FAR510 – JUNE 2015

SUGGESTED SOLUTION : FAR510 JUNE 2015

QUESTION 1

i.
JCW Bhd
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2014
RM'000
Revenue 242,959 √
Cost of sales (124,800+200) (125,000) √√
Gross profit 117,959
Dividend income 425 √
Amortisation of deferred gain (W5) 50 √
Deficit on revaluation of building (W3) (500) √
Gain on fair value change of IP (45,000-42,500) 2,500 √
Administrative expenses (94,678)
Selling and distribution cost (7,204)
Finance cost (800)
Profit before taxation 17,752
Taxation (3,750) √
Profit after taxation 14,002
Other comprehensive income √
Surplus on revaluation of land (W3) 4,500 √
Deficit on revaluation of building (W3) (5,000) √
Total comprehensive income 13,502

Basic earnings per share (W2) 11.60 sen

Diluted earnings per share (W2) 11.03 sen

W1)
Admin S&D Finance
RM'000 RM'000 RM'000
As per T/B 90,767√ 7,204 √ 500 √
Depreciation:
Building (W3) 1,250 √ OF
P & E (W4) 2,661 √ OF
Lease interest (W6)
300 √
94,678 7,204 800

W2)
BEPS = 14,002 √ OF – 1,709√ = 11.60 sen
105,000 √ + 1,000 √

DEPS = (14,002 - 1,709)√ + 500 √ = 11.03 sen

106,000 + 10,000 √
√ 24 x ½ = 12 marks

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 FAR510 – JUNE 2015
ii.
JCW Bhd
Statement of Changes in Equity for the year ended 31 December 2014
OSC 8% CPSC RP GR ARR
RM'000 RM'000 RM'000 RM'000 RM'000
As at 1 January 2014 105,000 15,000 18,525 3,875 12,800
Net profit for the year 14,002 √OF
OCI 4,500√ √
(5,000) √ √
Preference dividend (1,709) √
Bonus issue 1,000 √ (1,000) √
As at 31 December 2014 106,000 15,000 30,818 2,875 12,300

√ 6 x ½ = 3 marks
iii.
JCW Bhd
Statement of Financial Position as at 31 December 2014
RM'000
Non-current Assets
Property, plant and equipment √ 118,969
Investment property 45,000 √
Investments 5,000 √

Current Assets
Inventory (1,400-200) 1,200 √
Accounts receivable 6,523 √
Bank (9,890-825+2,700) 11,765 √√√
188,457

Equity
Share Capital √ 121,000
Retained earnings √ 30,818
Other Reserves √ (2,875 + 12,300) 15,175

Non-current Liabilities
5% convertible loan 10,000 √
Deferred tax (950 – 50) 900 √
Lease creditor 1,350 √
Deferred Gain 100 √

Current Liabilities
Accounts payable 7,237 √
Tax payable (W8) 1,002 √√
Lease creditor 825 √
Deferred gain 50 √
188,457

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 FAR510 – JUNE 2015

Note on property, plant and equipment

Land Building P&E Total
Cost/Valuation RM'000 RM'000 RM'000 RM'000
Bal as at 1 Jan 2014 67,500 50,000 26,240 143,740
Surplus on revaluation 4,500 √ 4,500
Deficit on revaluation (5,500) √ (5,500)
Finance lease 2,700 √ 2,700
Elimination of AD against valuation (7,500) √ (7,500)
Disposal (5,000) √ (5,000)
Bal as at 31 Dec 2014 72,000 37,000 23,940 132,940

Accumulated depreciation
Bal as at 1 Jan 2014 6,250 13,810 20,060
Disposal (2,500) √ (2,500)
Depreciation (W3)1,250 √ (W4)2,661 √√ 3,911
Elimination of AD against valuation (7,500) √ (7,500)
Bal as at 31 Dec 2014 0 0 13,971 13,971

Carrying value 72,000 37,000 9,969 118,969

√ 30 x ½ = 15 marks
(Total: 30 marks)

W3)Revaluation of land and building:

Land RM’000
1/1/2014 67,500
31/13/2014 72,000
Surplus 4,500

Building
1/1/2014 Revalued Amt 50,000
Acc dep (6,250)
43,750
31/12/2014 Dep (43,750/35) (1,250)
CA 42,500
FV 37,000
Deficit 5,500 Dr ARR/OCI 5,000
Dr P&L 500
Cr Building 5,500

W4) Plant and Equipment : dep

Leased: 2,700/4 675
Remaining: Cost (26,240 – 5,000) 21,240
Acc dep (13810-2,500) (11,310)
9,930 /5 1,986
2,661

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 FAR510 – JUNE 2015
W5)Sale and leaseback of equipment (leaseback is a finance lease, payment in advance)
RM’000
Cost of equipment 5,000
Acc. Dep. (2,500)
Carrying Amount 2,500
Selling Price (FV) 2,700
Deferred gain 200
Amortisation of deferred gain: 200,000/4 = 50,000

W6) Allocation of interest: Sum- of- digits method and payment in advance
RM’000
Total instalments (825 x 4) = 3,300
Fair value 2,700
Finance charges 600

Payment in advance, n-1,

n (n + 1) / 2 = 3 (3 + 1) / 2 = 6

YE 31 Dec 2014, interest = 3/6 x 600,000 = 300,000

W7) Lease creditor balance as at 31 Dec 2014:(2,700,000-825,000+300,000 = 2,175,000)

W8) Taxation = [1,702,000 + (3,750,000 + 50,000) – 4,500,000].

QUESTION 2

i. Dr Building 4M√
Dr Land 2M√
Cr OSC √ 6M√
(4 x ½ = 2 marks)
ii. Amount of borrowing costs to be capitalised:
Interest on loan:
2012: (1,200,000 x 8% x10/12) √√ = 80,000
Less: income from temporary investment
(300,000 x 10% x 3/12) √√ (7,500)
72,500

2013: (1,200,000 x 8% x 8/12) √√ = 64,000

136,500

(6 x ½ = 3 marks)

iii. Initial cost

Construction cost 2,000,000 √
Less: Rectification cost (10,000) √
Borrowing cost (72,500 +64,000) 136,500 √ OF
2,126,500

√ Additional if student do not include demolishing cost

(4 x ½ = 2 marks)

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 FAR510 – JUNE 2015
iv. The government grant received of RM500,000 √ will be deducted √from the cost
of asset which is RM1,500,000√ plus dismantling cost RM150,000√. The
depreciation will be based on the reduced amount √of RM1,150,000 (1,500,000 +
150,000 – 500,000) less residual value of RM20,000√ divided by 10 years√.
Therefore, depreciation is RM113,000√ (1,150,000-20,000) / 10
(8 x ½ = 4 marks)

v. The building in Jasin can be classified as a non-current asset held for sale√ since
it is available for immediate sale and the sale is highly probable. √

Eventhough the building has not been sold after 1 year of classification√, it can
still be classified as a non-current asset held for sale√ because the delay is
beyond the control of the entity. √
(5 x 1 = 5 marks)

vi. The non-current asset held for sale shall be measured at the lower of carrying
amount and fair value less cost to sell√. The carrying amount of RM3,600,000 √√
(4,000,000 – 400,000) will be compared with the fair value less cost to sell of
RM3,430,000√ √ (3,500,000 – 70,000). So, it should be measured at
RM3,430,000. The difference of RM170,000 is an impairment loss and will be
written off to P&L. √
(6 x ½ =3 marks)

vii. Since the units unsold were rented out to tenants , there is a transfer from
inventory√ to investment property. √
(2 x 1 = 2 marks)
viii. Journal entry as at 31 December 2014:

Dr. Investment property√ (800 x 5) RM4,000,000√√

Cr. Inventories√ (500 x 5) RM2,500,000√√
Cr. SOPL√ RM1,500,000√

(8√ x ½ = 4 marks)

(Total : 25 marks)

QUESTION 3.

i. 2012

The cost of RM500,000 incurred during the research phase √ and the development cost of
RM300,000 √ cannot be capitalised✓. According to MFRS 138, costs incurred by an entity
during the research phase are recognised as expenses in the period they are incurred ✓.
Development cost that do not meet the criteria for capitalisation are also witten off as an
expense √ because there is no probability that the future economic benefits attributable to
the asset will flow to the entity. ✓

(6 x ½ = 3 marks)

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 FAR510 – JUNE 2015
ii. 2013
The development cost that can be capitalised in 2013 are :
RM
Development cost 500,000 √
Consultants services 200,000 √
Fees to register legal right 10,000 √
710,000 √
(4x ½ = 2 marks)

iii. The development that has been written off in 2012 cannot be capitalised in 2013 √
because MFRS 138 do not permit re-instatement √ of development costs that
have been previously recognised as an expense √, even when the criteria for
asset recognition are met in subsequent period.

(3 x 1 = 3 marks)

iv. The development cost that can be capitalised will be RM1,710,000 (RM710,000 +
1,000,000) However, the net recoverable amount of the intangible assets is only
RM1.5 million. Thus of the total of RM1.71✓ million development cost incurred to
date only RM1.5 million should be capitalised as an asset ✓ while the excess
of 210,000 should be charged as an expense in the profit or loss. ✓ Since the
asset has a finite useful life, ✓ it will be amortised over its useful life of 5 years
beginning July 2014✓.
(5 x 1 = 5 marks)

v. The brand name “GST Expert” cannot be recognised as an intangible asset

because it is internally generated ✓and its costs cannot be distinguished from the
cost of developing the business as a whole. ✓
(2 x 1 = 2 marks)

vi. The cost incurred for promoting the product of RM200,000 cannot be
capitalised✓, but it should be expensed off to SOPL. ✓
(2 x 1 = 2 marks)

vii. The licence can be capitalised as an intangible asset at RM500,000 ✓ i.e at the
fair value of the licence. The licence has a finite life ✓ ,so it will be amortised over
five years. ✓
(3 x 1 = 3 marks)

(Total: 20 marks)

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 FAR510 – JUNE 2015
QUESTION 4

i. TOPAZ BHD
Statement of Cash Flows for the year ended 31 December 2014

Cash flows from operating activities: RM ‘000 RM ‘000

Profit before tax (3,610 + 1,300) 4,910 √√
+/- Adjustment:
Finance cost 180 √
Depreciation 1,200 √
Gain on disposal (325) √
Amortisation of intangible asset 300 √
Fair value gain on IP (2,500) √
Impairment loss on reclassification to held for sale 200 √√
3,965
Changes in working capital:
Increase in trade receivables (400) √
Increase in trade payables 200 √
Increase in inventory (1,300) √
Cash generated from operations 2,465
Interest paid √√√ (80)
Tax paid √√√√√ (1,550)
Net cash flow from operating activities 835

Cash flows from investing activities:

Purchase of PPE (5,250) √√√√√√√
Disposal of PPE (3,200 + 325) 3,525 √
Net cash from investing activities (1,725)

Cash flows from financing activities:

Proceeds from issue of shares 5,000 √√
Payment to lease creditor (700) √√√√√
Payment of dividend (3,110) √√√
Net cash flow from financing activities 1,190

Net increase in Cash and Cash Equivalents 300

Cash and Cash Equivalents at beginning of period (2,000-
300) √ 1,700
Cash and Cash Equivalents at end of period (2,900-900) √ 2,000

(40 √ x ½ = 20)

Workings:
Interest expenses
C/d 300 B/d 200
Cash 80 SOPL 180
380 380

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 FAR510 – JUNE 2015

Taxation
c/d tax payable 150 b/d tax payable 100
c/d DT 300 b/d DT 600
Cash 1,550 SOPL 1,300
2,000 2,000

PPE
b/d 14,400 c/d 16,300
Finance lease 1,250 Disposal (cv) 3,200
ARR 2,500 Depreciation 1,200
Cash 5,250 Reclassified to 2,700
NCAHFS
23,400 23,400

Lease creditor
c/d CL 1,250 b/d CL 1,000
c/d NCL 2,800 b/d NCL 2,500
Cash 700 PPE 1,250
4,750 4,750

Retained Profit
Dividend paid 3,110 b/d 7,300
C/d 7,800 Profit after tax 3,610
10,910 10,910

ii. Comment on performance and liquidity position of Topaz Bhd:

1. The net increase in cash and cash equivalents shows that the company’s liquidity
position is good. √
2. The company has enough cash to meet its obligations. √
3. The company’s operating performance shows a positive cash flow thus the business
is doing well in its core activities. √
4. The company’s investing activities shows a negative outflow due to large payment on
acquisition of PPE . √
5. The company raised money by issuing new shares to pay dividend and lease
creditor, resulting in a positive cash flow in financing activities. √
(5√ x 1 = 5 marks)
(Total: 25 marks)