CONFIDENTIAL 1 AC/NOV 2019/FAR340

UNIVERSITI TEKNOLOGI MARA

COMMON TEST
ANSWER SCHEME

COURSE : FINANCIAL STATEMENT ANALYSIS

COURSE CODE : FAR340
EXAMINATION : NOVEMBER 2019
TIME : 1 HOUR 30 MINUTES
CONFIDENTIAL 2 AC/NOV 2019/FAR340

SECTION A

1. B/ 6. B/
2. C/ 7. A/
3. B/ 8. C/
4. C/ 9. B/
5. B/ 10. A/
(10 / x 1 mark = 10 marks)

SECTION B

QUESTION 1

A.
Karambunai Global
Statement of Financial Position (extract) as at 31 December 2018
RM
Issued and paid up capital
Common stock [(500,000 units + 300,000 units) X RM0.50 ] √ √ 400,000

Non-current Liabilities
9% 5-year Loan from Iffan Bank (60,000 – 12,000) 48,000 √

Current liabilities
Accounts payable [(380,000/2 = 190,000) √ – 100,000] √ 90,000
Accrued commission (2000 x 5) 10,000 √
8% Notes Payable from CIBM Bank (principal) 20,000 √
Accrued Interest on notes payable: (8% x 20,000 x 3/12) √ √ 400
Accrued interest on 9% term loan (60,000 x 9%) √ √ 5,400
Current maturity of 9% 5-year Loan (60,000/5 year) √ √ 12,000
Tax payable (80,000 x 25%) 20,000 √

(14 √ x 0.5 = 7 marks)

B. i. TWO (2) differences of Common Stock and Preferred Stock.

Preferred Stock Common Stock

Dividend Preferred for dividend Will receive the residual interests after
distribution distribution. preferred stockholders.
Voting rights Non- voting rights. Has voting rights.

Or any other acceptable answers

(Any 4 points x 1 mark = 4 marks)
CONFIDENTIAL 3 AC/NOV 2019/FAR340

ii.
Operating liabilities Financing liabilities
Arise in the normal course of operations Arise from financing activities. √
for a particular business. √
(1 mark) (1 mark)
Examples : Accounts payables, taxes Example : Long term loan, short term
payables, unearned revenues, accruals of maturity debt √√
operating expenses √√

(any 2 examples x ½ mark = 1 mark) (any 2 examples x ½ mark = 1 mark)

(4 marks)
(Total: 15 marks)

QUESTION 2
A
a. The concept of liquidity means the amount of cash and cash equivalents that the
company has on hand √ and the amount of cash and cash equivalents that can be
immediate raised in a short period of time.√
Or any other acceptable answers
(2 √ x 1 mark = 2 marks)
b. TWO (2) methods of securitization of receivables:

Sale of receivable with recourse √

Does not effectively transfer risk of ownership of receivables from the seller. ۞
Seller must record both assets and compensating liability for the amount factored. ۞

Sale of receivable without recourse √

The seller removes the receivables from the statement of financial position. ۞
Risk of ownership of receivables are transfer to buyer. ۞

(2 √ x 1 mark = 2 marks) + (4 ۞ x ½ marks = 2 marks)

B. a.
FIFO Weighted Average

Cost of Goods 100 x RM13 = RM1,300 √ √ 170 x RM12.09 = RM2,055.00 √ √

Sold 70 x RM12 = RM840 √ √ 220 x RM12.52 = RM2,753.44√ √
RM2,140 100 x RM11.61 = RM1,160.63√ √
30 x RM12 = RM360 √ √ COGS RM5,969.07
140 x RM11.50 = RM1,610 √ √
50 x RM13 = RM650 √ √
RM2,620
100 x RM13 = RM1,300√ √
COGS RM 6,060

Closing 150 x RM11 = RM1,650 √ 150 x RM11.61 = RM1,740.94 √

Inventory

Gross Profit Sales (490 x RM20) RM9,800 √ Sales (490 x RM20) RM9,800 √
COGS [OF] (RM6,060) √ COGS [OF] (RM5,969) √
Gross Profit RM3,740 Gross Profit RM3,831

(24 √ x ½ marks = 12 marks)

CONFIDENTIAL 4 AC/NOV 2019/FAR340

Workings
FIFO
Purchases Sales Balance
Date
Unit RM Total Unit RM Total Unit RM Total
1/8/19 Balance b/d 100 13.00 1,300.00
100 12.00 1,200.00
200 2,500.00
2/8/19 140 11.5 1,610.00 100 13.00 1,300.00
100 12.00 1,200.00
140 11.50 1,610.00
340 4,110.00
12/8/19 100 13.00 1,300.00 30 12.00 360.00
70 12.00 840.00 140 11.50 1,610.00
170 2,140.00 170 1,970.00
19/8/19 150 13.00 1,950.00 30 12.00 360.00
140 11.50 1,610.00
150 13.00 1,950.00
320 3,920.00
22/8/19 30 12.00 360.00 100 13.00 1,300.00
140 11.50 1,610.00
50 13.00 650.00
220 2,620.00
27/8/19 150 11.00 1,650.00 100 13.00 1,300.00
150 11.00 1,650.00
250 2,950.00
29/8/19 100 13.00 1,300.00 150 11.00 1,650.00
31/8/19 Balance c/d 150 11.00 1650.00

Weighted Average Method

Purchases Sales Balance
Date
Unit RM Total Unit RM Total Unit RM Total
1/8/19 Balance b/d 100 13.00 1,300.00
100 12.00 1,200.00
200 12.50 2,500.00
2/8/19 140 11.50 1,610.00 200 12.50 2,500.00
140 11.50 1,610.00
340 12.09 4,110.00
12/8/19 170 12.09 2,055.00 170 12.09 2,055.00
19/8/19 150 13.00 1,950.00 170 12.09 2,055.00
150 13.00 1,950.00
320 12.52 4,005.00
22/8/19 220 12.52 2,753.44 100 12.52 1,251.56
27/8/19 150 11.00 1,650.00 100 12.52 1,251.56
150 11.00 1,650.00
250 11.61 2,901.56
29/8/19 100 11.61 1,160.63 150 11.61 1,740.94
31/8/19 Balance c/d 150 11.61 1,740.94

B.
b. During inflation period, the oldest cost is charged to the cost of goods sold of the
company, therefore the company will report higher net income because lowest cost of
goods sold are matched against the sales revenue at the recent selling price√.
Higher net income will result in increase in the income tax of the company, this increase
will directly reduce the cash flow of the company. √
Or any other acceptable answers
(2 √ x 1 mark = 2 marks)
CONFIDENTIAL 5 AC/NOV 2019/FAR340

C.
a.
i. Impairment is the process of writing down the carrying value of the asset √ when its
expected cash flow are no longer sufficient to recover the remaining cost reported on
the SOFP. √
(2 √ x 1 mark = 2 marks)

ii. Amortisation √
(1 √ x 1 mark = 1 mark)

b. Effect of capitalization on operating cash flows.

o When asset costs are capitalized, they are reported as investing cash outflow. √
o If it is expense of, they are reported as operating cash outflow. √
o If immediate expensing of asset will overstate the operating cash flow and
understates investing cash outflow. √
Or any other acceptable answers
(any 2 √ x 1 mark = 2 marks)
(Total: 25 marks)

END OF SUGGESTED SOLUTION