QUESTION 1

a.
Marchunk Berhad
Statement of Profit or Loss and Other Comprehensive Income for the year ended 31
December 2020
RM
Revenue (221,692,500 - 1,200,000) 220,492,500
Cost of sales (76,650,000)
Gross Profit 143,842,500
Administration expenses (W1) (62,332,500)
Selling & distribution expenses (16,773,750 + 213,750) (16,987,500)
Other operating expenses - Compensation costs (320,000)
Profit from operation 64,202,500
Finance costs (3,000,000)
Investment income 49,500
Profit before tax 61,252,000
Taxation (3,600,000 + 300,000) (3,900,000)
Profit for the year 57,352,000
Other Comprehensive Income
-
Total Comprehensive Income for the year 57,352,000

W1
Administration expense RM
As per trial balance 55,185,000
Audit fees (502k + 58k) 560,500
Depreciation:
Buildings (5% x 77,800k) 2,917,500
Plant & machinery 10% x (40,192,500 – 3,997,500) 3,619,500
Deficit on revaluation of land (67,400k-67,250k) – 100k 50,000
62,332,500

b.
Marchunk Bhd
Statement of Changes in Equity for the year ended 31 December 2020
Ordinary share ARR Retained earnings
Balance b/d
Profit for the year 57,352,000
Deficit on revaluation (100,000)
Interim dividend (600,000)
Balance c/d 83,454,250 - 129,689,500

c.

Marchunk Berhad
Statement of Financia Position as at 31 December 2020√
RM RM
Non-current
Assets
Property, plant and equipment 149,633,000
Long term investments 495,000
Research and development 900,000

Current Asset
Inventories 17,456,250
Trade receivables (22,717.5k -1,200k -150k-5k) 21,362,500
Less: AFITR (217.5k – 150k) 67,500 21,295,000
Bank and cash (39,000k+5k) 39,005,000

TOTAL ASSET 228,784,250

Equity
Share capital 83,454,250
Reserves 129,689,500

Non-current
Liabilities
Long term loan from 9,712,500
Hutank Bhd

Current Liabilities
Trade payables 5,250,000
Tax payable (3,900k-3,600k) 300,000
Provision for compensation 320,000
Accrued audit fees 58,000
TOTAL EQUITY AND LIABILITIES 228,784,250
 d. Notes to the account
i.
Freehold Land Buildings Plant & Total
machinery
Cost
Balance as at 1 January 2020 67,400,000 58,350,000 40,192,500

Deficit on revaluation - SOPL (50,000)

Deficit on revaluation - ARR (100,000)
Balance 31 December 2020 67,250,000 58,350,000 40,192,500

Accumulated depreciation
Balance as at 1 January - 5,625,000 3,997,500
2020
Charge for the year 2,917,500 3,619,500
Balance as at 31 December - 8,542,500 7,617,000
2020
Carrying value 67,250,000 49,807,500 32,575,500 149,633,000

ii. Capital commitment

On 30 November, the company has entered into a contract with XZZ Machines Bhd to
purchase a new high technology machines at RM3,800,000.
QUESTION 2

A. According to MFRS 140, rented properties shall be recognized as investment property only
if the services are not significant to the arrangement as a whole. (2x 1 mark=2 marks)

B.i. Accounting Treatment

On 1 October 2019, the building is recognised as an investment property under MFRS 140 as
the building is held for rental (14 floors out of 15 floors) and the portion owner occupied is not
significant (only one floor out of 15 floors). The building also cannot be sold separately. In
addition, the ancillary services provided by the company are also not significant to the
arrangement as a whole.

The building will be measured initially at RM10,000,000. Since the company adopted fair value
model, no depreciation is to be provided. The rental income RM1,800,000(9x200,000) and
ancillary expenses of RM18,000(9x2,000) will be recorded in the Statement of Profit or Loss
under income and expense respectively.

B.ii. Journal entries

Dr Investment Property RM10,000,000

Cr Bank/ Payables RM10,000,000

Dr Cash/Bank/Receivables RM1,800,000
Cr Rental Income RM1,800,000

Dr Ancillary services cost RM18,000

Cr Cash/Bank/Payables RM18,000

C. On 1 April 2020, there is a transfer of investment property to property, plant and equipment
because there is a change of use from rented out as MFRS140 Investment Property to owner
occupied property as per MFRS116 Property, plant and equipment. The property will be
measured at the fair value of the property at RM3,000,000 (1.2x2,500,000) The difference
between the fair value at the transfer date and the previous carrying amount of RM500,000
(3,000,000 – 2,500,000) is recognized in the statement of profit or loss as a gain on fair value
changes. From here onwards, the building shall be depreciated over its remaining useful life.
(
QUESTION 3

A. Three (3) criteria to recognise revenue over time:

i. The customer simultaneously receives and consumes the benefits provided by
the entity’s performance as the entity performs.
ii. The entity’s performance creates or enhances an asset that the customers’
controls as the asset is created or enhanced.
iii. The entity’s performance does not create an asset with an alternative us to the
entity and the entity has an enforceable right to payment for performance
completed to date.
(i)

Step 1: Identify the contract with the customer

Hoowayu Bhd entered into a contract to sell common software and provides professional
services for customized installation and post installation.

Step 2: Identify the performance obligation

There were three separate performance obligations;
1. To deliver and install the common software.
2. To provide installation for specialised software
3. To provide post-installation support for specialized software
Step 3: Determine the transaction price

The transaction price was RM218,000 as stated in the contract.

Step 4: Allocate the transaction price to separate performance obligation

Performance Standalone Allocation of

obligation price revenue
Common software 85,000 85,000/242,000 x 218,000 76,570.25
Installation services
specialized software 152,000 152,000/242,000 x 218,000 136,925.62
Post installation
services 5,000 5,000/242,000 x 218,000 4,504.13
242,000 218,000

Step 5: Recognise the revenue when performance obligation is completed

Hoowayu Bhd can recognised revenue of RM76,570.25 at a point in time from the common
software once it was installed and ready to be used (1 April 2020). Revenue amounted
RM136,925.62 from professional services of installation specialised software will be
recognized at a point in time once Hoowayu staff completed the work as per specified by the
contract on 1 April 2020. Revenue from providing the one-year support service will only be
recognized over time when the services are performed. As for the year ended 30 June 2020,
RM1,126.03 (3/12 x RM4,504.13) revenue from support service can be recognised.
(20 x ½ marks = 10 marks)

Date Journal entries

1/4/2020 Dr Contract Assets RM213,495.87
Cr Revenue from common software RM136,925.62
Revenue from installation specialised software
RM76,570.25
30/06/20
20 Dr Bank RM218,000.00
Cr Contract Assets RM213,495.87
Revenue from post
installation services RM1,126.03
Contract Liability RM3,378.10
ii.

C. According to the contract, Juara Glassware Bhd is acting as the principal (the principal’s
performance obligation is to provide goods or perform services for a customer) whilst
Houzdeco Bhd is acting as an agent and earn commission of 18% of profit margin.
QUESTION 4
A. The adjustment is apply prospectively in
i. the period of the change, if the change affects that period only ii.
the period of the change and future periods, if the change affect both.

B.

a. Indication:
i. Error ii. Error iii. Change in
accounting estimates

b. i. Journal entries

Dr Retained earnings RM250,000

Cr Inventories RM250,000

ii. Journal entries

Dr Retained earnings (RM1,000,000 x 3 years) RM3,000,000

Dr Depreciation expense RM1,000,000
Cr Accumulated depreciation RM4,000,000
iii.
Journal entries
Increase in AFITR (6% x RM100,000)– RM3,200) = RM2,800
Dr SOPL RM2,800 Cr
AFITR RM2,800

b.
RM
Opening balance retained earnings 8,750,000
Less Inventories overstated (250,000)
Less Depreciation understated (3,000,000)
Adjusted retained earnings 5,500,000
QUESTION 5

A. Differences between legal obligation and constructive obligation

A legal obligation is an obligation that derives from arises from a contract, legislation,
or other operation of law while a constructive obligation is an obligation that derives
from entity’s action where:
a) by an established pattern or past practice, published policies, or statements,
that indicated to other parties that it will accept certain responsibilities
b) as a result, the entity has created valid expectation to other parties that it will
discharge those responsibilities.

B.

i.
• Mamora Bhd has a present obligation (legal obligation) as a result of a past event;
It is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation as the company lawyer has advised that it is more likely than not
that they will be found liable;
• A reliable estimate can be made of the amount of the obligation (RM20,000).
• Thus, a provision should be made.
ii.
• There is a present obligation (legal) as a result of past events due to compensation
claim by the resident.
• A reliable estimate can be made of the amount of the obligation (RM75,000)
• However, there is only possible outflow of resources as the legal advisor indicates that
the company is very likely to win the case .
• The matter is disclosed as a contingent liability in the notes to the accounts to the
financial statements
b. Journal entries:
i. Dr P & Loss – warranty expenses RM20,000
Cr Provision for warranty RM20,000

ii. Disclosed as a contingent liability in the notes to the accounts to the financial
statements