CONFIDENTIAL 1 AC/FEB2021/FAR570

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : FINANCIAL ACCOUNTING & REPORTING 4

COURSE CODE : FAR570
EXAMINATION : FEBRUARY 2021
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions.

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

ii) Show your workings (if any) for each of the question.

3. The answers must be in HANDWRITTEN.

4. Answer ALL questions in English

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

This examination paper consists of 7 printed pages

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 2 AC/FEB2021/FAR570

QUESTION 1

On 1 January 2019, Nano Edge Bhd has RM15 million issued and fully paid ordinary shares
at RM1 per share. The financial year end of the entity is on 31 December each year and the
following events took place throughout the year of 2019:

1. The entity has made a rights issue of 1 for every 4 shares on 1 March 2019. The rights
issue was given to the existing shareholders at RM1.75 per share when the market
value was RM2.50 The market price prior to the rights issue was RM2 per share.

2. On 1 September 2019, the entity issued RM1 million 8% convertible preferences

shares. The convertible preference shares are convertible into ordinary shares based
on 175 shares per RM100 convertible preference shares.

3. On 1 November 2019, 20% of the 8% convertible preference shares were converted

into ordinary shares.

4. Net profit after tax for the year ended 31 December 2019 was RM3 million.

5. The earnings per share (EPS) for 2018 was 1.5 sen per share.

6. Tax rate for 2019 is 24%.

Required:

a. Briefly discuss the impact of dilution of earnings per share on firm’s earning
performance.
(6 marks)

b. Compute the basic earnings per share for the year ended 31 December 2019 and the
2018 comparative earnings per share.
(8 marks)

c. Ascertain whether the 8% convertible preference shares issued by Nano Edge Bhd
have a potential dilutive effect on earnings per share. (Support your answer with
workings)
(6 marks)

(Total: 20 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 3 AC/FEB2021/FAR570

QUESTION 2

A. The difference between tax rules and accounting rules contributes to the difference in
taxable income. Tax rules is governed by the fiscal policy that affect the computation on
certain income and expense. Meanwhile, accounting method uses accounting standards
and generally accepted accounting principles that provides its own measurement on
income and expense in measuring its accounting profits.

Required:

Briefly explain the effect of accrued interest expense towards the determination of
accounting profit and taxable income in relation to MFRS112 Income Taxes that leads to
temporary difference.
(6 marks)

B. Kelola Bhd commenced a furniture manufacturing business three years ago which has a
financial year ends on 30 June annually. The company bought a Machine A on 1 July
2017 which cost RM200,000 that has a useful life of 20 years. Due to the high demand
from the market, Kelola Bhd acquired a Machine B on 1 August 2018 costing RM150,000
to increase its production. The life span of the Machine B is 15 years. It is the policy of
the company to depreciate all its machinery using straight line method on yearly basis.
Both machineries qualify for 20% initial allowances and 14% annual allowances.

Kelola Bhd applied for a bank loan of RM20,000 with 6% interest and the loan was
approved on 1 January 2020, The interest charge on the loan is accrued as at 30 June
2020 and will be paid by the following year. The interest expense is allowed for tax
purpose on cash basis.

On 1 September 2019, a sum of RM20,000 was received from Mercury Enterprise for
rental expenses. Mercury Enterprise is obligated to pay RM1,500 per month for renting a
building from Kelola Bhd.

As at 30 June 2019, the taxable temporary difference was RM20,000 with income tax rate
of 30%. Profit before tax recorded for financial year ended 30 June 2020 is RM250,000.

Required:

a. Construct the schedule of temporary difference for the year ended 30 June 2020.
(7 marks)

b. Compute the deferred tax liability (or deferred tax asset) as at 30 June 2020.
(2 marks)

c. Prepare the journal entry to record the tax expense and deferred tax liability (or
deferred tax asset) as at 30 June 2020.
(2 marks)

d. Assume that on June 2020, the government has announced a new tax law that will
cause the 2021 tax rate to change from 30% to 25%. Demonstrate (with calculation)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 4 AC/FEB2021/FAR570

the accounting treatment to record the changes in tax rate for the year ended 30 June
2020.
(3 marks)

(Total: 20 marks)

QUESTION 3

Dani Pharma Bhd is a leading pharmaceutical company that has obtained a contract to
produce vaccine for COVID19. To ensure the future demand for its products can be met, on 1
January 2020, Dani Pharma Bhd had negotiated the specifications of more efficient production
machine with A-One Machineries Bhd. On 15 January 2020, Dani Pharma Bhd signed the
sale and purchase agreement and the machinery was received by Dani Pharma Bhd on 1
February 2020.

The market value of similar machine is RM2,000,000. However, the term of the agreement
stated that Dani Pharma Bhd shall settle the acquisition with cash equivalent to the market
value of 200,000 ordinary shares of its own. The acquisition was settled on 1 April 2020.
The market values of the company’s ordinary shares for the related dates 2020 were as
follows:
2020 Share Price (RM)
1 January 8.00
15 January 7.50
1 February 8.50
1 April 9.50

Earlier, on 1 January 2018 to appreciate the hard work of its employees Dani Pharma Bhd
agreed to a plan to grant 100 shares to each of its 250 employees. However, the employees
need to remain in the entity’s employment for a vesting period of 3 years. The shares would
be issued on 1 January 2020. At the grant date, both the exercise price and the company’s
share price are set at RM8.50.

The company estimates that 4% and 2% of the total employees will leave the company in year
2018 and 2019 respectively. By the end of year 2018, two employees leave Dani Pharma Bhd
and another three (3) and one (1) employees leaves the company in 2019 and 2020
respectively.

Dani Pharma Bhd accounting year ends on 31 December each year.

Required:

a. Discuss briefly the difference between the acquisition of machinery and the 100 shares
that would be granted by Dani Pharma to its employees in accordance to MFRS 2 Share-
based Payment.
(2 marks)

b. Prepare the journal entries for the recognition and settlement of the acquisition of the
machine.
(6 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 5 AC/FEB2021/FAR570

c. Calculate the employees benefit expense for the three years ended 31 December 2018,
2019 and 2020 to be recognised by Dani Pharma Bhd.
(8 marks)

d. Discuss the accounting treatments with journal entries to record the unexercised
employee’s share scheme after the vesting period.
(4 marks)

(Total: 20 marks)

QUESTION 4

A. As at December 2020, Zilco Bhd acquired an investment of 500,000 ordinary shares in

Hollow Bhd amounted at RM1,000,000. The transaction cost incurred for the acquisition
was RM150,000. At the same time, Zilco Bhd also issued additional RM5,000,000 8%
Redeemable Preference Shares to the public. The brokerage fees incurred was
RM200,000.

Required:

a. Briefly explain the term of Financial Instrument in accordance with MFRS 132
Financial Instruments
(4 marks)

b. Demonstrate the journal entries of the financial assets and financial liabilities, if
Zilco Bhd wish to measure the acquisition of financial asset and financial liability
as fair value through profit or loss (FVTPL).
(6 marks)

B. On 1 January 2017 Brilliant Bhd issued convertible bonds with a total proceed of RM3
million. The bond has a coupon interest rate of 6% which are payable annually at 31
December each year. The bond is convertible at any time up to maturity into 200,000
ordinary shares. The prevailing market interest rate for similar debts without conversion
option at the time of bond issued was 9%. At the issuance date, the market price of
one ordinary share was RM5.00. The present value of RM1 interest at 6% and 9%
related to the bond is as follow:

Year 6% 9%
2017 0.943 0.917
2018 0.890 0.842
2018 0.840 0.772
2020 0.792 0.708

Required:
a. Calculate the equity component of the convertible bonds at its initial recognition.
(8 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 6 AC/FEB2021/FAR570

b. On 1 January 2020, Brilliant Bhd ordered goods for sale amounting to RM500,000
from Outreach Bhd. The goods were delivered and received by Brilliant Bhd on 1
February 2020. This amount is to be settled within 60 days. Discuss whether there
is a contract that create financial instruments between Brilliant Bhd and Outreach
Bhd as at 1 January 2020
(2 marks)

(Total: 20 marks)

QUESTION 5

Hijau Lebat Berhad operates a defined benefit plan for its employees. The following balances
appeared in the books of the company as at 30 June:

2019 2020
RM’000 RM’000
Present value of defined benefit obligations 10,500 18,375
Fair value of plan assets 11,025 19,687

Past service costs 1,200

Current service cost 6,300
Benefits paid to employees 2,450
Contributions paid to the plan assets 8,300

The actuary has provided the following information for 30 June 2020:

Expected rate of return on plan assets 12%

Discount rate 10%

Required:

a. Calculate the actuarial gains or losses on defined benefit obligations and plan assets as
at 30 June 2020.
(5 marks)

b. Determine the defined benefit costs that shall be recognized in the Statement of Profit or
Loss for the year ended 30 June 2020.
(3 marks)

c. Discuss the difference in recognition of bonus plans and paid absences with regards to
short-term employee benefits.
(6 marks)

d. MFRS119 Employee Benefits deals with termination benefits separately from other
employee benefits because the event that gives rise to an obligation is the termination of
employment rather than employee service. Discuss the measurement of termination
benefits if the termination benefits are not an enhancement to post-employment benefits.

(6 marks)
(Total: 20 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
 CONFIDENTIAL 7 AC/FEB2021/FAR570

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL