CONFIDENTIAL 1 AC/FEB 2020/FAR660

UNIVERSITI TEKNOLOGI MARA

SPECIAL EXAMINATION

COURSE : ADVANCED FINANCIAL ACCOUNTING AND

REPORTING 2
COURSE CODE : FAR660
EXAMINATION : FEBRUARY 2020
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/FEB 2020/FAR660

QUESTION 1

a. The main reason for government intervention in the regulation of financial reporting is
to protect the public interest which is due to market failure with consequent effect on
improved economic performance (Godfrey et al., 2010).

Required:

Explain the assumption of public interest theory in ability to protect the public interest.

(5 marks)

b. According to Godfrey et.al (2010), a second theory proposed to understand regulation

of financial reporting is regulatory capture theory. This theory provides explanations of
why regulations might be put in place that actually serve the interests of some groups
at the expense of others (rather than serving the public interest).

Required:

Explain how regulatory capture theory able to explain regulation in capital markets.

(5 marks)
(Total: 10 marks)

QUESTION 2

a. The Malaysian Private Entities Reporting Standard (MPERS) is effective for financial
statements of annual periods beginning on or after 1 January 2016. MPERS is based
substantially on the International Financial Reporting for Small Medium Enterprises
(SMEs). A common question that private entities would ask is about the differences
between MPERS and MFRS frameworks.

Required:

Discuss the three differences for the recognition and measurement of the government
grant under the MFRS and MPERS.
(10 marks)

b. The first stage of sustainability reporting is identifying the reasons or why the firms
decide to disclose social and environmental performance publicly using various
positive accounting theories.

Required:

Discuss the three theories in relation to the social and environmental performance.

(10 marks)
(Total: 20 marks)

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QUESTION 3

Magnitech Bhd prepares its financial statements on 31 December each year. On 1

November 2016, the board of directors of Magnitech Bhd established a plan to grant its ten
(10) executives the options to purchase ordinary shares of the company. Under the plan,
each executive is entitled to purchase 100,000 shares on the condition that they remain in
employment of the company until 31 December 2019. The share option scheme was offered
and accepted by the executives on 1 January 2017.

The fair value of the option is determined to be as follows:

Date RM
1 November 2016 5.80
1 January 2017 6.00
31 December 2017 6.70
31 December 2018 6.75
31 December 2019 7.00

In year 2017, the company estimated that four (4) executives will leave the company over
the vesting period. However, on 27 December 2018, two (2) executives had left the
company. By the vesting date, another one (1) executive had left the company.

Required:

a. Determine the amount of equity and employee benefit expense resulting from the
employee share options scheme to be recognized for the financial years ending on 31
December 2017, 2018 and 2019.
(5 marks)

b. Discuss how the employees share option scheme above should be recognized initially
by Magnitech Bhd.
(5 marks)

c. Advise Magnitech Bhd on any two (2) types of share-based payment transactions
under the scope of MFRS 2 Share-based payments with one (1) example for each
type.
(5 marks)
(Total: 15 marks)

QUESTION 4

a. On 1 April 2019, Curry Bhd a plantation company had acquired 15% of total equity in
Smiley Bhd, a manufacturing company. At the acquisition date, Curry Bhd paid RM1.3
million for the shares and RM200,000 for its transaction costs. The total market value
of the shares as at 30 June 2019 was RM1.5 million. The financial year ends for both
companies are on every 30th June.

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Required:

Explain how the above transaction gives rise to a financial instrument as defined by
MFRS 9 Financial Instruments.
(5 marks)

b. On 1 January 2018, Piru Bhd issues 6% loan notes with a nominal value of
RM300,000. The loan notes are issued at a 5% discount and RM2,000 issue costs are
incurred. The loan notes will be repayable at a premium of 10% after four years. The
effective interest rate is 10%. The financial year end for Piru Bhd is 31 December.

Required:

i. Prepare extracts of statement of profit or loss for the years ended 31 December
2018 to 31 December 2021 and statement of financial position as at these dates.
Show all workings.
(5 marks)

ii. Discuss the accounting treatment of the transaction costs for the above situation.

(5 marks)

c. Discuss any five (5) types of financial risks under MFRS 7 Financial Instruments:
Disclosures.
(10 marks)

d. Iffah Bhd hold 10% of A2U Bhd equity, which was valued at RM15 million. Iffah Bhd
intends to trade the shares whenever the market conditions are appropriate. As at 1
January 2019, the quoted market price of an equity instrument is RM8 per share. As at
31 December 2019, the quoted market price of the equity instrument declined to
RM7.50 per share. The directors intend to reclassify the shares but unsure how to do
so.

Required:

Advise the company on the accounting treatment for the equity instrument.
(5 marks)
(Total: 30 marks)

QUESTION 5

MFRS 15 Revenue from Contracts with Customers sets out a five-step model, which applies
to revenue earned from contract with customer.

a. Identify the five steps in the revenue recognition process.

(5 marks)

b. Explain briefly the term `customer’ and `transaction price’ based on MFRS 15 Revenue
from Contracts with Customers.
(5 marks)

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c. On 1 January 2018, ATP Berhad entered into a 2 year contract with a local mobile
operator for a Platinum Plus 100GB for Telcom Mobile Plan for its new Chief Executive
Officer (CEO) as part of the benefits given. The CEO will receive a free iPhone at the
inception of the plan on entering into this contract. ATP Berhad only required to pay
RM250 per month. The telephone has a recommended price of RM2,400 and non-
contract 100GB data plan will cost RM188 per month.

Required:

Explain the revenue to be recognised using the five-step model in MFRS 15 Revenue
from Contracts with Customers for the years ended 2018 and 2019.
(10 marks)
(Total: 20 marks)

QUESTION 6

Camelia Bhd supply shirts to customers. On 1 January 2019, Camelia Bhd enters into a
contract with a manufacturer, DTextile Bhd, to purchase a particular type, quality and
quantity of shirts for three years. DTextile Bhd has only one factory that can meet the needs
of Camelia Bhd. DTextile Bhd makes all decisions about the operations of the factory,
including the production level at which to run the factory and which customer contracts to be
fulfilled.

Required:

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

END OF QUESTION PAPER

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