ACC3201/ACC3209 (F) / Page 1 of 6

INTI INTERNATIONAL UNIVERSITY

BACHELOR OF ACCOUNTANCY (HONS) PROGRAMME
ACC3201: FINANCIAL REPORTING 1
FINAL EXAMINATION: AUGUST 2016 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
The following balances relate to Petra, a public listed company, at 30 September x5:

RM’000 RM’000
Revenue 197,800
Cost of sales 114,000
Distribution costs 17,000
Administrative expenses 18,000
Loan interest paid 1,500
Ordinary shares of 25 sen each, fully paid 40,000
Share premium 12,000
Retained earnings at 1 October x4 34,000
6% redeemable loan note (issued in x3) 50,000
Land and building - at cost (land element RM 40 million) 100,000
Plant and equipment – at cost 66,000
Deferred development expenditure 40,000
Accumulated depreciation at 1 October x4:
Building 16,000
Plant and equipment 26,000
Accumulated amortization of development:
Expenditure at 1 October x4 8,000
Income tax 1,000
Deferred tax 15,000
Trade receivables 24,000
Inventories 21,300
Cash at bank 11,000
Trade payables _______ _15,000
413,800 413,800
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The following notes are relevant:

(a) Included in revenue is RM 12 million for receipts that the company’s auditors have
advised are commission sales. The cost of these sales paid by Petra, were RM 8 million.
RM 3 million of the profit of RM 4 million was attributable to and remitted to Sharma
(the auditors have advised that Sharma is the principle for these transactions). Both RM 8
million cost of sales and RM 3 million paid to Sharma have been included in the cost of
sales.
(b) The buildings have an estimated life of 30 years when they were acquired and are being
depreciated on the straight line basis.
(c) Included in the trial balance figures for the plant and equipment is a plant that has a cost
of RM 16 million and accumulated depreciation of RM 6 million. Following a review of
the company’s operations this plant was made available for sale during the year.
Negotiations with a broker have concluded that a realistic selling price of this plant will
be RM7.5 million and the broker will charge a commission of 8% of the selling price.
The plant had not been sold by year-end. Plant is depreciated at 20% per annum using the
reducing balance method. Depreciation of building and plant is charged to cost of sales.
(d) The development expenditure relates to the capitalized cost of developing a product
called Topaz. It had an original estimated life of five years. Production and sales of
Topaz started in October x3. A review of the sales of Topaz in late September x5 showed
them to be below forecast and an impairment test concluded that the recoverable amount
of the development costs at 30 September x5 was only RM 18 million and the expected
period of future sales ( from this date) was only a further two years.
(e) The balance on the income tax account in the trial balance is the amount paid for the year.
The tax expense for the year is calculated to be RM 4 million and the required provision
for deferred tax at 30 September x5 (show in statement of financial position) is RM 17.6
million.

Required:
(a) An income statement for the year ended 30 September x5 and
(b) A statement of financial position as at 30 September x5.
(Total 25 marks)
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Question 2

Part A
A manufacturer of candy has in stock 100 kilograms of blueberry fillings and 50 kilograms of
finished goods as at the end of year 6.
The cost of the filling is RM12 per kilogram.
One kilogram of candy uses 500 grams of blueberry fillings and the total cost of manufacturing a
kilogram of candy is RM15.
The selling price of a kilogram of candy in year 6 is RM30.
At the end of year 6, the selling price of the candy drops to RM25 per kilogram. At the same
time the replacement cost of blueberry fillings drops to RM10 per kilogram. The costs of other
material remain unchanged.
Required:

a. Should the carrying amount of blueberry fillings and candy be written down?
(5 marks)
b. Suppose the selling price of candy drops to RM14, what will be the value assigned to the
inventories?
(5 marks)

Part B
Ruby Sdn Bhd makes one standard article.
The inventory sheet at year end shows the following items:
Items Details Price/cost
(RM)

Raw materials Cost 24 per kilogram

100 kilograms Current price to purchase 22 per kilogram
Work in progress Material cost 200 per unit
30 units Labour cost 200 per unit
Overhead 200 per unit
Finished goods Material cost 200 per unit
100 units Labour cost 400 per unit
Overhead 400 per unit
Selling price 1,400 per unit
Damages finished units Cost to rectify damages 600 per unit
20 units Selling price 1,400 per unit
(when rectified)
Estimated cost to sell is negligible

Required:
a. Calculate the cost and net realizable value of the inventories
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(11 marks)
b. Calculate the amount of inventories that will be disclosed in the financial statement of
Ruby Sdn Bhd.
(4 marks)
(Total 25 marks)

Question 3

Part A
When can an entity recognize a provision (as per FRS137)? Explain.
(8 marks)

Part B
Hillman Ltd prepares financial statements to 31 March each year. Consider each of the following
situations and determine in each case whether or not a provision should be recognized (as per
FRS137) in the company’s financial statements for the year to 31 March 2012.
(a) On 23 January 2012, the board of directors decided to close down one of the company’s
operations. By 31 March 2012this decision had been announced to the work force and a
detailed plan had been drawn up for its implementation. The closure would involve
redundancy payments of RM375,000.
(4 marks)
(b) On 12 March 2012, the directors decided to close down another of the company’s
operations. This would involve redundancy payments of RM250,000. At 31 March 2012,
the decision had not been announced and had not yet been acted upon.
(4 marks)
(c) For the past few years, the company has been conducting two operations which cause
environmental damage. One of these operations is in a country with legislation which
requires companies to rectify any environmental damage which they cause. The other is
in a country with no such legislation. The costs of rectifying the damage caused to date
by these two operations are estimated at RM5 million and RM10 million respectively.
(5 marks)
(d) At 31 March 2012, the company owns a fleet of motor lorries, all of which requires an
annual service. This servicing work is expected to occur in the first few months of the
year to 31 March 2013, at an estimated cost of RM50,000.
(4 marks)
(17 marks)
(Total 25 marks)
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Question 4

Part A
FRS136 “Impairment of Assets”, issued by the Malaysian Accounting Standards Board become
effective on 1 January 2002. The standard puts in place for the first time in Malaysia, a standard
for impairment of assets and defines impairment losses as the amount by which the carrying
amount of an asset exceeds its recoverable amount.

Required:
Describe the indications (FIVE indications) that an asset may be considered to be impaired in
accordance with FRS 136.
(5 marks)

Part B
Basics acquired a plant on 1 January for RM50 million. The useful life of the equipment was
estimated to be five years. On 31 December x10, the equipment showed conditions of
impairment. An estimate of recoverable amount was carried out which indicated that the selling
price of the equipment was RM27 million, the expected decommission and transport cost was
RM 1 million and the estimated present value of the future economic benefits was RM28 million.
Due to a sudden surge in the demand for the product manufactured by this equipment, the
recoverable amount based on value in use is expected to be RM40 million as at 31 December
x12.

Required:
Show extracts of the Income Statement and an extract of Financial Position for each of the years
ending 31 December x10 to x14.
(20 marks)
(Total 25 marks)
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Question 5

Part A
An entity is developing a new computer software. 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.

Required:
Discuss the accounting treatment as per MFRS138, stating clearly the amount that should appear
in the financial position
(13 marks)

Part B
The Accounting Framework identifies four qualitative characteristics of financial statements.

Required:
Explain, in detail, each of the four qualitative characteristics.
(12 marks)
(Total 25 marks)

-The End-
MM/F/AUG/2016