CONFIDENTIAL 1 AC/DEC 2022/FAR210

UNIVERSITI TEKNOLOGI
MARATEST
SUGGESTED SOLUTION

PART A: MULTIPLE CHOICE QUESTIONS

1 2 3 4 5 6 7 8 9 10
D C D C D B B A D D

11 12 13 14 15 16
B B C A D D

(Total: 16 marks)
PART B: SHORT STRUCTURED QUESTION

QUESTION 1
a. Compute the initial equity claims of Kopi Tarek cafe Sdn Bhd.

Equity claims = RM240,000√ - (RM100,000√ + RM80,000√)

= RM240,000 - RM180,000
= RM60,000√
(4√ x 1/2 = 2 marks)

b. Briefly assess the underlying assumption as clarified in Chapter 3 of the MASB’s revised
(2018) Conceptual Framework for Financial Reporting.

Chapter 3 of the MASB’s revised (2018) Conceptual Framework states that Going Concern
assumption√ is the underlying assumption.

Thus, the financial statements of Kopi Tarek Cafe Sdn Bhd are normally prepared on the
assumption that the business is a going concern and will continue in operation for the
foreseeable future√.

Hence, it is assumed that Kopi Tarek Cafe Sdn Bhd has neither the intention nor the need to
liquidate or to curtail materially the scale of its operations (cease trading)√.

However, if such an intention or need exists, the financial statements may have to be
prepared on a different basis and if so, the basis used is disclosed√.

(4√ x 1/2 = 2 marks)

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c. In the book of Kopi Tarek Cafe Sdn Bhd and based on the MASB’s revised (2018)
Conceptual Framework for Financial Reporting, classify the element of financial statements
created as a result of the transaction with Kopi Gantang Berhad.

The element of financial statements created as a result of the transaction with Kopi
Gantang Berhad is liability√ since it satisfies the definition of a liability:
.
Liability is a present obligation of the entity to transfer an economic resource as a result of
past event. √

On 15 April 2022 the goods ordered from Kopi Gantang Berhad amounted to RM7,500
were delivered to Kopi Tarek Cafe Sdn Bhd (past event). √

Upon delivery, Kopi Tarek Cafe Sdn Bhd has paid RM2,500 cash to Kopi Gantang Berhad.
However, the remaining balance of RM5,000 has to be paid by Kopi Tarek Cafe Sdn Bhd
within 20 days. (Present obligation). √

When the payment of the remaining balance RM5,000 is being paid it will reduce the
company’s cash/bank balance. (transfer of economic resource) √

OR

The element of financial statements created as a result of the transaction with Kopi
Gantang Berhad is expense√ since it satisfies the definition of an expense:

Based on MASB’s revised (2018) Conceptual Framework for Financial Reporting,

expenses are decreases in assets, or increases in liabilities, that result in decreases in
equity, other than those relating to distributions to holders of equity claims.

1. The partial payment (RM2,500 cash) for the goods received/purchased on 15 April 2022
has reduced the bank balances of Kopi Tarek Cafe Sdn Bhd by RM2,500 (decrease in
assets)√.

2. The remaining balance of RM5,000 which has to be paid by Kopi Tarek Cafe Sdn Bhd
within 20 days increases the company’s liability (increase in liability)√

3. The purchase reduces the company’s profit (result in decrease in equity)√.

4. This decrease in equity relates to the daily business operations (not relating to
contributions from the shareholders/owners of the company)√.

(5√ x 1 mark = 5 marks)

(Total: 9 marks)

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QUESTION 2
a. The purchased lorries are assets√ to Quick Send Express because:

1) The lorries were purchased and delivered to Quick Send Express on 1

November 2020 (past event) √
2) Quick Send Express has the right to use the lorries in its business operations
(right) √
3) The lorries were used at Quick Send Express’s discretion in its business
operations of package delivery and logistics in Malaysia, Indonesia and
Singapore (resource controlled by the entity.) √
4) With the use of the lorries in the business operations, Quick Send Express will
be able to cater for the increasing demand for its package delivery and
logistics services in Malaysia, Indonesia and Singapore√, thus generating
more income for the company (potential to produce economic benefit /
potential of cash inflow into the business). √
(6√ x ½ mark = 3 marks)

b. The purchased lorries can be classified as an item of Property, Plant and Equipment
in accordance with MFRS 116 Property, Plant and Equipment because:

1) The lorries have physical form/structure (tangible item) √.

2) The lorries are held for use in the company’s business operations of
package delivery and logistics in Malaysia, Indonesia and Singapore (held for
use) √.
3) The lorries are expected to be used for ten (10) years (more than one (1)
accountingperiod) √.
(3√ x 1 mark = 3 marks)

c. T h e purchased lorries can be recognised as an asset in the company’s financial

statements because it satisfies the asset recognition criteria√ :

1. Relevant√
- the purchased lorries meet the definition of asset√
- the purchased lorries have high potential to produce economic benefits as it assist
fast pick-up and delivery services in Malaysia, Indonesia and Singapore thus
leading to higher income generation for the company√ .

2. Faithful representation√
- the cost of the purchased lorries is reliably measured, as measurement of the
purchased lorries is certain (description and explanation on estimates are clearly
presented) and evidenced by invoice√ .

(6√ X 1/2 mark = 3 marks)

d. The initial cost of the purchased lorries:
RM
Purchase price √2,450,000
Delivery and transportation cost √500,000
Import duties and taxes √750,000
Insurance and road tax √380,000
Printing of company’s logo on the lorries √750,000
Testing cost (necessary to ensure the lorries are in proper √475,000
working condition)
TOTAL INITIAL COST 5,305,000
(6√ x ½ mark = 3 marks)

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a. The depreciation of the purchased lorries for the year ended 31 December 2021:

Depreciation Expense = ( RM5,305,000√ )

10 years√
= 530,500√
(3√ x 1 mark = 3 marks)

b. The accounting treatments for the subsequent costs incurred during the financial year
ending 31 December 2021 depends on the nature of the expenditure.

Subsequent costs are treated as a capital expenditure only when it is regarded as capital
in nature that is, when the cost enhances the value of the property, plant and equipment
i.e. increase the future benefit of the existing asset beyond its originally assessed
standards of performance√.

Otherwise, the subsequent costs are treated as a revenue expenditure when it is regarded
as an expense that is, when the cost does not enhance the value of the property, plant
and equipment√.

The amount of RM80,000 for renovation of a new room is expected to increase the
operating capacity i.e. increase the future economic benefit √ of the building. Therefore,
this amount be treated as capital expenditure √ and to be added to the carrying value of
the building√ and presented in SOFP√.

The amount of RM45,000 being repainting and cleaning cost for the building is to ensure
that this asset to be in proper working condition without increasing the future economic
benefit of the building√. Therefore, the cost is regarded as revenue expenditure√ and
recognized in profit or loss√ as expenses√.
(10√ x 1/2 mark = 5 marks)

c. The accounting treatment for the disposal of the old sorting machine:

 Remove the cost of old machine RM100,000 from the company's book of accounts √.

 Eliminate the accumulated depreciation of RM80,000 from the company’s book

ofaccounts √.

 The carrying amount of RM20,000 √√ [100,000-80,000] must be removed from

the company’s SOFP√.

 Recognised the sales proceed of RM30,000 as an increase in the company’s

cash/bank √.

 Gain on disposal of RM10,000 √√ [30,000-20,000] is recognised as an income√ in the

SOPL√
(10√ x ½ mark = 5 marks)
(Total: 25 marks)

END OF SOLUTIONS