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CONFIDENTIAL

AC/JUN 2012/FAR450/FAC450

UNIVERSITI TEKNOLOGI MARA


FINAL EXAMINATION

COURSE

GROUP ACCOUNTING AND REPORTING/


ADVANCED FINANCIAL ACCOUNTING 2

COURSE CODE

FAR450/FAC450

EXAMINATION

JUNE 2012

TIME

3 HOURS

INSTRUCTIONS TO CANDIDATES
1.

This question paper consists of four (4) 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.
Please check to make sure that this examination pack consists of:
i)
ii)

the Question Paper


an Answer Booklet - provided by the Faculty

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


This examination paper consists of 9 printed pages
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AC/JUN 2012/FAR450/FAC450

QUESTION 1
A)

The following summarised statements of financial position relate to Hazel Bhd, Dew
Bhd and Mist Bhd as at 31 December 2011:

Property, plant and equipment


Investment in - Dew Bhd at cost
- Mist Bhd at cost
Current assets
Loan to Dew Bhd

Equity shares of RM1 each


Retained profit at 1 January 2011
Profit for the year
Other reserves
Current liabilities
Ordinary dividend payable
Loan from Hazel Bhd

Hazel Bhd
RM'million
370
292
62
91
7
822

Dew Bhd
RM'million
418

MistE
RM'mil
289

55

35

473

324

600
100
12
40

300
85
15
4

200
61
25
10

52
18

58
6
5

24
4

822

473

324

The following information is relevant to the preparation of the group financial


statements:
1.

Hazel Bhd acquired 60% of the ordinary shares of Dew Bhd on 1 January 2008
for RM213 million, when the retained profit and other reserves of Dew Bhd stood
at RM38 million and RM4 million respectively.
Fair value measurement
conducted upon this acquisition exercise reveal that the fair value of land was
RM8 million more than its carrying amount. This fair value has not changed
since 1 January 2008. Dew Bhd uses the cost model to value its non current
assets.
On 1 January 2011, Hazel Bhd acquired another 20% of the ordinary shares of
Dew Bhd for RM79 million, when the retained profit and other reserves were
RM85 million and RM4 million respectively.

2.

Hazel Bhd has been able to exercise significant influence over Mist Bhd starting
from 1 January 2009 when it acquired 30% of the ordinary shares of Mist Bhd for
RM62 million. On that date, the retained profit and other reserves were RM3
million and RM7 million respectively. On 1 January 2009, the fair value of one of
Mist Bhd's building was RM4 million more than the carrying value. Its remaining
useful life was 10 years. Mist Bhd uses cost model to value its non-current
assets.

3.

On 1 April 2011, Hazel Bhd sold a machine with a book value of RM12 million to
Dew Bhd for RM17 million. The remaining useful life of the machine is 10 years.

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AC/JUN 2012/FAR450/FAC450

4.

Hazel Bhd, Dew Bhd and Mist Bhd have proposed the final ordinary dividend
before the year end. Hazel Bhd has yet to recognize its share of dividend from its
investees.

5.

On 29 December 2011, Dew Bhd sent a cheque to Hazel Bhd of RM2 million.
This was not received by Hazel Bhd until 5 January 2012.

6.

There is no impairment of goodwill arising on the acquisition.

7.

Ignore deferred taxation.

8.

The group accounting policy:


Non-controlling interest
To recognise the non-controlling interests proportionate to the fair value of the
identifiable net assets of the subsidiary (partial goodwill method).
Depreciation
Depreciation for buildings and machines is based on the straight line method
where full depreciation is provided in the year of purchase but none in the year of
disposal.

Required:

B)

a.

Compute the goodwill/gain on bargain purchase upon the acquisition of Dew Bhd
and Mist Bhd.
(6 marks)

b.

Prepare the consolidated statement of financial position of Hazel Bhd group as at


31 December 2011. Show all relevant workings.
(22 marks)

In 2012, Hazel Bhd diversified its activities and expanded its operations through the
acquisition of the following investments:
i)

Investment in Rainbow Bhd


On 1 February 2012, Hazel Bhd succeeded in acquiring 45% of the equity
shares in Rainbow Bhd. The remaining shares in Rainbow Bhd are owned by a
diverse group of investors who each hold a small parcel of shares. Historically,
only a small number of the shareholders attend the annual general meetings or
question the action of the directors. Hazel Bhd has nominated four new directors
and expects that they will be appointed at the next annual general meeting. The
board of directors of Rainbow Bhd comprises of six members.

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ii)

AC/JUN 2012/FAR450/FAC450

Investment in Cashew Bhd


On 1 March 2012, Hazel Bhd with three other investors own 25% each of the
equity shares of Cashew Bhd. Hazel Bhd also owns call options that are
exercisable at any time at the fair value of the underlying share. If Hazel Bhd
were to exercise its rights, it would give Hazel Bhd an additional 30% of the
voting rights in Cashew Bhd and reduce the three other investors interest to 15%
each.

Required:
With reference to FRS 127 Consolidated and Separate Financial Statements, discuss
the presence of control in Rainbow Bhd and Cashew Bhd and the impact on group
financial reporting.
(6 marks)
(Total: 34 marks)

QUESTION 2
The following are the draft statements of comprehensive income of Matahari Bhd, Kenanga
Bhd, Melati Bhd and Chempaka Bhd for the year ended 31 December 2011.
Matahari
Bhd
RM'million

Kenanga
Bhd
RM'million

Melati
Bhd
RM'million

Chempaka
Bhd
RM'million

Turnover
Cost of sales

120

65

40

30

(50)

(25)

(20)

(15)

70

40

Expenses

(20)

(10)
30
0.2
3.75
33.95
(8.95)

20
(9)
11

15
(6)
9

11

(3.3)

25

7.7

(2.52)
6.48

15

9
5
1

50
Gain on sale of machine
Dividends from subsidiary
Profit before taxation
Taxation
Profit after taxation
Retained profit on 1 January 2011
Ordinary dividends paid
Preference dividends paid

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10
60
(16.8)
43.2

32
12
5

11.5

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AC/JUN 2012/FAR450/FAC450

Additional information:
1.

Details of share capital and reserves on 31 December 2011:

Ordinary shares
Share premium
10% Preference shares

Matahari
Bhd
RM'million

Kenanga
Bhd
RM'million

Melati
Bhd
RM'million

Chempaka
Bhd
RM'million

60
24
50

50
10
40

30

20

10

All the companies have not issued any new shares since 2009.
2.

On 1 January 2010, Matahari Bhd acquired 80% of the issued ordinary shares of
Kenanga Bhd when the retained profit and share premium of Kenanga Bhd were
RM12 million and RM10 million respectively. Matahari Bhd also acquired 20% of the
RM40 milion 10% preferences shares of RM1 each of Kenanga Bhd. On 1 January
2010, the fair value of the plant of Kenanga Bhd was RM10 million and its carrying
value was RM7 million. The remaining useful life of the plant is six years. Kenanga
Bhd did not incorporate the fair value in its account.
The group recognizes partial goodwill which was RM200,000. As at 31 December
2011, the goodwill was impaired by 20% and there was no impairment in the previous
year.

3.

On 1 January 2011, Matahari Bhd acquired one-third (1/3) interest in Chempaka Bhd
when the retained profit of Chempaka Bhd was RM6 million. Matahari Bhd has joint
control over Chempaka Bhd.

4.

On 1 July 2011, Kenanga Bhd acquired 75% of the issued ordinary shares of Melati
Bhd. The bargain purchase arising from the acquisition was RM100,000.

5.

Kenanga Bhd sold a machine to Melati Bhd on 1 October 2011 making a profit of
RM200.000. The remaining useful life of the machine is 5 years and the group
depreciates its machine on a straight-line basis, providing a full year depreciation in
the year of purchase and none in the year of disposal.

6.

During the year, Chempaka Bhd sold inventories costing RM2.7 million for RM3 million
to Matahari Bhd. Matahari Bhd has not sold any of these inventories.

7.

All entities had paid their dividends in December 2011.

8.

All profits and losses are deemed to accrue evenly throughout the year.

9.

Matahari Bhd accounts for its joint venture using the proportionate consolidation
method.

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AC/JUN 2012/FAR450/FAC450

Required:
a.

Prepare the consolidated statement of comprehensive income for the year ended 31
December 2011.
(17 marks)

b.

Prepare the consolidated statement of changes in equity (extract) for the year ended
31 December 2011, showing the group retained profit and non-controlling interest.
(8 marks)

c.

Explain how the gain on sale of machine will be treated in the consolidated statement
of comprehensive income for the year ended 31 December 2011, if Kenanga Bhd sold
the machine to Melati Bhd on 1 April 2011.
(2 marks)

d.

State the other method of accounting for an investment in jointly controlled entities
allowed under FRS 131 Interests in Joint Ventures other than the method employed by
Matahari Bhd. Explain how this method is applied in the consolidated statement of
comprehensive income
(3 marks)
(Total: 30 marks)

QUESTION 3
The summarized consolidated financial statements of Budiman Bhd for the year ended 31
December 2011 are as follows:
Consolidated Statement of Comprehensive Income for the year ended
31 December 2011

Turnover
Cost of sales
Trading profit
Dividend from other investments
Administrative expenses
Sales and distribution cost
Finance cost
Share of profits from associate
Profit before taxation
Taxation
Profit after taxation
Profit after tax attributable to:
Equity holders of Budiman Bhd
Non controlling interest

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RM' million
565
(226)
339
7.54
(162.99)
(94.5)
(1.5)
1.25
88.8
(2.8)
86

64
22

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AC/JUN 2012/FAR450/FAC450

Consolidated Statement of Changes in Equity for the year ended


31 December 2011 (extract)

Retained profit brought forward


Profit for the year
Dividend
Retained profit carried forward

RM' million
149.5
64
(13.5)
200

Consolidated Statement of Financial Position as at:

Property, plant and equipment


Goodwill
Development cost
Investments in associate
Other investments
Inventories
Accounts receivable
Bank
Prepayments

31 December 2011
RM'million
972.5
69
47.28
26.67
80
26.5
22.25
38
5.05
1.287.25

Financed by:
Ordinary shares of RM1 each
Share premium
General reserve
Retained profit
Non controlling interest
6% Debentures
Accounts payable
Bank overdraft
Tax payable

31 December 2010
RM'million
714.9
30
26.5
10
21
32
7.5
841.9
450
33
150
149.5
50

650
83
150
200
157
25
9.7
10
2.55
1.287.25

2.9
5
1.5
841.9

Additional information:
1.

Profit before tax includes depreciation charge of RM12.5 million.

2.

On 1 March 2011, Budiman Bhd acquired 60% equity shares in Selesa Bhd. The fair
value of the net assets of Selesa Bhd on that date was as follows:

Property, plant and equipment


Accounts receivable
Bank
Tax payable

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RM' million
200
3.35
2.9
0.25

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AC/JUN 2012/FAR450/FAC450

The consideration transferred for the acquisition was as follows:

100 million ordinary shares of Budiman Bhd issued at RM1.30


6% Debentures at par

RM' million
130
25

The non controlling interest is measured at fair value and it was valued at RM90 million
on the date of acquisition.
3.

Other investments purchased during the year were RM70 million loan stock dated
2016 and a loan note which is repayable on demand.

Required:
Prepare the Consolidated Statement of Cash Flow using the indirect method for Budiman
Bhd for the year ended 31 December 2011. (Show only the notes on cash and cash
equivalent)
(19 marks)

QUESTION 4
On 1 January 2010, Orchid Bhd acquired 2.8 million of the 4 million issued ordinary shares
of Daisy Bhd. The nominal value of the ordinary shares of Daisy Bhd was RM2.00 per share.
The purchase consideration was through an issuance of 2 million ordinary shares of Orchid
Bhd at RM3.90 per share. On that date, the carrying value of the net assets of Daisy Bhd
reflected the fair value, except for a piece of land that was RM100,000 more than its book
value. The reserves of Daisy Bhd on 1 January 2010 were as follows:
Retained profit
Share premium

RM2.2 million
RM300,000

Goodwill was impaired by RM100,000 on 31 December 2010 and there was no further
impairment since then.
On 31 May 2011, Orchid Bhd sold 1.68 million of its shares in Daisy Bhd for RM5.88 million.
On that date, the remaining shares in Daisy Bhd had a fair value of RM3.30 per share. On
that date, the share premium of Daisy Bhd was RM300.000. Its retained profit on 1 January
2011 and 31 December 2011 stood at RM3.3 million and RM4.5 million respectively. All
profits are deemed to accrue evenly throughout the year.
Non controlling interest is measured in proportion to the fair value of net assets of Daisy
Bhd.

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AC/JUN 2012/FAR450/FAC450

Required:
a.

Calculate the gain or loss on disposal of the shares in Daisy Bhd, for the group and for
Orchid Bhd.
(10 marks)

b.

How would Orchid Bhd account for its investment in Daisy Bhd in the group statement
of financial position as at 31 December 2011? Show the detail composition of Orchid
Bhd's interest in Daisy Bhd as would appear in the group statement of financial
position as at 31 December 2011.
(5 marks)

c.

Explain how the result of the operation of Daisy Bhd would be included in the group
statement of comprehensive income for the year ended 31 December 2011.
(2 marks)
(Total: 17 marks)

END OF QUESTION PAPER

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