CONFIDENTIAL 1 AC/DEC 2019/FAR660

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : ADVANCED FINANCIAL ACCOUNTING AND

REPORTING 2
COURSE CODE : FAR660
EXAMINATION : DECEMBER 2019
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of six (6) questions.

2. i) Answer ALL questions in the Answer Booklet. Start each answer on a new page.
ii) Show your workings (if any) for each of the question.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) an Answer Booklet – provided by the Faculty

5. Answer ALL questions in English.

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

This examination paper consists of 5 printed pages
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CONFIDENTIAL 2 AC/DEC 2019/FAR660

QUESTION 1

a. Financial information can be seen as a ‘public good’ which has led to a divergence
between marginal costs and benefits to the users and producers of financial
information (Godfrey et al., 2010).

Required:

Explain the rationale for regulating financial accounting practice.

(5 marks)

b. According to Godfrey et al (2010), regulatory capture theory is important to understand

regulation of financial reporting. This theory maintains that although the purpose of
regulation is to protect public interest; this purpose is not achieved.

Required:

Explain the statement above with regard to the regulatory capture theory.
(5 marks)
(Total: 10 marks)

QUESTION 2

a. Section 2 Concepts and Pervasive Principles of Malaysian Private Entities Reporting

Standard (MPERS) provide guidance in relation to the concept of ‘undue cost or effort’.
These paragraphs were included in the 2015 Amendments to the MPERS (effective
from 1 January 2016 with early application permitted).

Required:

Discuss the term ‘undue cost or effort’ as mentioned in MPERS with relation to an
entity application.
(10 marks)

b. There are an increase number of companies that provide assurance for sustainability
reporting (Godfrey et al., 2010).

Discuss five (5) reasons of the importance of assurance for sustainability reporting to
stakeholders.
(10 marks)
(Total: 20 marks)

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CONFIDENTIAL 3 AC/DEC 2019/FAR660

QUESTION 3

On 1 January 2015 Orchid Bhd entered into a share-based payment contract with one (1) of
its key personnel. The contract gave Orchid Bhd the choice of paying the personnel either
8,000 shares or cash which is equivalent to 5,000 shares. The fair value of the share
alternative on grant date was estimated at RM4.00 per share, after taking into account the
effects of post-vesting transfer restrictions. The vesting period under the agreement was two
(2) years. The general practice of the company is to settle its obligation in cash unless
requested otherwise by the counterparty.

The fair value of the company’s shares is RM 5.00 as at 1 January 2015; RM8.00 as at 31
December 2015; and RM12 as at 31 December 2016.

Required:

a. Calculate the amount to be recognized as expenses and liabilities for the years ended
31 December 2015 and 31 December 2016.
(5 marks)

b. Explain how the transaction above should be treated in accordance to MFRS 2 Share-
based payment.
(5 marks)

c. Based on equity-settled transactions, advice on how a company should determine the

fair value for transacting with employees and non-employees.
(5 marks)
(Total: 15 marks)

QUESTION 4

a. Explain the initial measurement of financial assets based on its classification according
to MFRS 9 Financial Instruments.
(5 marks)

b. On 1 Jan 2019, Rategy Bhd. buys RM100,000 of 6% loan stock for RM93,930. Interest
will be received on 31 December each year and the stock will be redeemed at par on
31 December 2023. After initial recognition, the loan stock is to be measured at
amortized cost using an effective interest rate of 7.5%.

Required:

Calculate the amounts for the loan stock to be reported in the Statement of Financial
Position on 31 December 2019, 2020 and 2021. (Note: Round off your calculations to
the nearest RM).
(10 marks)

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CONFIDENTIAL 4 AC/DEC 2019/FAR660

c. On 1 July 2019, Azeem Bhd purchased 1,000 units of a quoted bond at a price of
RM915 per unit. A fee of RM2,000 was paid for advice received for the bond
investment.

Discuss the appropriate classification for the debt instrument received by Azeem Bhd
in accordance to MFRS 9 Financial Instruments.
(10 marks)

d. Zahari Bhd invested in quoted equity shares for the purpose of short-term profit-taking.

Advise Zahari Bhd how this investment should be classified under MFRS 9. Financial
Instruments.
(5 marks)
  (Total: 30 marks)

QUESTION 5

a. According to MFRS 15 Revenue from Contract with Customers, control of an asset

refers to the ability to direct the use of, and obtain substantially all of the remaining
benefits from the asset. Control includes the ability to prevent other entities from
directing the use of, and obtaining the benefits from an asset. The benefits of an asset
are the potential cash flows (inflows or savings in outflows) that can be obtained
directly or indirectly in many ways.

List five (5) ways in which the benefits of the potential cash flows can be obtained.
(5 marks)

b. The entity satisfies a performance obligation by transferring control of a promised good

or service to the customer. A performance obligation can be satisfied at a point in time
or over time.

Discuss briefly the criteria as stated in the MFRS 15 Revenue from Contract with
Customers for the performance obligation to be recognized over time.
(5 marks)

c. IT Pakar Bhd (ITPB) is a company specialising in telecommunication equipment and

technical services. On 1 January 2019, ITPB signed a contract with a customer, FZ
Bhd, to install telecommunication equipment. The contract also required ITPB to
provide staff training and testing of the new telecommunication equipment. Both
parties agreed with the contract price of RM260,000.

ITPB delivered and completed the telecommunication equipment installation on 1

February 2019 while staff training and testing were completed on 1 March 2019.

The stand-alone prices for staff training and testing the telecommunication equipment
were RM30,000 and RM10,000, respectively. Customers may purchase the same
telecommunication equipment from ITPB without the technical services for
RM240,000.

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CONFIDENTIAL 5 AC/DEC 2019/FAR660

ITPB issued an invoice amounting RM260,000 to FZ Bhd on 1 March 2019 and the
customer paid the full amount on the same date. The company closes its account on
30 June every year.

Required:

Explain the treatment of the transactions by ITPB for the year ended 30 June 2019
using the five steps model in MFRS15 Revenue from Contracts with Customers. (Note:
Round off your calculations to the nearest RM)
(10 marks)
(Total: 20 marks)

QUESTION 6

Jasmine enters into a three (3) year contract with a road carrier, Zess Bhd for the
transportation of goods from Perak to Johor on a specified truck. The truck is explicitly
specified in the contract and Zess Bhd does not have substitution rights. The goods will
occupy substantially all of the capacity of the truck. The contract specifies the goods to be
transported on the truck and the dates of pickup and delivery. Zess Bhd operates and
maintains the truck and is responsible for the safe delivery of the goods. Jasmine is
prohibited from hiring another carrier to transport the goods or operating the truck itself.

Required:

Advise Jasmine whether the above contract contains a lease under MFRS 16 Leases.
(5 marks)
(Total: 5 marks)

END OF QUESTION PAPER

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