CONFIDENTIAL 1 AC/JUN 2019/FAR270
UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
COURSE : FINANCIAL ACCOUNTING 4
COURSE CODE : FAR270
EXAMINATION : JUNE 2019
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 – provided by the Faculty
5. Answer ALL questions in English.
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
This examination paper consists of 8 printed pages
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CONFIDENTIAL 2 AC/JUN 2019/FAR270
QUESTION 1
Master Bhd manufactures and sells computer parts for the local market. The company is
preparing its financial statements for the year ended 31 December 2018. The directors
authorised the financial statements for issue on 1 April 2019. Provided below is the trial
balance as at 31 December 2018:
Debit (RM) Credit (RM)
Sales 18,400,000
Cost of sales 7,196,000
Inventories 619,000
Administrative expenses 764,000
Selling and distribution expenses 520,000
Audit fees 90,000
Directors’ remuneration 642,500
Tax paid 2,600,000
Freehold land (cost) 6,000,000
Building (cost) 5,940,000
Plant and machinery (cost) 3,650,000
Motor vehicles (cost) 960,000
Accumulated depreciation as at 1 January 2018:
Building 831,600
Plant and machinery 282,000
Motor vehicles 189,000
Investment 6,800,000
Interim ordinary dividend 586,000
Retained earnings as at 1 January 2018 6,117,200
Ordinary shares 18,400,000
6% Bank loan 1,800,000
Investment income 633,000
Interest on bank loan 104,800
Cash at bank 7,250,500
Accounts receivable and payable 3,372,400 327,400
Allowance for impairment of trade receivable 115,000
47,095,200 47,095,200
Additional information:
1. The sales revenue and accounts receivable figures were overstated by RM2,300,000
due to the inclusion of certain goods which have not been sold by the consignee as
at the year end. Accordingly, the closing inventories were understated by
RM1,600,000.
2. The accounts payable included raw materials worth AUD50,000 bought from a
supplier in Australia on 30 November 2018. The spot rate on that date was
RM2.80:AUD1. The closing rate on 31 December 2018 was RM3.10:AUD1.
3. On 28 December 2018, the company purchased a new motor vehicle costing
RM70,000 by cheque and the transaction was not yet recorded in the books.
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4. It is the company’s policy to depreciate its property, plant and equipment on a yearly
basis at the following rates:
Building 2% per annum on cost
Plant and machinery 10% per annum on cost
Motor vehicles 20% per annum on carrying value
Depreciation expenses should be treated as administrative expenses except for
depreciation on motor vehicles. Depreciation on motor vehicles should be treated as
selling and distribution expenses.
5. The land was revalued to RM8,800,000. The directors decided to incorporate the
revalued amount in the books of account.
6. Directors’ remuneration of RM75,000 and part of the interest on loan were still
accrued.
7. On 14 December 2018, one of the production workers sued the company due to
injury suffered while operating a machine. The company’s lawyer is of the opinion
that it is highly probable that the worker’s claim of RM120,000 will be successful.
8. The tax charged for the year was determined to be RM1,960,000.
Required:
Prepare the following financial statements in a form suitable for publication in accordance
with the Companies Act 2016 and MFRS101 Presentation of Financial Statements and other
relevant Malaysian Financial Reporting Standards:
a. Statement of Profit or Loss and Other Comprehensive Income for the year ended 31
December 2018.
(10 marks)
b. Statement of Changes in Equity for the year ended 31 December 2018.
(2 marks)
c. Statement of Financial Position as at 31 December 2018.
(8 marks)
d. The following notes to accompany the above statements:
i. Net profit before tax
ii. Property, plant and equipment
(6 marks)
(Total: 26 marks)
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QUESTION 2
A. Malaysian Accounting Standards Board (MASB) has issued MFRS15 Revenue from
Contracts with Customers which is effective for financial periods beginning on or
after 1 January 2018, with early adoption is permitted.
Required:
a. Define the term "transaction price" in accordance with MFRS15 Revenue
from Contracts with Customers.
(3 marks)
b. List any THREE (3) indicators of the transfer of control of an asset to the
customer.
(3 marks)
B. FAR East Bhd entered into a contract with Southern Bhd to install a new
telecommunication equipment on 1 April 2018 with a contract price of RM2,000,000.
As stated in the contract, the company will also need to provide other professional
services consisting of staff training and testing of the new telecommunication
equipment.
The telecommunication equipment was successfully installed on 1 September
2018. Staff training and testing were completed on 1 November 2018.
The stand-alone prices for staff training and testing the telecommunication equipment
were RM330,000 and RM70,000 respectively. The price for the installation of similar
telecommunication equipment was RM1,800,000.
FAR East Bhd sent an invoice amounting RM2,000,000 to Southern Bhd on 1
November 2018. The amount was still outstanding as at 31 March 2019.
Required:
a. Briefly discuss the FIVE-STEP process that FAR East Bhd should apply in
recognising revenue in accordance with MFRS15 Revenue from Contracts
with Customers.
(10 marks)
b. Prepare the journal entries to record the above contract for the year ended 31
March 2019.
(4 marks)
(Total: 20 marks)
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QUESTION 3
A. Consistency in accounting policies is one of the desirable attributes in the Conceptual
Framework if financial statements are to meet the qualitative characteristic of
comparability. Thus, under normal circumstances, entities do not change their
accounting policies from period to period as otherwise the comparability objective of
financial reporting may be impaired.
Required:
Outline TWO (2) circumstances which require or warrant a change in accounting
policy in accordance with MFRS108 Accounting Policies, Changes in Accounting
Estimates and Errors.
(4 marks)
B. During the financial year ended 31 December 2018, the following situations were
identified by the internal auditor of Silencer Bhd, an engineering-based company
located in Johor Bahru. The retained earnings as at 1 January 2018 was
RM1,255,000.
1. Silencer Bhd acquired a vehicle for marketing activities in 2017. The
management decided not to provide depreciation as the vehicle was rarely
used by the marketing manager. The annual depreciation charge should be
RM9,000.
2. Due to heavy usage, Silencer Bhd revised the remaining useful life of a
machine to 5 years. The machine was acquired by the company on 1 January
2016 at a cost of RM50,000 and initially depreciated over the expected useful
life of 10 years.
3. It was discovered that inventory sold in year 2017 of RM175,000 were
included in the closing inventory of 2017.
Required:
In accordance with MFRS108 Accounting Policies, Changes in Accounting Estimates
and Errors.
a. Determine whether it is a change in accounting policy, a change in accounting
estimate or an error for each of the above situations.
(3 marks)
b. Determine whether the application of changes in the above situations should
be adjusted prospectively or retrospectively.
(3 marks)
c. Prepare the appropriate journal entries for all the above situations for the year
ended 31 December 2018.
(9 marks)
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d. Compute the restated opening balance of the retained earnings as at 1
January 2018 in the books of Silencer Bhd.
(2 marks)
(Total: 21 marks)
QUESTION 4
A. The issues of events after the end of the reporting period are considered important
because many items in the accounts are recognised and/or measured based on
estimates at the time the items were recorded. The events that occur after the end of
the reporting period may provide additional information on the measurement of the
items that exist at the end of the reporting period.
Required:
Briefly explain the following terms according to MFRS110 Events after the Reporting
Period.
a. Adjusting events
b. Non-adjusting events
(3 marks)
B. Haussei Bhd ends its financial year on 31 December each year. The company is in
the process of finalising its financial statements prior to the approval by the board of
directors on 31 March 2019. The following information were identified after 31
December 2018:
1. On 7 January 2019, Haussei Bhd discovered that, as a result of a
computational error, depreciation expense for 2018 was overstated by
RM24,000.
2. On 15 January 2019, Haussei Bhd declared a final ordinary dividend
amounting to RM180,000 in respect of the financial year ended 31 December
2018.
3. On 1 February 2019, the chief executive officer of Haussei Bhd announced a
major restructuring plan of the business, commencing in June 2019.
Required:
a. Determine the nature in each of the above events whether adjusting or non-
adjusting with reference to MFRS110 Events after the Reporting Period.
(3 marks)
b. Explain the appropriate accounting treatment in each of the above events in
the financial statements of Haussei Bhd in accordance with MFRS110 Events
after the Reporting Period.
(4 marks)
(Total: 10 marks)
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QUESTION 5
A. MFRS137 Provisions, Contingent Liabilities and Contingent Assets prescribes,
among others, that a provision shall be recognised when an entity has a present
obligation (legal or constructive) as a result of a past event.
Required:
a. Explain briefly the term ‘obligating event’ in accordance with MFRS137
Provisions, Contingent Liabilities and Contingent Assets.
(2 marks)
b. Describe the criteria for an obligation to be recognised as a contingent
liability.
(5 marks)
B. Coach’e Jam Bhd is considering the following events in finalising its financial
statements for the year ended 31 December 2018:
1. Coach’e Jam Bhd is currently facing a legal suit from its former employee.
According to the legal advisor, the company is highly probable to be held
accountable for an unfair dismissal act. The case is expected to be settled
within one year. The compensation for damages was estimated to be
RM180,000.
2. The company offers a three-year warranty for every unit of electrical
appliance sold. Based on the previous experience, it is estimated that the
company will incur RM10,000 of warranty cost in 2018.
3. During the year ended 31 December 2018, one of the customers claimed that
an electrical appliance purchased from the company exploded and had
caused severe injuries to him. Legal action has been taken by the customer.
There is a possibility that the company will be liable but the investigation to
determine the real cause of the incident is still ongoing.
Required:
a. For each of the events described above, advise the management of Coach’e
Jam Bhd on the proper accounting treatment in accordance with MFRS137
Provisions, Contingent Liabilities and Contingent Assets.
(8 marks)
b. Prepare the relevant journal entries for the above transactions, if any.
(4 marks)
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c. Construct the following extracts of financial statements in respect of the above
transactions for the year ended 31 December 2018.
i. Statement of Profit or Loss (extract)
(2 marks)
ii. Statement of Financial Position (extract)
(2 marks)
(Total: 23 marks)
END OF QUESTION PAPER
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