FAR570 TEST DECEMBER 2022

SUGGESTED SOLUTION

QUESTION 1

a. EPS is the portion of a company’s profit that is allocated to every individual share of
the stock√. It is a tool that market participants use frequently to gauge the profitability
of a company before buying its shares. The higher the earnings per share of a
company, the better is its profitability√. However, BEPS is a rough measurement of
the amount of a company's profit that can be allocated to one share of its common
stock than DEPS. DEPS is a more precise metric than basic EPS√. This is because
DEPS considers all the outstanding dilutive securities√ that could potentially be
exercised (such as stock options and convertible preferred stock) and shows how
such an action would affect earnings per share√.
(5√ x 1 = 5 marks)
b. Basic EPS and Diluted EPS

i. Basic earnings per share

YEAR 2020

Calculation of TERP
Old shares = 4 x RM2.00 = 8.00√
New shares = 1 x RM1.50 = 1.50√
=5 = 9.50

TERP = RM9.50/5
= RM1.90√

Bonus fraction = RM2.00/RM1.90

Date Particular No of shares Bonus WANOS

fraction
1/1 Bal b/d 20,000,000√ x 2.00/1.90√ 10,526,316
x 6/12√
1/7 Right issue = ¼ x 20,000,000
= 5,000,000√
25,000,000 x 6/12√ 12,500,000

31/1 25,000,000 23,026,316

2

BEPS 2020
= 1,500,000√ √ #
23,026,316√

= 1,500,000
23,026,316

= 0.065 sen√
12√
( two tick should be awarded for 1,500,000 and I tick if stdn minus 2000 from
1,500,000)
 YEAR 2021

Date Particular No of shares WANOS

1/1 Bal b/d 25,000,000√ x 4/12√ 8,333,333
1/5 New issue 500,000√
25,500,000 x 8/12√ 17,000,000
1/7

31/1 25,500,000 25,533,333

2

BEPS 2021
= 2,500,000√
25,533,333√

= 0.098 sen√
7√

ii. Diluted earnings per share

YEAR 2021

Adjusted earnings per share

Date Earnings
As per BEPS 2,500,000
1/1-31/12 5% x 250,000 x 75% x 12/12 9,375√√√

2,509,375

Adjusted WANOS

Date WANOS
As per BEPS 25,533,333
1/1-31/12 250,000 x 400/100 x 12/12 1,000,000√√√

26,533,333

DEPS 2021
= 2,509,375√
26,533,333√

= 0.094 sen√

9√

Findings : The conversion of 5% CLS may dilute the BEP by 0.004 (0.098-0.094). Thus CLS
is dilutive in nature.√
(28√ x ½ = 14 marks)
(1√ for findings = 1 marks)
(Total: 20 marks)
QUESTION 2

a. Compute the carrying amount and tax base of the equipment and lorry for the year
ended 31 December 2021.
Item Carrying amount Tax Base
RM RM RM RM
Machine at cost:
Balance b/d 1,500,000 1,500,000
Less: Accumulated Depreciation
(1,500,000/15 years x 2 years) (200,000) 1,300,000
√√
Less:
Initial allowance
(20% x 1,500,000) (300,000) √
Annual allowance
(40% x 1,500,000 x 2 years) (1,200,000) 0
√√

Furniture at cost:
Balance b/d 600,000 600,000
Less: Accumulated Depreciation
(600,000 x 20%) (120,000) √ 480,000
Less:
Initial allowance
(20% x 600,000) (120,000) √
Annual allowance
(10% x 600,000) (60,000) √ 420,000
(8√ x ½ = 4 marks)

b. Compute the deferred tax asset or deferred tax liabilities as at 31 December 2021
arising from the above transactions.

Item Carrying Tax Base TTD DTD

amount
RM RM RM RM
Machine 1,300,000 0 1,300,000√
Furniture 480,000 420,000 60,000√
Provision for warranty 108,000√ 0 108,000√
Account receivables 300,000√ 300,000√
Allowance for doubtful debts 3,000√ 0√ 3,000√
Development 500,000√ 0√ 500,000√
Accrued salary 50,000√ 50,000√ - -
TOTAL 1,860,000 111,000
 Net TTD 1,749,000
Deferred tax liability√ @ 419,760√
24%
(1749,000 x 24%)
(16√ x ½ = 8 marks)

c.

Item Carrying Tax Base Temporary

amount difference
RM RM RM RM TTD DTD
‘000 ‘000 RM RM
‘000 ‘000
Land 0 0
Carrying value 1,000
1/1/2021
Revaluation surplus 200 0 200
Carrying value 1,200 0
31/12/202

Taxable Temporary Difference/ = RM200,000

Deferred tax liability/ = RM200,000 x 10% = RM20,000/

The surplus arising from the revaluation of non-qualifying assets creates a taxable temporary
difference regardless of management intention (use or sell)/. This is because the tax base is
not affected or adjusted by the surplus/. A deferred tax liability would be recognised.

The standard does not allow an entity to recognize a DTL on its initial recognition and
subsequently on its cost amount except on its revaluation surplus./

(5√ x 1= 5 marks)
(Total: 15 marks)

QUESTION 3

a. Orchid Bhd may choose principal market for the supply of meat (the market with the
greatest volume and level of activity for the meat) √. There is no information on the
volume or the level of the activity, neither market is the principal market, therefore the
fair value of the meat would be measured using the price in the most advantageous
market√. The most advantageous market is the market that maximises the amount that
would be received to sell the meat, after considering transaction costs and transport
costs √ (the net amount that would be received in the respective markets).

In Market A, the price that would be received is RM13, transaction costs in that market
are RM1 and the transport costs are RM2(ie the net amount that would be received is
RM10√). In Market B, the price that would be received is RM15, transaction costs in
that market are RM3 and the transport costs are RM3(ie the net amount that would be
received is RM9√).
 Because Orchid Bhd would maximise√ the net amount that would be received for the
meat in Market A (RM10), the fair value of the meat would be measured using the
price in that market of RM13, less transport costs RM2, resulting in a fair value
measurement of RM11√. Although transaction costs are taken into account when
determining which market is the most advantageous market, the price used to
measure the fair value of the asset is not adjusted for those costs√ (although it is
adjusted for transport costs).
(8√ x ½ = 4 marks)

b. Fair value= 100 kilo√ x RM11√ = RM1,100.

(2√ x ½ = 1 mark)
(Total: 5 marks)