ACC3201 (F) / Page 1 of 7

INTI INTERNATIONAL UNIVERSITY

BACHELOR OF ACCOUNTANCY (HONS) PROGRAMME
ACC3201: FINANCIAL REPORTING 1
FINAL EXAMINATION: JANUARY 2015 SESSION

This paper consists of TWO (2) sections. Answer ALL the questions in SECTION A and any
TWO (2) questions in SECTION B in the answer booklet provided.

SECTION A: Answer ALL questions

Question 1

Toto Bhd deals in medical products that it manufactures and sells. The company also carries out
research and development to improve its existing products and to introduce new products.
Besides that, it also undertakes research work for other interested parties.

The following income statement and statement of financial position of Toto Bhd were presented
to you and the accountant has asked you to redraft the financial statements.

Statement of Comprehensive Income

For the Year 30 June x10

RM’000
Sales 5,055
Dividend income 72
Retained profit b/f 2450
7,577
Less:
Cost of sales (2,850)
Administrative expenses (560)
Selling and distribution costs (460)
Financial expenses (43)
Tax paid (400)
Interim dividend __(28)
Retained profit 3,236

Statement of Financial Position

as at 30 June x10

Debits RM’000
Investments 380
Research 58
Development 300
 ACC3201 (F) / Page 2 of 7

Freehold land (cost) 1,818

Building (cost) 2,470
Furniture and Fitting (cost) 240
Motor vehicles (cost) 350
Bank 483
Investment at 30 June x10
- Finished goods 124
- Work in progress 20
- Raw material 4
Trade receivables __955
7,202

Credits
Share capital (fully paid-up shares; authorized capital 1,235
of RM10 million made up of ordinary shares of RM1
each.
Share premium 460
8% debenture 140
Retained profit 3,236
Asset revaluation reserve 50
Bank loan – long term 1,000
Deferred tax liability 150
Accumulated depreciation at 30 June x10
- Building 247
- Furniture and Fitting 120
- Motor vehicles 120
Trade payables __444
7,202
Additional information

(a) Sales included the following:

(i) Sales worth RM500,000 were made to customers under sale or return
agreements. The expiry date for the return was 31 July x10. Toto Bhd
charged a mark-up of 25% on cost of sales
(ii) Proceeds from the sale of a piece of land was RM350,000. The carrying
value of the land was RM250,000 and it was bought in x7 at a cost of
RM200,000. Subsequently it was revalued to RM250,000. The carrying
value was included in the cost of sales.
(b) Details of non-current tangible assets other than land are as follows:
Year of Cost (RM’000) Useful life
acquisition
Building X8 2,470 40 years
Furniture and X7 240 10 years
fittings
Motor vehicles
 ACC3201 (F) / Page 3 of 7

- BMX 2777 X7 150 10 years

- WGZ 1998 X8 200 10 years
After providing for the depreciation in its accounts, Toto Bhd discovered that the
remaining useful life of vehicle BMX 2777 as at 1 July x9 was only four years.
Depreciation on motor vehicles was included in administrative expenses. The company’s
policy is to give a full year’s depreciation in the first year.
(c) Administrative expenses include legal costs of RM100,000 incurred in acquiring a piece
of land costing RM800,000.
(d) The closing inventory of finished goods for year x9 was overstated by RM10,000. The
company valued all inventory using FIFO basis.
(e) A debtor (Mr. Won) who owed Toto Bhd RM15,000 was declared a bankrupt. For every
RM10 owed only RM4 could be collected from this debtor. Therefore the company
decided to write off the bad debts and also made a provision for doubtful debt of
RM1,520.
(f) Toto Bhd had adopted a policy of capitalizing promising development expenditure. The
company amortized the development expenditure over four years.
Development expenditure RM’000
X8 Project A 60
X9 Project A 100
X10 Project B 140

Project A involved the development of a new medicine and the product was launched in
July x9.
Project B was not completed yet but sufficient progress had been made to indicate that a
new antibiotic would be developed in the following year.
The company had not provided for the amortization charge in the previous year.
Amortization charge was to be treated as other operating expenses
(g) Investments are all held for trading and have a fair value of RM480,000.
(h) The company is facing a law suit and it is probable that it will lose the case and the loss is
estimated to be RM200,000.
(i) The tax charge for the year was estimated to be RM390,000. The company paid tax of
RM400,000 on the current year’s profit.

Required:

Prepare the following financial statements in a form suitable for publication to the shareholders
of Toto Bhd (as per MFRS101):

(a) The statement of financial position as at 30 June x10.

(b) The statement of comprehensive income for the year ended 30 June x10
(c) The statement of changes in equity.
(Total 25 marks)
 ACC3201 (F) / Page 4 of 7

Question 2

(a) Define the term “investment property” (MFRS140). Explain why it is not generally
appropriate to charge depreciation in relation to such a property
(8 marks)

(b) Give FIVE (5) examples of properties (land or building) that should be classified as
investment property.
(7 marks)

(c) A company’s investment property at 31 December 2011 is shown in the statement of

financial position at its fair value of $23 million. Explain the accounting treatment which
should be applied in the financial statements for the year to 31 December 2012 if the
property has risen in value by 10% during the year. Also explain the accounting treatment
if the property has fallen in value by 10% during the year.
(10 marks)
(Total 25 marks)

Section B: Answer any TWO questions

Question 3

Accounting standard MFRS116, Property, Plant and Equipment makes a number of recognition,
measurement and disclosure requirements with regard to tangible non-current asset. The term
“non-current asset” is defined in accounting standard MFRS101, Presentation of Financial
Statement. The information given below relates to a company, Alpha Ltd, which prepares its
accounts to 31 December.
Alpha Ltd bought a factory machine on 30 June 2011 and paid a total of $420,000. The
supplier’s invoice showed that this sum was made up of the following items:

RM
Manufacturer’s list price 380,000
Less: trade discount ___38,000
342,000
Delivery charge 6,800
Installation costs 29,600
Maintenance charge for the year to 30 June 2012 27,000
Spare parts _14,600
420,000
 ACC3201 (F) / Page 5 of 7

Required:

(a) Distinguish between current assets and non-current assets, giving TWO (2) examples of
each type of assets
(8 marks)

(b) Explain with appropriate examples, the difference between capital expenditure and
revenue expenditure
(4 marks)

(c) If a company incorrectly classified an item of capital expenditure as revenue expenditure,

what effect would this have on the company’s accounts in the year of expenditure and in
subsequent years?
(5 marks)

(d) In accordance with the rules of MFRS116, calculate the cost figure at which the machine
bought by Alpha Ltd should initially be measured. Also explain the correct accounting
treatment of any component of the RM420,000 expenditure which cannot be treated as
part of the machine’s cost.
(8 marks)
(Total 25 marks)

Question 4

Part A
Indicate if the following events or transactions are adjusting or non-adjusting items (MFRS110) .
If they are adjusting items discuss the effect on the financial statements. Year-end was 31
December x4 and the accounts were authorized for issue on 15 March x5.

(a) Entity makes a provision for doubtful debt of 1% and the amount provided for at the end
of 31 December x4 was RM500,000. On 15 January, a debtor who owed the entity RM2
million become insolvent.
(3 marks)

(b) Closing inventory was determined as RM1.5 million based on cost. Part of the inventory
of RM200,000 was damaged but the store – keeper expected the goods to be sold above
cost. However these goods were sold on 19 January for RM120,000.
(3 marks)

(c) Entity signed a contact to acquire a factory building on 10 January x4. The estimated cost
of the building was RM130 million.
(3 marks)
 ACC3201 (F) / Page 6 of 7

(d) On 28 February x5, the entity decided to close down its shoemaking operation, which
was identified as a separate operation from the rest of the entity’s business.
(3 marks)

(e) The factory plant was damaged on 3 March x5 and the recoverable amount was estimated
to be RM1.2 million and the carrying value was RM1.5 million.
(3 marks)

(f) Entity proposed the final ordinary dividend on 1 March x5.

(3 marks)

Part B

Identify whether (and when) the “significant risks and rewards” of ownership pass from seller to
buyer in each of the following situations (as per MFRS118):

(a) A retailer has a “no questions asked” returns policy. Customers may return goods for any
reason within one month of purchase and obtain a full refund. Experience shows that less
than 1% of sales result in such returns and refunds
(4 marks)

(b) A company sells a machine to a customer and also undertakes to install the machine on
the customer’s premises. The installation will take approximately three days, after which
the customer will inspect the installed machine and decide whether or not to accept it.
(3 marks)
(Total 25 marks)

Question 5

Part A

An entity is developing a new computer softwear. During year x4, the expenditure incurred was
RM120,000 of which RM100,000 was incurred before 1 October x4 and the balance was
incurred from October to December x4.
Only On 1 October was the entity able to demonstrate that the project can meet all the
criteria for recognition as an intangible asset.
In year x5, the cost incurred was RM60,000. At the end of x5, the recoverable amount
was RM75,000.
 ACC3201 (F) / Page 7 of 7

Required:

Discuss the accounting treatment as per MFRS138, stating clearly the amount that should appear
in the financial position

(12 marks)

Part B

Rolling Berhad has borrowed RM400 million from a finance company to start a cruise ship
business. Part of this loan will be used to construct a cruise ship which cost around RM240
million. The ship will take approximately three years to complete. The balance of the borrowing
is required to set up the business operations. Below is the breakdown of the various sources of
financing:

Types of financing RM millions

8% redeemable preference shares 120
10% loan stock 80
7% term loan 200

Assume the construction on the ship starts on 1 April x8 and the financing is obtained on the
same date.

Required:

Compute the finance cost that qualifies for capitalization and that which should be expensed in
the income statement.

(13 marks)

(Total 25 marks)

-THE END-