CONFIDENTIAL 1 AC/JUL 2022/FAR270

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : FINANCIAL ACCOUNTING 4

COURSE CODE : FAR270
EXAMINATION : JULY 2022
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

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

2. Answer ALL questions in English.

3. Please submit your HANDWRITTEN answers in ONE (1) pdf file.

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

This examination paper consists of 8 pages
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
 CONFIDENTIAL 2 AC/JUL 2022/FAR270

QUESTION 1

Euphoria Bhd is a company engaged in supplying spare parts used in the oil and gas
industries. It is currently preparing its financial statements for the year ending 30 June 2021.
The directors authorized the financial statements for issue on 1 October 2021. Provided below
is the company’s trial balance for the year ended 30 June 2021:

Debit Credit
RM RM
Land 38,000,000
Building 20,000,000
Plant and machinery 10,800,000
Investment property 5,000,000
Investment 8,880,000
Accumulated depreciation as at 1 July 2020:
Building 4,000,000
Plant and machinery 3,720,000
Revenue 60,467,000
Cost of sales 22,380,000
Inventories 4,540,000
Administrative expenses 6,820,000
Directors’ remuneration 350,000
Selling and distribution costs 3,630,000
Maintenance costs 500,000
Rental income 2,330,000
Investment income 1,332,000
Finance expenses 532,000
Tax paid 3,600,000
Trade receivables and payables 5,840,000 3,055,000
Allowance for impairment of trade receivables 292,000
Ordinary share capital 28,000,000
Retained earnings as at 1 July 2020 48,412,000
Interim dividend for ordinary shares 880,000
Cash at bank 30,506,000
Long-term loan 10,650,000
162,258,000 162,258,000

Additional information:

1. RM500,000 worth of goods that were delivered by Euphoria Bhd to a consignee, was
already included in the amount of revenue as per trial balance, and a corresponding
increase in trade receivables as Euphoria Bhd has not collected any payment for the
goods delivered to the consignee. During the financial year end, only 70% of the goods
were sold by the consignee to the third parties. No adjustment has been made in the
books of the company. The closing inventory value as per the trial balance was correctly
recorded. REVENUE -RM500,000 (SOPL)
TRADE RECEIVABLES -RM500,000 X30%= -RM150,000 (SOFP) ?
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
 ACTUAL NILAI INVENTORY AKHIR

CONFIDENTIAL 3 AC/JUL 2022/FAR270

2. On 1 August 2021, it was discovered that the net realisable value the inventories
significantly decreased to RM3,630,000 due to lack of demand during the COVID-19
pandemic. COS +RM910,000 (SOPL)
INVENTORY (SOFP) (RM4,540,000-RM910,000=RM3,630,000)
3. During the current year, the land was revalued resulting in a deficit of RM700,000. The
building was revalued to RM18,000,000 on 1 July 2020. The remaining useful life of the
building was 40 years as at 1 July 2020 and depreciated on a straight line basis.
Meanwhile, the plant and machinery were depreciated at 10% using the reducing
balance method. No adjustment has been made for the property, plant and equipment
for the year ended 30 June 2021. WHY BUILDING SURPLUS?

It is the policy of Euphoria Bhd to adopt revaluation model to measure its land and
building, whereas the plant and machinery were measured using the cost model.

4. The company adopts the fair value model to account for its investment property. On 30
June 2021, the fair value of the property was RM6,000,000.
INCREASE in INV PROPERTY (RM6,000,000-RM5,000,000= RM1,000,000)
INV PROPERTY (SOFP) = RM6,000,000
5. A payment for credit purchase to a supplier totalling RM180,000 in May 2020 was
mistakenly accounted as maintenance cost. This error was discovered during the current
year. trade payable +RM180,000, maintenance cost -RM180,000

6. A worker of Euphoria Bhd had initiated a legal action claiming a compensation of

RM200,000 for a serious hand injury suffered while operating a machine at the
workplace. The company’s lawyer advised that it is probable for the company to lose the
case due to the company’s non-compliance of the safety regulation.

7. On 15 September 2021, Euphoria Bhd entered into a contract with Dynamite Bhd to
purchase a new high-tech machine at a cost of RM500,000. notes to account jk

8. The tax charged for the year was determined to be RM4,000,000.

tax payable : RM 4,000,000- 3,600,000 = 400,000
Required:

Prepare the following financial statements in a form suitable for publication in accordance with
Companies Act 2016 and the relevant Malaysian Financial Reporting Standards:

a. Statement of Profit or Loss and Other Comprehensive Income for the year ended 30
June 2021.
(13 marks)

b. Statement of Changes in Equity for the year ended 30 June 2021.

(3 marks)

c. Statement of Financial Position as at 30 June 2021.

(9 marks)
MFRS137 LEGAL OBLIGATION
PROVISION FOR DAMAGES BCS

- PAST EVENT
-PRESENT OBLIGATION (injury suffered while operating a machine at the workplace)
-PROBABLE OUTFLOW (PROBABLE, BCS TK IKUT SAFETY REGULATION)
-RELIABLE AMOUNT (200,000)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 4 AC/JUL 2022/FAR270

d. The following notes to accompany the above statements:

i. Property, plant and equipment

ii. Capital commitments or contingent liabilities (if any)
(5 marks)
(Total: 30 marks)

QUESTION 2

A. State whether the following properties are investment property in accordance with
MFRS 140 Investment Property.

i. Piece of land that the entity has not developed.

ii. Vacant building leased out under finance lease.

(2 marks)

B. Tropika Indah Bhd purchased a commercial building in Iskandar Puteri, Johor on 1

January 2020. The commercial building consists of 15 floors with modern architecture
for RM35,500,000. Trade discount is 2% on its consideration price. Legal and agency
fees amounted to RM4,500,000. The company occupied the last floor for its local show
rooms and exhibition center and the rest of the floors is rented out to various tenants
under the operating lease. The building cannot be sold separately.

The fair value of the building as at 31 December 2020 and 2021 were RM40,000,000
and RM39,000,000 respectively. The company adopted the fair value model in
measuring its investment property and revaluation model for property, plant and
equipment for subsequent measurement.

Required:

i. Prepare the journal entries for the transactions occurred on 31 December 2020
and 2021.
(4 marks)

ii. Briefly explain the accounting treatment of the building for the year ended 31
December 2020.
(5 marks)

C. On 1 January 2018, Junja Bhd acquired a shop lot premise in Pulau Sebatik, Sabah for
RM3,200,000. The shop lot premise acquired was a part of business portfolio
investment to be rented out to local business operators at RM15,000 per month. On 1
January 2021, Junja Bhd decided to occupy the shop lot premise as its new branch
office in the region of East Malaysia. On that date, the fair value of the property was
RM5,000,000.

The shop lot premise had an estimated useful life of 40 years. The company adopted
the fair value model in measuring its investment property and revaluation model for its
property, plant and equipment.

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 5 AC/JUL 2022/FAR270

Required:

Advise Junja Bhd on the accounting treatment of the transfer of the shop lot premise on
1 January 2021 in accordance with MFRS 140 Investment Property.
(5 marks)
(Total: 16 marks)

QUESTION 3

A. An essential feature of MFRS 15 Revenue from Contracts with Customers is the concept
of performance obligation being a promise in a contract with a customer to transfer a
good or service to the customer.

Required:

State TWO (2) criteria that determine the promised goods or services in a contract as
performance obligation.

(4 marks)

B. Zendaya Bhd has a contract to design and manufacture a specialised equipment for
Affron Sdn Bhd. The contract was finalised on 8 August 2020 at an agreed price of
RM7,500,000.

The contract consists of the following items that can be obtained on a separate basis
and the charges are as follows:

Cost(RM)
Design work 1,500,000
Equipment: Manufacture work 5,500,000
Maintenance service 1,000,000

The design work completed on 21 September 2020 and immediately manufacturing

work commenced. The equipment was delivered on 8 December 2020. The
maintenance service was performed and completed on 31 May 2021.

Zendaya Bhd received the full payment of the contract in July 2021. The current financial
year end of the company is 30 June 2021.

Required:

i. Briefly discuss the FIVE-STEP process that Zendaya Bhd should apply in
recognising the revenue as stipulated by MFRS 15 Revenue from Contracts with
Customers.
(10 marks)

ii. Discuss the accounting treatment on the allocation of the total transactions price
to each of the performance obligations based on stand-alone price.
(4 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 6 AC/JUL 2022/FAR270

C. On 1 January 2021, Ultimate Bhd entered into a contract amounting to RM700,000 with
Oscar Sdn Bhd to install a security system at its hotel building on 15 January 2021.
Included in the agreement was an advance payment to be settled by Oscar Sdn Bhd on
14 February 2021 amounting to RM300,000. Ultimate Bhd however only received the
cheque payment on 1 March 2021. The installation of the security system was completed
on 1 April 2021.

Required:

Prepare the journal entries to record the above contract on the respective transactions
dates.
(4 marks)
(Total: 22 marks)

QUESTION 4

A. a. According to MFRS 108 Accounting Policies, Changes in Accounting Estimates

and Errors, company is allowed to change its accounting policy. State TWO (2)
conditions that require changes in accounting policy.
(2 marks)

b. Changes in measurement methods implied changes in accounting estimates.

Choose TWO (2) of the following situations that specify changes in accounting
estimates.

i. Revision of remaining useful life of equipment from 10 years to 8 years.

ii. An amount of RM15,000 receipt from account receivables was fraudulently
credited to employee’s bank account.
iii. Change of depreciation method of machinery from straight line to reducing
balance.
iv. Change from measuring investment property using cost model to fair value
model.
(2 marks)

B. The following items are related to Berjaya Bhd’s financial statements for the year ended
30 June 2021. The retained earnings account showed an opening balance of
RM150,000 as at 1 July 2020. Before the financial statements are finalized, the financial
director is analyzing the accounting treatment of the following situations.

i. On 1 July 2018, the company acquired two machines costing RM500,000. The
company depreciates its machine using the straight-line method. The estimated
useful life of both machines is 10 years. However, due to changes in the machine's
consumption pattern, the company decided to use the reducing balance method
at the rate of 25% per annum starting from 1 July 2020.

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 7 AC/JUL 2022/FAR270

ii. Berjaya Bhd's accountant observed that the opening carrying amount of the plant
account was overstated by RM14,000 when preparing the company's financial
statements for the year ended 30 June 2021. Upon an investigation, the accounts
clerk revealed that for the year ended 30 June 2020, he failed to account for
depreciation charges on plant.

iii. On 1 July 2020, Berjaya Bhd decided to use revaluation model for subsequent
measurement of its land and buildings rather than cost model. Fair value of the
land and building as at 30 June 2021 was RM2,000,000.

Required:

a. For each of the above situations, identify whether it is a change in accounting

policy, a change in accounting estimates or an error.
(3 marks)

b. Explain the accounting treatment for situation (i) and (ii) above in accordance with
MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors.
(6 marks)

c. Calculate the restated opening balance of the retained earnings as at 1 July 2020.
(3 marks)
(Total: 16 marks)

QUESTION 5

A. The objective of MFRS 137 Provisions, Contingent Liabilities and Contingent Assets is
to ensure that appropriate recognition criteria and measurement bases are applied to
provisions, contingent liabilities and contingent assets and that sufficient information is
disclosed in the notes to enable users to understand their nature, timing and amount.

Required:

Identify each of the following situations whether a provision should be recognized:

i. The business activities of Dream Pool Cottage Bhd has caused a severe damage
to the ecosystem of the river nearby. There is a legal protection for the river and
the company is required to pay damage cost. The cost of rectifying the damage is
still under investigation.

ii. A retail store has a policy of refunding purchases by dissatisfied customers and its
policy of making refund is generally known.

iii. It is the practice of the company to pay for annual vacation of its employees who
achieve the annual sales target even though it is not stipulated in any written
contract.

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

 CONFIDENTIAL 8 AC/JUL 2022/FAR270

iv. A company offers a three-year warranty for every unit of electrical appliance sold.
Based on the previous experience, it is estimated that the company will incur
RM10,000 of warranty cost.
(4 marks)

B. The following events are to be considered upon finalizing the financial statements of
Squid Bhd for the year ended 31 December 2021:

i. On 15 September 2021, the company was confronted with a legal suit of

RM1,000,000 from one of its staff due to an accident that caused major injury while
on duty. As at 31 December 2021, the case is still on-going and the next hearing
of the case will take place in February 2022. The company’s legal advisor indicated
that there is 80% probability that the staff will win the case with a maximum claim
of RM800,000.

ii. Squid Bhd has a legal suit with one of its major suppliers which may result in a
receipt of compensation amounting to RM500,000. Its legal advisor is in the
opinion that there is a high possibility that the company will be awarded with the
compensation. However, it is dependent upon the verdict of the court.

iii. The company has caused severe pollution when the manufacturing plant
accidentally released its pollutant into the air. There was a legal requirement by
the government to protect the environment. Up until the end of the year, there was
no legal action brought against the company. It was estimated that the total cost
to rectify the environmental damages was RM1,800,000.

Required:

a. Explain the appropriate accounting treatment in accordance with MFRS 137

Provisions, Contingent Liabilities and Contingent Assets for the above events.
(8 marks)

b. Construct the following extracts of financial statements in respect of the above

transactions:

i. Statement of Profit or Loss for the year ended 31 December 2021

(2 marks)

ii. Statement of Financial Position as at 31 December 2021

(2 marks)
(Total: 16 marks)

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL