 marks) - THEEND— wisiainayieo1?