AC/APR 2011/FAR450/FAC450

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UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE

GROUP ACCOUNTING AND REPORTING/

ADVANCED FINANCIAL ACCOUNTING 2

COURSE CODE

FAR450/FAC450

EXAMINATION

APRIL 2011

TIME

3 HOURS

INSTRUCTIONS TO CANDIDATES
1.

This question paper consists of four (4) questions.

2.

Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3.

Do not bring any material into the examination room unless permission is given by the
invigilator.

4.

Please check to make sure that this examination pack consists of:
i)
ii)

the Question Paper

an Answer Booklet - provided by the Faculty

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

This examination paper consists of 8 printed pages
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AC/APR 2011/FAR450/FAC450

QUESTION 1
The summarised statements of financial position of Petra Bhd, Sutera Bhd and Lestari Bhd
as at 31 December 2010 are as follows:
Lestari Bhd
Sutera Bhd
Petra Bhd
RM
RM
RM
Equity and liabilities
5,650,000
2,000,000
1,250,000
Ordinary shares of RM1
10% Preference shares of RM1
750,000
500 000
600,000
Share premium
450,000
170,000
125,000
General reserve
350,000
150,000
532,500
Retained profit as at 1 January 2010
Profit for the year ending 31 December 2010
217,500
175,000
125,000
Long term loan
250,000
Bills payable
187,500
47,500
90,500
Trade payables
337,500
111,250
25,000
Ordinary dividends payable
100,000
62,500
2,078,000
8,725,000
3 ,453,750
Assets
700,000
1,250,000
Property, plant and equipment
3,500,000
Intangibles
87,500
20,000
Investment in Sutera Bhd:
1,500,000 Ordinary shares
1,875,000
200,000 Preference shares
200,000
Investment in Lestari Bhd
1,687,500
1,500,000
Other Investment
150,000
75,000
75,000
Inventory
550,000
430,000
750,000
Bills receivable
75,000
37,500
175,000
Trade receivables
182,500
210,000
281,250
Ordinary dividends receivable
37,500
5,000
93,750
Bank
51,250
70,500
187,500
3,453,750
2,078,000
8,725,000
Additional information:
1.

Petra Bhd bought the ordinary shares and preference shares in Sutera Bhd on 1
January 2008. The consideration for the ordinary shares acquired was settled by
Sutera Bhd's shareholders accepting 400,000 ordinary shares of Petra Bhd valued at
RM2 each and RM 1,075,000 in cash. On the date of acquisition, the general reserve
and retained profit of Sutera Bhd were RM25.000 and RM237,500 respectively.

2.

On 1 January 2010, Petra Bhd and Sutera Bhd acquired 30% and 40% of the issued
ordinary shares of Lestari Bhd respectively when the general reserve of Lestari Bhd
was RM62,500. The net assets of Lestari Bhd on 1 January 2010 were stated in the
books at their fair values except for:
A building whose fair value was RM100,000 in excess of its book value. No
adjustment was made in the books of Lestari Bhd to reflect this value. The
remaining life of the building was 25 years.

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ii.

AC/APR 2011/FAR450/FAC450

A logging license of fair value RM2,000,000 which was not recorded in the
books since the license was granted at no cost to Lestari Bhd.

3.

Included in the profit for the year of Petra Bhd is the unrealised profit of RM37.500 on
the sale of land to Sutera Bhd.

4.

The other investment of Petra Bhd refers to a 25% interest in the equity shares of
Surimas Bhd which was acquired on 1 April 2010. Petra Bhd sold RM200,000 worth
of goods to Surimas Bhd at cost plus 25% in the month of July 2010. RM20.000 of
these goods remained in the inventory of Surimas Bhd at 31 December 2010.
Surimas Bhd's profit is subject to seasonal variation. Its profit for the year ended 31
December 2010 was RM130.000, in which RM32.500 of this profit was made before
1 April 2010.

5.

Petra Bhd and Sutera Bhd have recorded ordinary dividends receivable from their
respective investments.

6.

RM 100,000 of the long term loan of Lestari Bhd was a loan obtained from Petra Bhd.
Petra Bhd had included this amount as part of its bills receivables.

7.

During the year, Sutera Bhd sold goods of RM50,000 to Petra Bhd. All these goods
were sold by Petra Bhd to third parties during the year. As at 31 December 2010,
Petra Bhd paid RM40.000 for the goods purchased from Sutera Bhd, but Sutera Bhd
only received RM35.000 thereof.

8.

There was no impairment of goodwill on consolidation.

9.

The non-controlling interest is measured in proportion to the fair value of the net
assets of the subsidiary on acquisition date.

Required:
a.

Prepare the initial acquisition journal entries to determine the goodwill on acquisition
of Sutera Bhd.
(3 marks)

b.

Prepare a Consolidated Statement of Financial Position for Petra Bhd Group as at 31

December 2010.
Show all workings.
(27 marks)
(Total: 30 marks)

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AC/APR 2011/FAR450/FAC450

QUESTION 2
The draft statements of comprehensive income and statements of changes in equity of
Victory Bhd, Glory Bhd and Fame Bhd for the year ended 31 December 2010 are given
below:
Statements of Comprehensive Income for the year ended 31 December 2010
Victory Bhd
Glory Bhd
Fame Bhd
RM000
RM000
RM000
Sales
180,000
160,000
100,000
Cost of sales
(106.200)
(90.000)
(70.000)
Gross profit
73,800
70,000
30,000
Investment income
20,000
400
Operating expenses
(25.000)
(48.000)
(12.000)
Profit before tax
68,800
22,000
18,400
Taxation
(27.000)
(6,500)
(5.800)
Profit after tax
41.800
15.500
12.600
Statements of Changes in Equity for the year ended 31 December 2010
Victory Bhd
Glory Bhd
Fame Bhd
RM000
RM000
RM000
Balance at 1 January 2010
28,500
10,200
2,500
Net profit for the year
41.800
15.500
12.600
70,300
25,700
15,100
Ordinary dividends
(3,000)
Transfer to general reserve
(11,000)
(500)
:
Balance at 31 December 2010
56.300
25.700
14.600
Additional information:
1.

On 1 January 2008, Victory Bhd acquired 60% of the issued ordinary shares in Glory
Bhd for RM710 million. On that date, the fair value of the plant of Glory Bhd was
RM6 million and its carrying value was RM5 million. The remaining economic life of
the plant was 8 years. Glory Bhd did not incorporate the fair value in its accounts. On
1 January 2008, the retained profit of Glory Bhd had a credit balance of RM4 million
and there were no other reserves. The issued share capital of Glory Bhd is made up
of 815 million ordinary shares of RM1 each.

2.

On 1 April 2010, Victory Bhd acquired 25% of the issued ordinary shares of Fame
Bhd. Victory Bhd has joint control over Fame Bhd. Goodwill on consolidation was
RM100,000 and there was no impairment of goodwill.

3.

During the month of August 2010, Fame Bhd sold goods to Victory Bhd for RM20
million of which RM4 million remained in the inventory of Victory Bhd at 31
December 2010. Fame Bhd made a profit of RM6 million on these sales.

4.

The profits of the three companies accrued evenly throughout the year.

5.

The goodwill of Glory Bhd had been previously impaired by 10%. There was no
impairment of goodwill for the current year.

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6.

AC/APR 2011/FAR450/FAC450

Victory Bhd accounts for its joint venture using the proportionate consolidation
method.

Required:
a.

Prepare the Consolidated Statement of Comprehensive Income for Victory Bhd

Group for the year ending 31 December 2010.
(14 marks)

b.

Prepare an extract of the Statement of Changes in Equity for Victory Bhd Group for
the year ending 31 December 2010.
(10 marks)
(Total: 24 marks)

QUESTION 3
The following draft group financial statements relate to Kong Bhd Group:
Consolidated Statement of Financial Position as at 31 December

Assets
Property, plant and equipment
Goodwill
Investment in associate
Inventories
Trade receivables
Cash and cash equivalents

Equity and liabilities

Ordinary shares of RM1 each
Share premium
Retained earnings
Non-controlling interest
10% Long-term loan
10% Convertible debentures
Deferred tax
Trade payables
Interest payable
Tax payable

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2010
RM'000

2009
RM'000

5,170
120
60
2,650
2,400
140
10,540

4,110
130

850
110
1,250
200
2,670
450
400
4,230
80
300
10,540

370
80
1,100
180
2,700
900
300
1,900
40
770
8,340

2,300
1,500
300
8,340

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AC/APR 2011/FAR450/FAC450

Consolidated Statement of Comprehensive Income for the year ended 31 December

2010
RM'000
Revenue
17,619
Cost of sales
(14,600)
Gross profit
3,019
Distribution costs
(1,880)
Administrative expenses
(490)
Finance costs
(337)
Other income (including share of associate's profit of RM21,000)
80
Profit before tax
392
Income tax expense
(160)
Total comprehensive income
232
Attributable to equity holders of parent
Attributable to non-controlling interest

200
32

Additional information:
1.

Kong Bhd had acquired 25% of the issued ordinary shares of Meng Bhd on 1
January 2010. The purchase consideration was 25 million ordinary shares of Kong
Bhd valued at RM50 million and cash of RM10 million. Kong Bhd has significant
influence over Meng Bhd. There was no goodwill arising on the acquisition of Meng
Bhd.

2.

On 1 July 2010, 50% of the 10% convertible debenture holders exercised their rights
to convert to ordinary shares. The terms of conversion were 100 ordinary shares for
every RM100 debentures.

3.

The long-term loan is a foreign loan and there was a gain on retranslating the loan
into RM at the year end. This gain was included in other income.

4.

On 31 July 2010, Kong Bhd had issued 5,000 ordinary shares as consideration for
the acquisition of a machine. The fair value of the machine was RM10,000. There
had been no disposal of property, plant and equipment during the year. Included in
the cost of sales is the depreciation of property, plant and equipment amounting to
RM260.000.

Required:
Prepare the Consolidated Statement of Cash Flows using the indirect method for Kong Bhd
Group for the year ended 31 December 2010 in accordance with FRS107 Statement of
Cash Flows.
(17 marks)

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AC/APR 2011/FAR450/FAC450

QUESTION 4
Sweet Candy Bhd, a manufacturer of chocolates and sweets is a listed company that was
incorporated twenty years ago. The following information relates to the investments of
Sweet Candy Bhd.
A.

Sweet Candy Bhd acquired an 80% equity interest in Jelly Bhd on 1 January 2006
for RM60 million when the retained profit of Jelly Bhd had a credit balance of RM40
million. The issued ordinary share capital of Jelly Bhd is 30 million shares of RM1
each.
On 30 June 2010, Sweet Candy Bhd disposed 50% of its interest in Jelly Bhd for
RM40 million. Jelly Bhd's retained profit at 1 January 2010 was RM50 million and its
profit for the year ending 31 December 2010 was RM6 million. The fair value of one
ordinary share of Jelly Bhd on 30 June 2010 was RM3.80.
There was no impairment of goodwill. All profits are deemed to accrue evenly
throughout the year.
Required:

B.

a.

Calculate the gain or loss on the disposal of shares in Jelly Bhd for Sweet
Candy Bhd and for the group.
(8 marks)

b.

Briefly discuss how Sweet Candy Bhd would account for its investment in
Jelly Bhd in the group statement of financial position as at 31 December
2010. Support your discussion by computing the amount to be disclosed in
the group statement of financial position as at 31 December 2010.
(4 marks)

Sweet Candy Bhd owned 40% of the issued ordinary shares of Lolly Pop Bhd. The
issued ordinary shares of Lolly Pop Bhd are 600 million ordinary shares of RM1
each. Sweet Candy Bhd also holds 170 million share warrants of Lolly Pop Bhd that
are currently exercisable into 170 million ordinary shares of RM1 each at an exercise
price of RM5 per share. The other shareholders of Lolly Pop Bhd hold 30 million
share warrants of Lolly Pop Bhd with the same terms.
Required:
Explain how the share warrants should be considered in assessing whether Sweet
Candy Bhd has control over the financial and operating policies of Lolly Pop Bhd.
(4 marks)

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C.

AC/APR 2011/FAR450/FAC450

Sweet Candy Bhd acquired 60 million ordinary shares of Choccy Bar Bhd on 1
January 2010. The consideration for the acquisition was agreed as follows:
Immediate cash payment of RM50 million;
Share exchange of one share in Sweet Candy Bhd for every two shares in
Choccy Bar Bhd; and
RM15 million cash on 1 January 2011 if Choccy Bar Bhd were to achieve
20% more profit in year 2010.
Professional fees incurred relating to the business combination totaled RM450,000.
The fair value of Sweet Candy Bhd and Choccy Bar Bhd shares on 1 January 2010
was RM3.50 and RM4.50 each respectively.
The present value of RM1 receivable in a year's time is 90 sen.
Required:
a.

Compute the consideration transferred.

(3 marks)

b.

D.

Prepare the journal entry in the accounts of Sweet Candy Bhd to record the
acquisition of the shares in Choccy Bar Bhd.
(3 marks)

Sweet Candy Bhd has two foreign subsidiaries, one in Indonesia and the other one
in Brunei. The Indonesian subsidiary has been established to manufacture products
in Indonesia for sale in Indonesia. Profits are used to reinvest in the business for
expansion purposes. Remittance of cash to the Malaysian parent is in the form of
dividends.
The main activity in the Brunei subsidiary is to distribute Sweet Candy Bhd's product
in Brunei. All the goods are transferred from Sweet Candy Bhd to the Brunei
subsidiary which sells them in Brunei and remits profits back to Sweet Candy Bhd.
Required:
a.

Determine the functional currency of the foreign subsidiaries. Explain your

choice.
(5 marks)

b.

Identify the method that is most appropriate for translating the financial
statements of the foreign subsidiaries.
(2 marks)
(Total: 29 marks)
END OF QUESTION PAPER

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