Set 1 FAR560 Exam June 2015

Suggested Solution

Question 1

a) Factors that indicate that an entity should perform an impairment test

– Period for which the entity has the right to explore in the specific area has
expired during the period or will expire in the near future, and is not expected
to be renewed

– Substantive expenditure on further exploration for and evaluation of mineral

resources in the specific area is neither budgeted nor planned

– Exploration for and evaluation of mineral resources in the specific area have
not led to the discovery of commercially viable quantities of mineral resources
and the entity has decided to discontinue such activities in the specific area

– Sufficient data exist to indicate that, although a development in the specific

area is likely to proceed, the carrying amount of the exploration and
evaluation asset is unlikely to be recovered in full from successful
development or by sale

b) Successful cost method

• Costs of exploration and evaluation are initially capitalised (as deferred exploration
costs, or deferred prospecting costs, or deferred expenditure)

• When an exploration proved to be abortive and is abandoned, the initially capitalised

costs are written off

• Only costs that relate to discovery of commercially recoverable deposits or reserves

are carried forward as part of the depletion base to be amortised when commercial
production commences

• Amount capitalised and carried forward in the balance sheet is consistent with the
definition that an asset must possess probable future benefits to the enterprise

c) i) Change in fair value to be recognized as income for the year ended 31

December 2014

Date RM 000
31/12/14 FV at point-of-sale (2,000 x RM2.50) 500
Transportation costs (5)
495
Point-of-sale costs (2,000 x RM60) (120)
375
1/1/14 FV less point-of-sale costs (220)
Gain to be recognised as income 155

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 ii) Profit or loss from operations on the 100 acre land

RM 000
Gain from change in FV less point-of-sale costs 155
Less: Operating costs
Depreciation of nursery (20,000/5 yrs) 4
Depreciation of plantation infrastructure (80,000/20 4
yrs)
Depreciation of plantation machinery and equipment 10
(100,000/10 yrs)
Weeding, fertilization & pest control 2
Plantation overhead (excluding depreciation) 3
Salaries, wages & other employee benefits 5
Impairment of machinery (20,000 - 18,000) 2
Net profit 125

Question 2

a) (i) Changes in the fair value of the herd of cattle for year ended 31/12/2013 & 2014
2013 RM
31/12: 100 (3-yr old) ( [ 100 x 1,700) 170,000
1/1: 100 (2-yr old) [100 x 1,100] 110,000
Gain due to change in fair value to P/L 60,000

2014
Fair value of herd at 1 Jan 2014: (OF) 170,000
Increases due to purchases:
1 Jan 2014 (50 x 500) 25,000
1 July 2014 (50 x 540) 27,000
222,000
The fair value of the herd at 31 Dec 2014:
50 (4-year old) x RM2,500 125,000
50 (2-year old) x RM 1,300 65,000
50 1 1/2-year old herd x RM 900 45,000 235,000
Gain due to change in fair value to P/L 13,000

(ii) Analysis on the change in fair value due to physical change and price change for ye
31/12/2013

RM
Physical change is [100 x 1,700] - [100 x 1,200] 50,000

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Price change is [100 x 1,200]- [100 x 1,100] 10,000
60,000

Analysis on the change in fair value due to physical change and price change for ye
31/12/2014

RM
Increase in fair value due to physical change:
50 4-year old herd x [2,500 – 1,900] 30,000
50 2-year old herd x [1,300 - 580] 36,000
50 1 1/2-year old herd x [900 – 580] 16,000
82,000
Increase in fair value due to price change:
50 4-year old herd x [1,900 – 1,700] 10,000
50 2-year old herd x [580 - 500] 4,000
50 1 1/2-year old herd x [580 – 540] 2,000
16,000

b. Table showing similarities between fair value hierarchy under MFRS 13 and fair value
measurements of biological assets under MFRS 141.

MFRS 13 MFRS 141

Level 1: quoted market price in
active markets
Level 2: observable market based
inputs other than quoted market
price.
Level 3: unobservable inputs for the
asset or liability including cash flows
using entity’s own data.
Quoted market price in active market
If active market does not exist,
reference should be made to market-
based measures.
If reliable market-based prices are not
available, then present value of
expected net cash flows from the
asset should be used in determining
fair value.

Question 3

a. According to MFRS 10, a parent need not present consolidated financial statements
if it meets all the following conditions

(i) it is a wholly-owned subsidiary or is a partially-owned subsidiary of another

entity and all its other owners, including those not otherwise entitled to vote,
have been informed about, and do not object to, the parent not presenting
consolidated financial statements

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 (ii) its debt or equity instruments are not traded in a public market (a domestic or
foreign stock exchange or an over-the-counter market, including local and
regional markets)

(iii) it did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organisation for the purpose of
issuing any class of instruments in a public market ; and

(iv) its ultimate or any intermediate parent produces consolidated financial

statements that are available for public use and comply with International
Financial Reporting Standards

b. Chanel Bhd
Consolidated Statements of Profit or Loss and Other Comprehensive Income
for the Year ended 31 December 2014
RM’000
Turnover 67,000 + 32,000 +(12,300 x 9/12) -2,400 105,825
Cost of sales 33,000 + 14,500 + (5,300 x 9/12) -2,400 –
100 URP o/inv + (300 x 25/125) URP c/inv
(49,035)
Gross profit 56,790
Operating expenses 5,400 + 7,400 + (2,040 x 9/12) + 1
underdepn bldg. – 50 overdepn eq. 13,481
Profit before taxation 43,309
Taxation 7,454 + 2,690 + (1,208 x 9/12) (11,050)
Profit after taxation 32,259

Profit attributable to:

Equity holders of Chanel Bhd 30,481.22
NCI (W1) 1,777.78
32,259

W1 Profit attributable to NCI

Mekors Bhd RM’000 RM’000

Profit for the year 7,660
Preference dividends (700) X 90% 630
Profit for Ord shareholders 6,960
Adjustments:
Underdepn of bldg. (1)
URP opening inventory 100

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 Profit on disposal of equipment (250)
Adjusted PAT 6,809 X 20% 136.18
766.18
Segel Bhd
PAT 3,452
Pre-acquisition profits (3,452 x 3/12) (863)
Post-acquisition profits 2,589
Adjustments
URP closing inventory (300 x 25/125) (60)
Adjusted PAT 2,529 X 40% 1,011.60

Total profit attributable to NCI 1,777.78

c. Components of NCI as at 31 December 2014

The NCI would consists of the NCI’s interest in the net assets of Mekors Bhd
at the beginning of the year, the NCI’s interest in the net assets of Segel Bhd
as at 1 April 2014 plus their interest in the profits after tax for the year of
Mekors Bhd and Segel Bhd net of dividends.

The values can be determined as follows:

Mekors Bhd
Balance as at 1/1/2014
Ordinary shares 10,000
Retained Profit 3,950
URP opening inventory (100)
13,850 X 20% 2,770
Preference shares 7,000 X 90% 6,300
9,070
Segel Bhd: acquired during the year
Ordinary shares 3,000
Retained Profit 863
Share premium 150
4,013 X 40% 1,605.20
Profit attributable for the year 1,777.78
Preference dividends 700 X 90% (630)
Ordinary dividends 200 X 40% (80)
Balance as at 31/12/2014 11,742.98

(Total: 35 marks)

Question 4A

a. Amortisation

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 3,600,000 = 3,600,000 = 10,000 per month
30 X 12 360

For the statement of profit or loss and other comprehensive income for the 3
months ended 30 September 2014 : amortisation expense = RM10,000
month x 3 months = RM30,000

For the statement of profit or loss and other comprehensive income for the 9
months ended 30 September 2014 (year-to-date): amortisation expense =
RM10,000 / month x 9 months = RM90,000

b. MFRS 134 requires that an entity applies the same criteria for measuring and
recognising provisions in the interim financial reports as the annual reports.
Thus, since the company would make a provision for warranties on based on
5% of its sales in its annual financial statements, it would also be required to
make a similar provision for warranties in its interim financial statements.
However, the sales figure would be the actual sales made at each quarter for
the quarterly reports. For the year-to-date statement of profit or loss and
other comprehensice income for each quarterly period, the provision will be
based on the accumulated sales of the respective year-to-date period.

Question 4B

a (i) Basis for determining reportable segments:

i. Revenue basis:the sales (internal and external) of the segment should be
equal to 10% or more than the combined sales of all operating segments of
the entity.

ii. Profit basis: the profit (loss) of the segment should be equal to 10% or
more than the combined profit (loss) of all profitable (loss-making) operating
segments of the entity.

iii. Asset basis: the value of the identifiable assets of the segment should be
equal to 10% or more than the value of the combined identifiable assets of all
operating segments of the entity.

a (ii) 75% total revenue test is where the combined external revenue of the identified
reportable segments must be at least 75% of the total revenue of the entity. If the
amount is less than 75%, more segments must be identified as reportable segments
even though they fail the 10% threshold test.

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b. The segments which achieve the 10% revenue tests are garments, food and
beverages and IT softwares/. These segments’ revenue exceed 10% of total
revenue (RM 103.2 m. Total external revenue of reportable segments is RM 77.6m
which is 75% of the entity’s revenue (RM 77.6/103.2). This satisfies the 75% rule.
The management need not identify additional reportable segment.

END OF SOLUTION