CONFIDENTIAL 1 AC/FEB 2021/FAR270

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : FINANCIAL ACCOUNTING 4

COURSE CODE : FAR270
EXAMINATION : FEBRUARY 2021
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions.

2. Answer ALL questions in English.

3. Please submit your HANDWRITTEN answers in ONE (1) pdf file.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 9 pages
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QUESTION 1

Vurcellar Bhd is a company engaged in selling motor vehicle components. The financial year
of Vurcellar Bhd ends the on 30 June each year. The directors authorised the financial
statements for issue on 30 September 2020. The following trial balance was extracted from
the company’s books at the end of the 30 June 2020.

RM RM
Revenue 380,250,000
Cost of sales 190,000,500
Administrative expenses 75,000,000
Directors’ fees 450,000
Selling and distribution expenses 15,500,000
Finance expenses 3,150,000
Investment income 450,000
Trade payables 37,500,000
Taxation paid 6,000,000
Ordinary share capital 350,000,000
Retained profit as at 1 July 2019 36,595,700
Long term loan from Xerox Bank 17,990,000
Property, plant and equipment as at cost:
- Land 18,000,000
- Building 8,000,000
- Machinery 4,000,000
Accumulated depreciation as at 30 June 2019:
- Building 800,000
- Machinery 760,000
Investment property 5,000,000
Asset revaluation reserve 700,000
Investments 233,500,000
Inventories 36,000,000
Trade receivables 45,000,000
Allowance for impairment for trade receivable 1,700,000
Bank 187,145,200
826,745,700 826,745,700

Additional information: keluarkan dari revenue, acc receivables

keluarkan (sbb credit sales)
1. Included in the revenue figure was credit sales of RM1,900,000 worth of goods which
were delivered on 10 July 2020. These goods were included in the closing inventory.

2. On the 15 August 2020, one of Vurcellar Bhd’s customers was declared bankrupt. It
was very unlikely that Vurcellar Bhd would be able to collect the remaining amount
owed amounting
even dh to RM215,000.
tutup acc, dia tk melebihi authorised date, ini dikira adjusting event. KELUARKAN
DARI ACC RECEIVABLES, KELUARKAN DARI AFITR
3. The following is the information related to the property, plant and equipment. No
adjustment has been made for the property, plant and equipment for the year ended
30 June 2020.

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 The machines are depreciated at 10% using the reducing balance method on a
yearly basis. The building is depreciated on a straight-line basis over an estimated
useful life of 50 years. analysis of expenses, PPE
Building 8,000,000/50= 160,000
 On the 30 June 2020, the land was revalued to RM18,500,000.

18m -18.5m= 500,0000 letak dlm PPE , statement changes in Equity, SOPL

 On the 1 July 2019, one of the machines broke down and requires some
component to be replaced. The company decided to replace it with a new
capital expenditure component costing RM450,000 (paid by cheque) and at the same time the
replacement would increase the performance of the machine. The old component
was purchased 2 years ago at RM500,000.

Cost – accumulated depn = carrying amount x depn rate

1 year =500,000 -0 =500,000 x 10%= 50,000
2 year= 500,000 -50,000=450,000 x 10%= 45,000
500,000 – 95,0000 = 405,000
Selling price- carrying amount =+gain-loss loss on disposal 405,000 analysis of expenses (loss)

Cost – accumulated depn = carrying value x depn rate

4,000,000+450,000-500,000 - 760,000-95,000 = 3,285,000 x 10= 328,500

PPE , ANALYSIS OF EXPENSES

tkyah kira
depreciation 4. The net realisable value of the inventories held as at the year ended 30 June 2020 was
kalau guna valued at RM35,000,000 on the 15 July 2020. 1,000,000 keluarkan inventory, + COGS
fair value
model for
investment
5. The company adopts the fair value model to account for its investment property. As at
property year end June 2020, the fair value of the building was determined to be RM4,700,000
(cost model and the remaining useful life was 30 years. 5,000,000-4,700,000=300,000 in SOFP and SOPL (if
baru guna) decrease or increase)
6. On the 30 September 2020, Vurcellar Bhd entered into a contract with Gilley Bhd to
purchase a special machine worth RM3,500,000. non adjusting event, put notes to the acc

7. The tax expense for the year was estimated to be RM5,500,000.

Tax paid – Tax expenses= + Tax recoverable/ - Tax payable

6,000,000-5,500,000= 500,000

Required:

Prepare the following financial statements in a form suitable for publication, in compliance with
the Companies Act 2017 and in relation to the relevant Malaysian Financial Reporting
Standards:

a. Statement of Profit or Loss and Other Comprehensive Income for the year ended 30
June 2020.
(12 marks)

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b. Statement of Changes in Equity for the year ended 30 June 2020.

(3 marks)

c. Statement of Financial Position as at 30 June 2020.

(9 marks)

d. The following notes to accompany the above statements:

i. Property, plant and equipment

ii. Capital commitment or contingent liabilities (if any)
(6 marks)
(Total: 30 marks)

QUESTION 2

A. Identify TWO (2) of the following properties that can be classified under MFRS140
Investment Property:

i. Building leased out under a finance lease.

ii. Property under construction for hotel business.
iii. Vacant building which held to be leased out under an operating lease.
iv. Land awaiting to be sold to third party.
v. A warehouse which bought and immediately being rented out to another
manufacturer.
(2 marks)

B. Molders Bhd owns a four-storey building. The first floor is used for the administrative
purpose. The second floor was rented out to a third party under an operating lease.
The remaining upper floor is still vacant as the company is still uncertain on the usage.
The value in each floor can be measured reliably.

Required:

Analyse the accounting treatment for the above situation under MFRS140 Investment
property.
(3 marks)

C. Holland Bhd is a textile manufacturing company. The company purchased a building

in Johor Bahru on the 1 July 2018. Below are the details for the purchased transaction.

Particulars RM
Purchase price (before 2% trade discount) 30,000,000
Legal fees 350,000
Administrative expenses 70,000
Property transfer tax 50,000

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The building with estimated useful life of 50 years was rented out to Gralious Bhd under
an operating lease agreement. Holland Bhd adopts the fair value model for the
subsequent measurement of its property. The fair values of the building on the 30 June
2019 and 30 June 2020 were RM27,500,000 and RM28,000,000 respectively.

Required:

a. Calculate the initial cost of the building as at 1 July 2018.

(2 marks)

b. Evaluate the accounting treatment for the year ended 30 June 2019 and 30 June 2020.
(4 marks)

D. On the 1 July 2017, Grace Bhd acquired a property at a cost of RM60,000,000 to

manufacture its products. The property is being depreciated over 50 years using
revaluation model. On the 1 July 2019, due to the decrease in demand of their product,
the company rented out the property to Karls Bhd under an operating lease with
monthly rental of RM70,000. On that date, the fair value of the property was
RM62,500,000. On the 30 June 2020, the fair value of the property was RM63,000,000.
For the subsequent measurement, the company used the revaluation model for its
property plant and equipment and fair value model for its investment property.

1 july- 60,000,000/50=1,200,000= Depn/ 60,000,000- (1,200,000x2)2,400,000 =57,600,000

62,500,000- 57,600,000=4,900,000- surplus

30 june 2020
RM63,000,000.- 62,500,000= gain fair value 500,000

Required:

Elaborate the accounting treatment for the transfer from owner-occupied to investment
property for the year ended 30 June 2020 under MFRS140 Investment Property.
(5 marks)
(Total: 16 marks)

QUESTION 3

A. MFRS 15 Revenue from Contracts with Customers specifies how and when to
recognise revenue as well as requiring such entities to provide users of financial
statements with more informative and relevant disclosures. The standard provides a
single, principles based five-step model to be applied to all contracts with the
customers.

Required:
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a. Briefly describe the term ‘promise in the contract’.

(1 mark)

b. Identify THREE(3) factors that indicate the promise to transfer the goods or
services which are not separately identifiable.
(3 marks)

B. Hashball Bhd entered into a contract with Jutorn Enterprise to sell a specialised
machine to increase its production on the 30 November 2019. The purchase price of
the machine alone was RM500,000 and the machine was delivered on the 1 January
2020. Due to high technological advance, the installation process of the machine
required an engineer expert with additional amount of RM25,000. The machine and
installation cost were paid by cheque upon the completion of installation process on
the 1 January 2020. To maintain the high quality of production, the machine needed to
be serviced monthly for one year which cost another RM6,000 per month. All of these
goods and services could be provided by Hashball Bhd at a special price of
RM585,000. The maintenance services are billed at the end of each month at RM5,000
per month after the installation was complete. The maintenance services are still
receivable at the end of the year. Hashball Bhd closes its account on the 30 June
annually.

Required:

a. Evaluate the treatment of these transactions by Hashball Bhd for the year ended
30 June 2020 using the five-step model in MFRS15 Revenue from Contracts with
Customers.
(10 marks)

b. Prepare the relevant journal entries for the year ended 30 June 2020.
(4 marks)

C. On the 1 April 2020, Collust Bhd made an agreement with Jintan Enterprise to supply
250 boxes of metal for its productions at the price of RM400 per box over 12 months.
As at 30 September 2020, 100 boxes were delivered to Jintan Enterprise. On the 15
October 2020, Jintan Enterprise made a request to increase another 50 boxes of metal
for its production due to the increase in customer demand for their product and extend
the delivery period for another three months. However, Collust Bhd was only able to
provide additional of 30 boxes at the price of RM350 due to the shortage in raw
materials for the required additional period. It was determined that the additional 30
boxes of metal were distinct, but it did not reflect their stand-alone price.

Required:

Briefly explain the accounting treatment on the recognition of revenue in the above
contract modification.
(4 marks)
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(Total: 22 marks)

QUESTION 4

A. MFRS108 Accounting Policies, Changes in Accounting Estimates and Errors specifies

that an entity shall select and apply its accounting policies consistently for similar
transaction for other events and conditions. However, the standard allows the changes
in accounting policies only if the change is required by the standard itself and it can
provide more reliable and relevant information to users.

Required:

a. Describe the need for consistency in application of accounting policies.

(2 marks)

b. Select TWO (2) of the following situations that indicate a change in accounting
policies.

i. There is an increase in provision for the doubtful debt from 4% to 5%.

ii. Changes in measurement basis of investment property from the cost model to
the fair value model.
iii. Useful life of a machinery is reduced from 20 years to 15 years.
iv. Increase in the fair value of invesment property.
v. Valuation method of inventories is changed from FIFO to Weighted Average.
(2 marks)

B. Prodesh Bhd is a company involved in textile product. Mr. Halim, the senior executive
was instructed by the directors to review the account prepared by his company’s
accountant. The company closes its account on the 30 June annually. While examining
the record, he discovered several situations that required some intention:

i. The company changed its method of valuation for its inventories from first in
first out method to weighted average method.

ii. On the 1 July 2017, Prodesh Bhd purchased a machine costing RM850,000.
The estimated useful life of the machine is 10 years. Due to the high usage of
the machine in the production, the company estimated the useful life of the
machine can only last for another 5 years. 1july 2019

850,000/10=85,000x2=170,000
Cost- Accumulated Depreciation =Carrying value/Amount
850,000-170,000= 680,000/5year

iii. The company discovered a fraudelent transaction by one of its employees on

the 1 September 2019. Payment received by one of its trade receivables
amounting to RM15,000 on 25 January 2019 was banked in to his own personal
account. DR Retain Earning
Cr Trade Receivables 15,000

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iv. Transaction on the 1 March 2020 regarding cash payment of RM7,000 to one
of the company’s suppliers was mistakenly recorded under the purchase
account.

Required :

a. Based on the above situation, indicate whether it is a change in accounting policy, a

change in accounting estimates or an error in (i), (ii) and (iii).
(3 marks)

b. Interprate the accounting treatment for each of the scenarios in accordance with
MFR108 Accounting Policies, Changes in Accounting Estimates and Errors for the
year ended 30 June 2020.
(6 marks)

c. Prepare the related journal entries to record the (ii), (iii) and (iv) situations above for
the year ended 30 June 2020.
(3 marks)
(Total: 16 marks)

QUESTION 5

A. MFRS137 defines contingent liability as a possible obligation that arises from the past
events, whose existence will be confirmed only by the occurrence or non-occurrence
of one or more uncertain future events not wholly within the control of the entity.

Required:

a. Explain TWO (2) situations that cause a present obligation that arise from the
past event cannot be recognised as liability in financial statements.
(2 marks)

b. Discuss TWO (2) accounting treatments of contingent liabilities in relation to its

likelihood of future events.
(2 marks)

B. Broturn Bhd is a manufacturer and sells cooking oil products. It is well known that the
company always takes care of the environmental issues and has been named by the
citizens as one of the eco-friendly organisations. The company’s year end is on the 30
June annually. The following are few events that occurred during the year ended 30
June 2020.

1. Broturn Bhd provides five months warranty for any defective cooking oil
purchased from its company. Under the warranty terms, the purchaser can
claim 70% of the total amount purchased. The normal sales received by the
company are estimated at RM2,500,000 per year. Based on the past
experiences, normally 2% claims were received by the company per year from
its total sales.

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2. The company also signed a contract with Cleaning Pro Enterprise to defuse
any chemical waste derived from the manufacturing process of its textile. Due
to the ineffective management by Cleaning Pro Enterprise, the waste was
channeled to the nearby river which cost it to be polluted. Broturn Bhd decided
to appoint a third party to clean up the river and estimated cost of RM30,000
that might be incurred. However, there is no environmental law existed in the
area that requires any organisation to take care of the environment.
PROVISION

3. On the 4 March 2020, one of the employees who worked in the factory has filed
a legal action towards the company due to the injury that he suffered while
operating the production machine. After the court hearing, the company’s
CONTINGENT LIABILITY lawyer is confident that there is 70% chances that the company may not be
liable for the RM70,000 charges against them because it is proven that the
incident was due to misconduct of procedure by the employee himself.

4. Due to the loss caused by the damaged machine, Broturn Bhd stopped its
production for two weeks. The company sued the vendor for breach of contract
for selling the machine that did not meet the specification required by the
industry. The lawyer is virtually certain that the company will win the case due
to the sufficient evidence showing the negligence by the vendor. The amount
sued is RM95,000.
CONTINGENT ASSET
Required:

a. Discuss the appropriate accounting treatment in accordance with MFRS 137

Provisions, Contingent Liabilities and Contingent Assets for the above events.
(8 marks)

b. Construct the following extracts of financial statements in respect of the above

transactions:

i. Statement of Profit or Loss for the year ended 30 June 2020

(2 marks)

ii. Statement of Financial Position as at 30 June 2020

(2 marks)
(Total: 16 marks)

END OF QUESTION PAPER

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