CONFIDENTIAL 1 AC/FEB 2022/FAR610/620

UNIVERSITI TEKNOLOGI MARA

FINAL ASSESSMENT

COURSE : ADVANCED FINANCIAL ACCOUNTING AND

REPORTING 1 / CONSOLIDATED FINANCIAL
STATEMENTS
COURSE CODE : FAR610/620
ASSESSMENT : FEBRUARY 2022
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of two (2) questions.

2. Answer ALL questions. Start each answer on a new page.

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

i) the Question Paper

4. Answer ALL questions in English.

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

This examination paper consists of 9 printed pages
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 2 AC/FEB 2022/FAR610/620

QUESTION 1

PART A

Introduction

The primary activities of Frozit Bhd are manufacturing, sale, trading and distribution of frozen
food products in Malaysia. The company has become one of the leading exporters and largest
manufacturers of frozen Asian culinary delights worldwide. Despite setbacks during the covid-
19 pandemic, the company managed to deliver a good performance for the financial year
2021.

Frozit Bhd has equity interests in Supreme Bhd, Nutri Bhd and Crest Bhd.

Investment in Supreme Bhd

Frozit Bhd gained control over Supreme Bhd by acquiring 90% of Supreme Bhd's ordinary
shares on 1 January 2019, when the retained earnings and other reserves of Supreme Bhd
were RM2.5 million and RM2 million respectively. The consideration for the business
acquisition had been settled.

At the date of acquisition, the carrying amount of Supreme Bhd's net assets reflect their fair
value except for a property whose fair value was RM1 million above the carrying amount. No
adjustment was made in the books of Supreme Bhd to reflect this value.

On 1 April 2021, Frozit Bhd disposed of 20% of its ordinary shares in Supreme Bhd for a cash
consideration of RM6 million. This transaction has not yet been recorded.

Investment in Nutri Bhd

On 1 July 2021, Frozit Bhd acquired 65% interest in the ordinary share capital of Nutri Bhd for
RM12 million.

Revaluation of Nutri Bhd's net assets on the date of the acquisition indicated that the fair value
was equal to the carrying amount. However, on that date, Frozit Bhd also valued Nutri Bhd's
customer list, which Nutri Bhd has not recognised, as an intangible asset at a fair value of
RM0.2 million. It was to be amortised over five years.

Investment in Crest Bhd

Frozit Bhd acquired 25% of Crest Bhd's ordinary shares on 1 January 2020. On that date, the
retained profit of Crest Bhd stood at RM1 million, and the fair value of Crest Bhd's net assets
was equal to the carrying amount. With this interest, Frozit Bhd was able to exercise significant
influence over the decision on the relevant activities of Crest Bhd.

Financial Statements

The following are the companies' financial statements for the year ended 31 December 2021.

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL 3 AC/FEB 2022/FAR610/620

Statements of Financial Position as at 31 December 2021

Frozit Supreme Nutri Crest
Bhd Bhd Bhd Bhd
RM mil RM mil RM mil RM mil
Non-Current Assets
Property, plant and equipment 65 23 15.75 9
Investments in subsidiaries 35.76 - - -
Investment in associates 3.22 - - -
Other investments 16.8 9.2 - -
Intangibles 8.7 4.6 3.15 -

Current Assets
Inventories 16.25 5.75 3.9 2.25
Trade receivables 5.2 1.84 1.26 0.72
Bill receivables 1.95 0.69 0.54 -
Bank 5.82 3.28 2.82 1.43
TOTAL 158.7 48.36 27.42 13.4

Equity
Share capital 90 27 15 8
Reserves 44.5 14.5 7.5 3
- - -
Non-current Liabilities
Bank Loan 12 3 2.25 1.2

Current Liabilities
Trade payables 5.3 1.85 1.32 1.2
Bill payables 2.4 0.66 0.6 -
Ordinary dividend payable 4 1 0.75 -
Preference dividend payable 0.5 0.35 - -
TOTAL 158.7 48.36 27.42 13.4

Statements of Profit or Loss and Other Comprehensive Income

for the year ended 31 December 2021
Frozit Supreme Nutri Crest
Bhd Bhd Bhd Bhd
RM mil RM mil RM mil RM mil
Revenue 52 20 17.7 8
Cost of sales (13) (5) (4.42) (2)
Gross profit 39 15 13.28 6
Other income 0.52 0.4 0.2 -
Investment income 13 1 - -
Operating expenses (17.16) (6.6) (5.84) (2.64)
Finance cost (1.44) (0.15) (0.12) (0.05)
Profit before taxation 33.92 9.65 7.52 3.31
Taxation (8.48) (2.4) (1.88) (0.83)
Profit for the year 25.44 7.25 5.64 2.48
Surplus on revaluation 4.5 - - -
Total comprehensive income 29.94 7.25 5.64 2.48
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 4 AC/FEB 2022/FAR610/620

Frozit Bhd
Statement of Changes in Equity (Extracted) for the year ended 31 December 2021

Ordinary Preference Retained Other

Share Share Profit reserves
Capital Capital
RM mil RM mil RM mil RM mil
Balance as at 1 January 2021 80 10 19.06 -
Profit for the year 25.44 -
Surplus on revaluation - - - 4.5
Ordinary dividend - - (4) -
Preference dividend - - (0.5) -
Balance as at 31 December 2021 80 10 40 4.5

Supreme Bhd
Statement of Changes in Equity (Extracted) for the year ended 31 December 2021

Ordinary Preference Retained Other

Share Share Profit Reserves
Capital Capital
RM mil RM mil RM mil RM mil
Balance as at 1 Jan 2021 20 7 6.6 2
Profit for the year - - 7.25 -
Ordinary dividend - - (1) -
Preference dividend - - (0.35) -
Balance as at 31 December 2021 20 7 12.5 2

Nutri Bhd
Statements of Changes in Equity (Extracted) for the year ended 31 December 2021

Ordinary Preference Retained Other

Share Share Profit Reserves
Capital Capital
RM mil RM mil RM mil RM mil
Balance as at 1 January 2021 15 - 2.61 -
Profit for the year - - 5.64 -
Ordinary dividend - - (0.75) -
Balance as at 31 December 2021 15 - 7.5 -

Crest Bhd
Statement of Changes in Equity (Extracted) for the year ended 31 December 2021

Ordinary Preference Retained Other

Share Share Profit Reserves
Capital Capital
RM mil RM mil RM mil RM mil
Balance as at 1 January 2021 8 - 0.52 -
Profit for the year - - 2.48 -
Balance as at 31 December 2021 8 - 3 -

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL 5 AC/FEB 2022/FAR610/620

Additional information:

1. On 1 October 2021, Nutri Bhd sold equipment to Frozit Bhd at a gain of RM0.2 million.
Nutri Bhd's statement of profit or loss and other comprehensive income recognized the
gain as 'other income'. The remaining useful life of the equipment on the date of disposal
was two (2) years.

2. Throughout the current year, Supreme Bhd had purchased goods worth RM7.8 million
on credit from Frozit Bhd. As of 31 December 2021, Supreme Bhd still held RM2.6 million
of inventory supplied by Frozit Bhd, and Supreme Bhd had also not settled RM0.65
million of the amount due.

3. Frozit Bhd sold goods worth RM3 million to Crest Bhd during the year. As of 31
December 2021, RM1 million worth of these goods remained in Crest Bhd's inventory.

4. Half of the bills payable of Nutri Bhd were drawn in favour of Frozit Bhd. Frozit Bhd had
discounted RM0.14 million of these bills.

5. On 1 January 2020, Frozit Bhd grants 30 share options to its 200 employees. The option
only vests if the employees remain employed by Frozit Bhd for three years from the
grant date. The options are exercisable after 1 July 2023. The fair value of each option
was RM20 at the grant date. In the year ended 31 December 2020, 30 employees left
Frozit Bhd. On 31 December 2021, 10 employees had left, and it was expected that
another 40 employees would resign over the following two years. Frozit Bhd has not
accounted for the transaction in its books at reporting period end.

6. Included in the intangible asset of Frozit Bhd is an intellectual property which cost RM1
million, with an indefinite useful life. The recoverable amount of the intellectual property
at 31 December 2021 was RM0.75 million. Frozit Bhd has not amended its books to
reflect the recoverable amount.

7. Goodwill on the acquisition of Supreme Bhd was impaired by RM0.1 million and RM0.06
million for the year ended 31 December 2020 and 31 December 2021.

8. All companies declared a dividend on ordinary shares and preference shares on 30

December 2021. Frozit Bhd had not recognized any receivable from its subsidiaries.

9. All profits or losses were deemed to accrue evenly throughout the year.

10. It is the group policies to:

• Measures the non-controlling interests at its proportionate share of the fair value
of the net assets of the subsidiaries at the acquisition date.

• Depreciate its property, plant and equipment using straight-line method, on a

yearly basis, charging the full year's depreciation in the year of purchase and none
in the year of disposal.

• All inter-company sales are marked up by 20% on the sales value.

.

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL 6 AC/FEB 2022/FAR610/620

Required:

a. Compute the goodwill or bargain purchase for the acquisition of Supreme Bhd.
(4 marks)

b. Compute the goodwill or bargain purchase for the acquisition of Nutri Bhd.
(4 marks)

c. Compute the gain or loss on the disposal of shares in Supreme Bhd.

(4 marks)

d. Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive Income
for Frozit Bhd Group for the year ended 31 December 2021.
(21 marks)

e. Prepare the Consolidated Statement of Changes in Equity for Frozit Bhd Group for the
year ended 31 December 2021, showing the group retained profit and non-controlling
interests.
(10 marks)

f. Prepare the Consolidated Statement of Financial Position for Frozit Bhd Group as at 31
December 2021.
(17 marks)

(CALCULATE IN RM MILLION AND ROUND UP YOUR ANSWERS

TO TWO DECIMAL POINTS)

PART B

a. Pandan Bhd and Serimuka Bhd own 52% and 48% equity shares in Lapis Bhd. The
Board of Directors in Lapis Bhd has 5 members who control the most significant
decisions in the company. Pandan Bhd appoints 3 out of the 5 members, while Serimuka
Bhd nominates the CEO in Lapis Bhd. The CEO reports to and functions under the
direction of the Board of Directors.

Required:

With reference to the relevant Malaysian Financial Reporting Standards, explain briefly
which investor is most likely to control Lapis Bhd. Justify your answer.
(5 marks)

b. Hylo Bhd has investments in several subsidiaries. Hylo Bhd owned 85% of the issued
equity shares in Odele Bhd, which was acquired for RM200 million. Odele Bhd had 500
million issued equity shares. On 1 October 2021, Pippa Bhd made a private offer to buy
80% of Hylo Bhd's interest in Odele Bhd for RM455 million. Hylo accepted the offer on
1 October 2021. The financial year-end of the Hylo Bhd group is 31 December.

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL 7 AC/FEB 2022/FAR610/620

Required:

i. Identify the relationship between Hylo Bhd and Odele Bhd after the private offer.
(Show relevant workings to justify your answer).
(2 marks)

ii. With reference to MFRS 10 Consolidated Financial Statements, explain briefly the
effect of the private offer in the consolidated financial statements for the year
ended 31 December 2021.
(3 marks)

c. West Bhd acquired 75% equity shares of South Bhd. North Bhd holds 80% of the equity
shares of West Bhd. North Bhd also had 15% equity shares of East Bhd, and North Bhd
is allowed to appoint two of East's five directors.

Required:

i. Identify the related parties to North Bhd with reference to MFRS 124 Related Party
Disclosures.
(2 marks)

ii. Explain briefly whether investors (North and West) have control, joint control, or
significant influence in their respective investees.
(3 marks)
(Total: 75 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL 8 AC/FEB 2022/FAR610/620

QUESTION 2

Sonic Bhd, incorporated 15 years ago, had diversified its activities and expanded its
operations by acquisitions of shares in subsidiaries and associate companies. Accounts for all
companies are made up to 31 December. The consolidated financial statements of Sonic Bhd
as at 31 December 2021 and its comparative figures are as follows:

Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the year ended 31 December 2021

RM’000
Revenues 106,600
Cost of sales (60,600)
Gross profit 46,000
Operating expenses (31,200)
Finance cost (40)
Share of profits of associates 1,200
Profit before tax 15,960
Taxation (2,500)
Profit after tax 13,460

Profit after tax attributable to:

Owners of parent 12,425
Non Controlling Interest 1,035
13,460

Consolidated Statement of Financial Position as at 31 December

2021 2020
RM'000 RM'000
Property, plant and equipment 31,800 21,750
Development cost 1,500 2,300
Investment in associates 4,720 4,300
Goodwill on consolidation 1,000 2,500
Inventory 4,500 6,000
Trade receivable 3,500 3,750
Cash and cash equivalent 11,680 400
58,700 41,000

Ordinary shares 27,940 17,500

Retained profit 19,160 9,235
Asset revaluation reserve 1,100 2,000
Non-controlling interest 4,000 6,000
Trade payable 1,000 1,765
Deferred tax liability 5,500 4,500
58,700 41,000

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL 9 AC/FEB 2022/FAR610/620

Additional information:

1. The operating expenses include depreciation charge on property, plant and equipment
of RM1,750,000, impairment of investment in associate of RM200,000, impairment of
goodwill of RM5,760,000, impairment of development cost, and gain on sale of the
machine.

2. During the year, a machine with a carrying value of RM5,000,000 was disposed for
RM6,000,000. In addition, Sonic Bhd has acquired equipment at the fair value of
RM500,000, and the acquisition was resolved through the issuance of ordinary shares.
Freehold land was revalued at a deficit of RM900,000 during the year. The land had
previously been revalued, and the asset revaluation surplus is related to the land.

3. During the first quarter of the year, the group has spent a further RM700,000 to complete
the development project. Commercial production commenced in the second quarter of
the year. However, sales of the new product proved disappointing, and on 31 December
2021, the development costs were written down to RM1,500,000 via impairment charge.

4. On 1 January 2021, Sonic Bhd acquired 75% interest in Tunggak Bhd. The
consideration was settled partly by issuing ordinary shares in Sonic Bhd at a fair value
of RM6,500,000 and immediate cash. The fair value of the net assets of Tunggak Bhd
at the date of acquisition was as follows:

RM'000
Property, plant and equipment 3,500
Inventory 1,100
Trade receivables 500
Cash at bank 700
Trade payables 300
Tax payable 200

5. The non-controlling interest was measured at its proportionate share of the fair value of
the subsidiary's identifiable net assets on the acquisition date.

Required:

a. Determine the cash consideration arising from the acquisition of Tunggak Bhd on 1
January 2021.
(5 marks)

b. Prepare the Consolidated Statement of Cash Flows of Sonic Bhd Group for the year
ended 31 December 2021, using the INDIRECT METHOD.
(20 marks)
(Total: 25 marks)

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL