CONFIDENTIAL 1 AC/SET 1/FAR610/620

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : ADVANCED FINANCIAL ACCOUNTING AND

REPORTING 1 / CONSOLIDATED FINANCIAL
STATEMENTS
COURSE CODE : FAR610/620
EXAMINATION : FEBRUARY 2021
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. 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

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 CONFIDENTIAL 2 AC/SET 1/FAR610/620

QUESTION 1

PART A

Introduction

Glory Bhd was incorporated on 1 January 2010. The company decided to expand its business
by investing in Success Bhd, Fame Bhd and Bravo Bhd.

Investment in Success Bhd

Glory Bhd acquired 75% of the ordinary shares in Success Bhd on 1 January 2018. On that
date, Glory Bhd also acquired 50% of the 5% debentures in Success Bhd at par. The purchase
consideration for the acquisition of ordinary shares and 5% debentures was paid by cash. On
the acquisition date, the retained profit of Success Bhd was RM100 million and the fair value
of its land was RM10 million more than its carrying value. An internally generated customer
lists that was not recognised by Success Bhd previously was identified to be worth RM6 million
with useful lives of 3 years. Asset revaluation reserve arising from the customer lists has not
been recorded.

On 1 January 2020, the land of Success Bhd was once again revalued at a surplus of RM10
million. Adjustment was made in the books of Success Bhd to reflect this value. Revaluation
model was adopted for the land.

The goodwill on acquisition of Success Bhd was impaired by RM3 million and RM6 million
during the year ended 31 December 2019 and 2020 respectively.

Investment in Fame Bhd

On 1 January 2019, Glory Bhd acquired 60% of the issued share capital of Fame Bhd for a
cash consideration of RM100 million when the retained loss of Fame Bhd was RM20 million.
Subsequently, on 1 September 2020, Glory Bhd acquired another 20% ordinary shares in
Fame Bhd. The purchase consideration for the second acquisition were made by cash of
RM10 million and the issue of RM40 million ordinary shares in Glory Bhd. Only the cash
transaction of RM10 million has been recorded.

Investment in Bravo Bhd

Glory Bhd acquired 10 million ordinary shares out of 30 million ordinary shares in a joint
venture company, Bravo Bhd for a cash consideration of RM18 million on 1 July 2020. Glory
Bhd has joint control over Bravo Bhd with two other investors.

Bravo Bhd was incorporated on 1 January 2020 with issued and fully paid-up capital of RM30
million. Bravo Bhd has not issued new shares since its incorporation. Profit after tax for the
year ended 31 December 2020 of Bravo Bhd was RM24 million.

Financial Statements of companies

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Below are the financial statements of Glory Bhd, Success Bhd and Fame Bhd for the year
ended 31 December 2020.

Statements of Financial Position as at 31 December 2020

Glory Success Fame

Bhd Bhd Bhd
RM'000 RM'000 RM'000
Non-current assets
Property, plant and equipment 900,000 705,000 320,000
Intangible assets 71,000 3,000 9,000
Investment in:
Success Bhd 540,000 - -
Fame Bhd 110,000 - -
Bravo Bhd 18,000 - -

Current assets
Inventories 73,000 90,000 61,000
Trade receivables 45,000 76,000 68,000
Bills receivables 31,000 49,000 24,000
Cash and bank 60,000 53,000 1,600
Total assets 1,848,000 976,000 483,600
Equity
Share capital 1,105,000 432,000 160,000

Retained profit 450,000 161,000 54,000

Revaluation reserve 90,000 46,000 -

Non-current liabilities
5% debentures - 240,000 -
Bank loan 80,000 - 160,000

Current liabilities
Trade payables 74,000 54,000 70,600
Bills payables 49,000 31,000 39,000
Debenture interest payable - 12,000 -
Total equities and liabilities 1,848,000 976,000 483,600

Statements of Profit or Loss and Other Comprehensive Income

for the year ended 31 December 2020

Glory Success Fame

Bhd Bhd Bhd
RM'000 RM'000 RM'000
Revenue 723,450 401,000 210,000
Cost of sales (420,000) (225,000) (120,000)
Gross profit 303,450 176,000 90,000
Gain on disposal of Equipment - 2,000 -

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Administrative expenses (63,000) (65,000) (36,000)

Selling and distribution expenses (53,000) (29,400) (15,000)
Finance cost (11,000) (12,600) (15,000)
Profit/(loss) before tax 176,450 71,000 24,000
Tax expense (31,800) (15,000) (3,000)
Profit/(loss) for the year 144,650 56,000 21,000

Other comprehensive Income

Surplus on revaluation of land 20,000 10,000 -
Total comprehensive income 164,650 66,000 21,000

Statement of Changes in Equity of Glory Bhd for the year ended 31 December 2020

Ordinary Non- Revaluation Retained

share redeemable Reserve profit
capital preference
share capital
RM'000 RM'000 RM'000 RM'000
Balance as at 1 Jan 2020 925,000 180,000 70,000 314,350
Profit for the year - - - 144,650
Preference dividend paid - - - (9,000)
Surplus on revaluation 20,000
Balance as at 31 Dec 2020 925,000 180,000 90,000 450,000

Statement of Changes in Equity of Success Bhd for the year ended 31 December 2020

Ordinary Non- Revaluation Retained

share redeemable Reserve profit
capital preference
share capital
RM'000 RM'000 RM'000 RM'000
Balance as at 1 Jan 2020 312,000 120,000 36,000 111,000
Profit for the year - - - 56,000
Preference dividend paid - - - (6,000)
Surplus on revaluation 10,000
Balance as at 31 Dec 2020 312,000 120,000 46,000 161,000

Statement of Changes in Equity of Fame Bhd for the year ended 31 December 2020

Ordinary Non- Revaluation Retained

share redeemable Reserve profit
capital preference
share capital
RM'000 RM'000 RM'000 RM'000
Balance as at 1 Jan 2020 160,000 - - 33,000
Profit for the year - - - 21,000
Preference dividend paid - - - -
Balance as at 31 Dec 2020 160,000 - - 54,000

Additional information:
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1. Intra-group sale of assets and goods for the year ended 31 December 2020:

 In 2020, Success Bhd sold goods to Glory Bhd on credit valued at RM20 million
which was invoiced at cost plus 25%. 40% of these goods had been sold by Glory
Bhd. As at 31 December 2020, Glory Bhd still owed 60% of the amount due to
Success Bhd.

 Success Bhd disposed an equipment to Glory Bhd at a profit of RM2 million.

 During the current financial year, Glory Bhd sold, on credit, goods valued at RM14
million to Fame Bhd. The cost of these goods to Glory Bhd was RM11 million. As
at 31 December 2020, Fame Bhd managed to sell 75% of these goods and settled
a quarter of the amount due to Glory Bhd by 31 December 2020.

2. Intra-group dividends and interest for the year ended 31 December 2020:

 Glory Bhd and Success Bhd have declared ordinary dividend of RM30 million and
RM16 million respectively before 31 December 2020. Both companies have not
recorded these proposed dividends.

 Success Bhd has provided for the debenture interest payable, but Glory Bhd has
not recorded the interest receivable.

3. Other intra-group transactions for the year ended 31 December 2020:

 Half of the bills payable of Fame Bhd was in favour of Glory Bhd, which has
discounted RM2 million of the bills.

4. During the year ended 31 December 2020, Glory Bhd revalued its land at a surplus of
RM20 million. Revaluation model was adopted for the land.

5. Depreciation policy:

 Depreciation on property plant and equipment is computed on a straight-line basis

over the estimated useful lives of the assets as follows:
o Land Unlimited life and is not depreciated
o Building 50 years
o Plant and equipment 10 years

 Full year depreciation is provided in the year the assets are acquired and none in
the year of disposal.

6. The group policy to value the non-controlling interest (NCI) based on its proportionate
share of the net assets at the acquisition date.

7. It is assumed that profits or losses to accrue evenly throughout the year.

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Required:

a. Compute the goodwill/bargain purchase on acquisition of Success Bhd.

(4 marks)

b. Compute the goodwill/bargain purchase on acquisition of Fame Bhd.

(2 marks)

c. Calculate the gain/(loss) on second acquisition of shares in Fame Bhd.

(4 marks)

d. Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive

Income of Glory Bhd’s Group for the year ended 31 December 2020.
(21 marks)

e. Prepare the Consolidated Statement of Changes in Equity of Glory Bhd’s Group for
the year ended 31 December 2020, showing group retained profits, group assets
revaluation reserve and non-controlling interests only.
(13 marks)

f. Prepare the Consolidated Statement of Financial Position of Glory Bhd’s Group as at

31 December 2020.
(16 marks)

PART B

a. Citrus Bhd acquired 55% of 10 million ordinary shares of Lime Bhd on 1 January 2020.
On 1 October 2020, Citrus Bhd sold 5 million of the shares. Discuss the accounting
treatment for investment in Lime Bhd for the financial year 2020, assuming the financial
year of Citrus Bhd ends every 31 December.
(3 marks)

b. Blade Bhd acquired 75 percent of the ordinary issued share capital of Damia Bhd on 1
January 2018. Subsequently on 1 July 2019, Blade Bhd acquired a further 10 percent
of the issued shares of Damia Bhd.

Required:

i) Discuss the impact of the increase in the controlling interest on the relationship
between Blade Bhd and Damia Bhd.
(2 marks)

ii) Based on the above scenario, explain the accounting treatment for the
investment in Damia Bhd when Blade Bhd prepares its consolidated financial
statements for the year ended 31 December 2019.
(5 marks)

c. Radiant Bhd acquired 60% ordinary shares of Glitter Bhd on 1 January 2019. Kangaro
Bhd owned 40% of the ordinary shares of Glitter Bhd as well as an option to acquire half
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of Radiant Bhd’s shares in Glitter Bhd. The option is currently exercisable at any time and
if exercised, would increase Kangaro Bhd’s votes in Glitter Bhd to 70% and would dilute
Radiant Bhd’s holding to 30% of Glitter Bhd.

Required:

Discuss whether Radiant Bhd controls Glitter Bhd based on MFRS 10 Consolidated
Financial Statements.
(5 marks)
(Total: 75 marks)

QUESTION 2

Given below are the consolidated financial statements of Meru Bhd during the year ended 30
June 2020:

Meru Bhd
Consolidated Statement of Financial Position as at 30 June

2020 2019
RM’000 RM’000
Assets
Property, plant and equipment 5,860 4,680
Investment in associates 355 278
Goodwill on consolidation 80 150
Short term investments 180 121
Tax recoverable 30 -
Cash and bank balances 429 412
Accounts receivable 635 580
Inventories 755 690
8,324 6,911

Equity and Liabilities

Ordinary shares 3,500 3,000
Retained profits 1,846 1,250
Non-controlling interests 978 735
10% Redeemable debentures 1,500 1,000
Accounts payable 500 496
Tax payable - 430
8,324 6,911

Meru Bhd
Consolidated Statement of Profit or Loss for the year ended 30 June 2020

RM’000
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Revenue 4,340
Cost of sales (1,660)
Gross profit 2,680
Selling and distribution expenses (435)
Administrative expenses (225)
Other expenses (349)
Share of associate’s profit 87
Profit before tax 1,758
Taxation (546)
Profit after tax 1,212

Profit after tax attributable to:

Equity holders of parent 773
Non-controlling interests 439
1,212

Meru Bhd
Consolidated Statement of Changes in Equity (Extracted)
for the year ended 30 June 2020

RM,000
Retained profit brought forward 1,250
Profit for the year 773
Dividends paid (177)
Retained profit carried forward 1,846

Additional information:

1. Administrative expenses include depreciation of property, plant and equipment amounted

to RM250,000, gain on disposal of building, gain on disposal of Kapar Bhd and impairment
of goodwill.

2. Other expenses include current year debenture interest.

3. During the year ended 30 June 2020, a building with a carrying value of RM830,000 was
disposed for a cash consideration of RM1,300,000.

4. On 1 July 2019, Meru Bhd sold all its interest in 75% owned subsidiary, Kapar Bhd for a
cash consideration of RM550,000. At the date of disposal, remaining goodwill on
consolidation related to acquisition of Kapar Bhd amounted to RM30,000.

At the date of disposal, the fair value of assets and liabilities of Kapar Bhd were as follows:

RM’000
Property, plant and equipment 380
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Inventories 188
Accounts receivable 65
Cash and bank balances 50
Accounts payable 40
Tax payable 33

5. RM500,000 10% Debentures had been issued at par on 1 July 2019 and full year
debenture interest was paid during the year.

6. Short term investments qualified as cash equivalent.

7. The non-controlling interests are measured at its proportionate share of the fair value of
the identifiable net assets of the subsidiaries on the acquisition date.

Required:

a. Calculate the gain or loss on disposal of investment in Kapar Bhd.

(5 marks)

b. Prepare the Consolidated Statement of Cash Flows of Meru Bhd Group for the year
ended 30 June 2020 using Direct Method in accordance with MFRS 107 Statement
of Cash Flows.
(20 marks)
(Total: 25 marks)

END OF QUESTION PAPER

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