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QUESTION 1

a) Explain, with reason, the appropriate method for Karratha Bhd to record the investment
in Namburg Bhd, Spring Bhd and Ashmore Bhd.

Since Namburg Bhd and Spring Bhd are subsidiaries of Karratha Bhd., the
appropriate method to account for these two companies is the acquisition method. All
assets and liabilities of these two companies should be combined with Karratha Bhd. as
a group in Consolidated Statement of Financial Statement. Ashmore Bhd is an associate
of Karratha Bhd. Karratha Nhd should account Ashmore Bhd using the equity method
that is the cost of investment plus share of post-acquisition reserves.

QUESTION 2
a) State the type of joint arrangements and explain the accounting treatments of each type
of the joint arrangements.

The MFRS 11 classifies joint arrangements into two types which are joint operations and
joint venture. A joint operation is a joint arrangement whereby the parties that have joint
control of the arrangements, for example joint operators. This type of joint operation
have rights to the assets, and obligations for the liabilities, relating to the arrangement. A
joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement such as joint venture have rights to the net assets of the arrangement.
Firstly, the type of joint arrangement is joint operations or know as joint operator. This
joint arrangement shall recognise in relation to its interest in a joint operation which are:
a. Its assets, including its share of any assets held jointly.
b. Its liabilities, including its share of any liabilities incurred jointly.
c. Its revenue from the sale if its share of the output arising from the joint operation.
d. Its share of the revenue from the sale of the output by the joint operation and
e. Its expenses, including its share of any expenses incurred jointly.
For the other type of joint arrangement is a joint venturer. This type of arrangement shall
be recognise its interest in a joint venture as an investment and shall account for that
investment using the equity method in accordance with MFRS 128 Investment in
Associates and Joint Venture unless the entity is exempted from applying the equity
method as specified in that standard.

b) Explain the accounting treatment for intercompany sales of inventories with a joint venture if
some of the inventories from these sale transactions are still held by the buyer on reporting
date.

In these situation, unrealised profit or losses arise. Accordingly, consolidated adjustment


is required to eliminate the investors share of these unrealised profit and losses.