TEST

Semester 10&11: Bachelor of Accounting (Hons) Time Allowed: 2 Hours

BAC 4254: FINANCIAL ACCOUNTING AND REPORTING 4

INSTRUCTIONS TO CANDIDATES:
1. Check carefully to ensure that you are attempting for the RIGHT course and
programme.
2. This question paper consists of 3 question. Total marks are 75. Answer All
Question.
3. This question paper consists of 4 pages including this cover page.
4. You have 2 hours to complete this exam
5. Plagiarism will be treated stringently
6. Similarity between answer scripts will be treated as an act of
malpractice and will accrue punitive action
7. You should cross out any work that you do not wish to be marked.
8. Enter your details correctly in the space given below

Student Name
Student ID
Program Name
Intake
Semester

You are responsible for timely submission of your answer scripts.

No excuses will be entertained after closure time
Question 1 [20 Marks]

1. The Integrated Reporting Framework stresses the need for linkages to the
business strategy to be clear and the reporting to be restricted to significant
items. However, other parties stress the need for comparability. Discuss
whether these two views are compatible.
Several improvements in corporate reporting that are taking place in national
jurisdictions all around the world are compatible with integrated reporting.

The IR> Framework, which offers advice based on principles for organisations
and businesses looking to create an integrated designed to expedite each of
these specific activities and encourage more global creativity in corporate
reporting to maximise the advantages of integrated reporting, including
greater effectiveness of reporting.
[5 marks]
2. Discuss two sectors where climate change could adversely affect shareholder
value.

Oil, gas, and construction are the industries that might be impacted by
climate change. Demand changes in this industry will generally have a
negative effect on firm cash flows and, consequently, values. To reach
emission reduction goals associated with success in stabilising
greenhouse gases, for instance, oil and gas consumption would need to
decline by around 0.2% year on average from now until 2030. Building
materials companies, particularly those operating in regions where
building efficiency is not yet a prominent concern, would undoubtedly
profit from increased demand for goods that improve energy efficiency
and insulation, which will boost their cash flows. More strict
construction regulations are already driving demand for these products
in established economies, and the same thing will happen in developing
markets.
[5 marks]
3. Should integrated reports address allocation of value added? Justify your
conclusions
 The focus of integrated reporting is on the short-, medium-, and long-
term value that organisations create. Like the IIRC, the IRSC is promoting
better information flows and pressuring all stakeholders to acknowledge
capital interconnection. With more dialogue between investors and businesses
for improved strategy, resource allocation, and value production over the
short, medium, and long term, it is hoped that this route would eventually
replace present corporate reporting, which emphasises short-term thinking
and decision making. [5 Marks]

4. Select an industry and explain the best approach to conveying to readers the
state of human resources.
[5 Marks]
The strategy that may be used is strategic human resource management for
the financial services or professional services. The strategic human resource
management strategy places a strong emphasis on long-term solutions and
people management programmes, as well as on organisational development
interventions, attaining employee organisational fit, and other elements that
guarantee workers bring value to the company.
Question 2 [30 Marks]

DRB Bhd a Malaysian company, acquired 70% of the equity of Promo Ltd, a
Singaporean company, On 1 January 2020 for RM 49,250,000. Both companies
prepare their financial statements in their functional currencies. Given below are the
financial statements of DRB Bhd and Promo Ltd for the year ended 31 December
2021.

Statements of Profit or Loss and Other Comprehensive Income

for the year ended 31 December 2021

DRB Bhd Promo Ltd

RM’000 SGD’000
Sales 336,000 112,000
Cost of Sales (195,000) (78,000)
Gross Profit 141,000 34,000
Expenses (36,200) (14,500)
Profit before tax 104,800 19,500
Tax (25,000) (3,900)
Profit after tax 79,800 15,600
Movement in retained profit
Retained profit brought forward
Retained Profit as at 1 January 95,000 12,000
2019
Retained Profit for 2019 70,000 14,500
Retained profit for the year 2020 79,800 17,600
Dividend (300) -
Retained profit carried forward 244,500 44,100

Statement of Financial Position as at 31 December 2021

DRB Bhd Promo ltd

RM’000 SGD’000
Assets
Property,Plant and Equipment 231,000 49,100
Investment in Hanoi Ltd 23,625
Inventory 29,000 9,900
Trade receivables 24,000 12,000
Bank 25,175 6,900
332,800 77,900
Equity and liabilities
Ordinary Shares 30,000 14,000
Retained Profit 244,500 44,100
274,500 58,100
Long-term loan 22,000 7,000
Trade payable 36,000 12,800
Dividend payable 300 -
Additional information:

i) The relevant exchange rates are as follows :

RM SGD
1 January 2020 3.00 1
31 December 2020 3.10 1
31 December 2021 3.50 1
Average for 2021 3.20 1
Average for 2020 2.15 1

ii) DRB Bhd values its non- controlling interest in all subsidiaries at their
proportionate interest in the net assets of the subsidiaries.
iii) On 28 February 2021, the board of directors of Promo Ltd approved a 4%
dividend on ordinary shares for the year ended 31 December 2019 to be
paid in March 2021.

Required:
a. Discuss the effect of the dividend of Promo Ltd approved on 28 February
2022 on the company’s accounts for the year ended 31 December 2021.
[4 Marks]
b. Prepare the consolidated financial statements of DRB Bhd for the financial
year ended 31 December 2021.
[26 Marks]
Question 3 (25 Marks)

1. The following facts relate to Roma Corporation.

 1. Deferred tax liability, January 1, 2021, RM40,000.
2. Deferred tax asset, January 1, 2021, RM0.
3. Taxable income for 2021, RM115,000.
4. Pretax financial income for 2021, RM200,000.
5. Cumulative temporary difference at December 31, 2021, giving rise to
future taxable amounts, RM220,000.
6. Cumulative temporary difference at December 31, 2021, giving rise to
future deductible amounts, RM35,000.
7. Tax rate for all years, 40%.
8. The company is expected to operate profitably in the future.

Required:
a. Compute income taxes payable for 2021. [2 marks]

RM 200 000 x 4%= RM 80 000

2. What are some of the reasons that the components of income tax expense
should be disclosed and a reconciliation between the effective tax rate and
the statutory tax rate be provided? [5
marks]
A quality assessment of profits is the first step. The reconciliation of
pre-tax financial income to taxable income is of interest to many
investors who seek to assess a company's profitability. Enhancing
future cash flow forecasting is the second.

3. Differentiate between “loss carry back” and “loss carry forward. “Which can be
accounted for with the greater certainty when it arises? Why? [5 marks]

The net operating loss carryback provision enables a business to apply

a net operating loss to the prior two tax years and get income tax
refunds in those years. Due to allocating the loss to the second
preceding year, it must be done so first.
 In order to cover future taxable income, a company may use a net
operational loss that it has earned over a twenty-year period under the
loss carry forward provision. The loss carryback may be more
confidently accounted for since the company knows if it had taxable
revenue in the past; this is not the case with future income.

4. What are the possible treatments for tax purposes of a net operating loss?
What are the circumstances that determine the option to be applied? What is
the proper treatment of a net operating loss for financial reporting purposes?
[5 Marks]
For tax purposes, the business may choose to carry the net operating
loss forward or back and then forward, which might be advantageous if
a taxpayer has tax credit carryovers that could be reduced and lost as a
result of the net operating loss carryback. On a present value basis,
carrying forward is more economical than carrying back due to the
possibility of higher future tax rates. For financial reporting purposes, a
net operating loss carryback has benefits that are recognised in the loss
year. The benefits of a carryforward operating loss are recognised as a
deferred tax asset in the loss year.

5. Discuss the controversy relates to the accounting for net operating loss carry
forwards? [8 Marks]
Future taxable amounts due to net operating loss carryforwards are
different from those due to regular operations. A tax prepayment, or
prepaid tax asset, is one explanation for how a deferred tax asset resulting
from routine activity becomes a prepaid tax asset. In the event of loss carry
forwards, there has been no tax prepayment.