ACC 3201 (F) / Page 1 of 6

INTI INTERNATIONAL UNIVERSITY

BACHELOR OF ACCOUNTANCY (HONS) PROGRAMME
ACC3201: FINANCIAL REPORTING 1
FINAL EXAMINATION: JUNE 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

Perfecto, a manufacturing company, is involved in the production of isotonic drinks and snacks.
It has an authorised capital of RM 400 million ordinary shares of 50 sen each and the balance in
8% redeemable preference shares of RM 1.00 each.

Below is the trial balance of Perfecto as at 30 June 2015.

RM 000’ RM 000
Revenue 344 000
Cost of sales 178 400
Distribution costs 32 800
Administrative expenses 29 000
Finance cost 1 600
Inventory 30 June 2015 75 800
Trade receivables and payables 63 200 111 200
Investment income 8 400
Motor vehicle at cost 140 000
Land at cost 50 000
Research and development expenditure 57 200
Plant at cost 260 000
Property at revaluation 200 000
Accumulated depreciation and amortization at 1 July
2014
Motor vehicles 28 000
Property 40 000
Plant 68 000
Development expenditure 12 000
Investment property on 1 July 2014 25 800
Ordinary shares of 50 sen each fully paid 120 000
Retained earnings at 1 July 2014 79 000
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Government grant 160 000

Revaluation reserves at 1 July 2014 1 400
8% Redeemable preference shares of RM 1 each 20 000
Suspense account 48 800
Bank overdraft 73 000
1 113 800 1 113 800

The following information is relevant:

1. The government grant was received when Perfecto acquired a plant on 1 July 2014. The
company accounts for the government grant as deferred income according to the plant
useful life and has not recognized any as income yet.

2. Perfecto has a policy of revaluing its land and property at the end of each financial year.
The estimated remaining life of the property on 1 July 2014 was 20 years. At 30 June
2015, the property has a fair value of RM 150 million. The balance shown in the
revaluation reserves was from the previous revaluation exercise of the property.

The land, a non depreciable asset, had a fair value of RM 85 million on 30 June 2015.

The straight line method has been used to depreciate all property, plant and equipment
based on the period of ownership. The estimated useful life of all plant and vehicles is 10
years. The depreciation expenditure charge of property and motor vehicles is treated as
administration expenses.

3. The research and development expenditures relate to the completed development

expenditure of RM 40 million as at 1 July 2014 and also on new research and
development project.

The company has incurred RM 2.8 million on this research activity from 1 July 2014
until 30 September 2014 while the development costs of RM 1.6 million per month were
incurred from 1 October 2014 until 30 June 2015.

The new project is still at development stage and is expected to be successful. However
no amortization will be provided for the new project. All complete development cost are
mortised at 10 percent per annum using straight line method. All amortisation and
research expenses are treated as cost of sale.
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4. The directors have estimated the provision for income tax for the year ended 30 June
2015 at RM 24.8 million.

5. The suspense account consists:

a) Proceeds from a rights issue of ordinary shares made on 28 June 2015 of RM 84

million. Under the rights issue, one share for every two held was issued at RM
0.70 per share. The issue was fully subscribed.

b) Income tax of RM 35.2 million represents under provision of tax liability for the
year ended 30 June 2014.

6. The investment property are classified as held for sale and its fair value on 30 June 2015
was RM 23.5 million

Required:

Prepare in suitable form for publication as per MFRS 101 for the following:

a) The statement of comprehensive income for the year ended 30 June 2015.
(9 marks)
b) The statement of changes in equity for the year ended 30 June 2015.
(5 marks)
c) The statement of financial position as at 30 June 2015.
(11 marks)
(Total: 25 marks)

Question 2

a) Explain what is meant by a non current asset “held for sale” and list the conditions that
need to be satisfied in order for an asset to be classified as held for sale.
(5 marks)

b) Melville acquired a property on 1 January 2008 for RM 5 million. The useful life was
determined to be 40 years with no residual value. On 30 June 2013, the property was
classified as held for sale and the fair value was RM 4,250,000 and additional RM
100,000 was spent to get the property ready for sale . The property was still classified as
held for sale as Melville was still committed to sell the property. The fair value of the
property on 31 December 2013 was RM 4 million and on 31 December 2014 was RM 4.3
million.
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However on 1 July 2015, Melville was still unable to sell the property and was undecided
as whether to use or lease the property. Its value in use was calculated to be RM 3.8
million and Fair value less cost to sell RM 3.5 million.

Required:

Prepare the Income statement and Balance sheet extract for the year 2012, 2013, 2014
and 2015 in accordance with MFRS 5 Assets Held for Sale and Discontinued
Operations and discuss the accounting treatment for 2014 and 2015. (show clear
computations)
(20 marks)
(Total: 25 marks)

Section B: Answer any TWO (2) questions.

Question 3
Part A

MFRS 118 Revenue identifies the circumstances when the revenue recognition criteria will be
met for the sale of goods, the rendering of services and the use by others of entity assets
yielding interest, royalties and dividends.

In accordance with MFRS 118 Revenue, discuss the conditions that have to be satisfied for the
recognition of revenue from sale of goods and rendering of services?

(10 marks)

Part B

(i) In December 2014 a customer purchased for cash a television set from Media House
Bhd for RM6,000. He wanted it delivered to his parents on 10 January 2015 as a gift
for their wedding anniversary.
(ii) Blue Traders deals in antiques. A customer agreed to buy a piece of antique and
agreed to pay 10% of the price over a ten month period. The customer will take
delivery only upon full payment being made.
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(iii) Electronics Bhd sells goods for cash and on interest free instalment basis. A customer
bought an electricity gadget at a net price of RM5,000 and payment is to be made in
ten instalments of RM500 per month
(iv) High Vsion accepted an assignment to arrange for a syndicated loan for Despardo
Bhd on 1 December 2014. The loan was secured on 6 April 2015. The fee charged by
High Vision was 2% of the loan value. Financial year end is 31 December.
(v) On 1 December 2014 Rose Bhd received orders to decorate a palace for a wedding at
a cost of RM200,000. The wedding will be held on 28 March 2015. Financial year
end is 31 December.

Required:

Explain the above independent situation on the recognition of revenue according to MFRS
118 Revenue.

(15 marks)
(Total 25 marks)

Question 4

A conceptual framework is defined as “a coherent system of inter- related objectives and

fundamentals that can lead to consistent standards and that prescribes the nature, function and
limits of financial accounting and financial statements”. Therefore the development of
conceptual framework is presented in Framework for the Preparation and Presentation of
Financial Statements.

Required:

a) Explain the purposes of the Framework document.

(6 marks)
b) According to the Framework, discuss the TWO assumptions which underlie the
presentation of financial statement.
(6 marks)
c) Discuss the qualitative characteristics of reliability that make the information provided in
the financial statements useful.
(8 marks)
d) Why is it not possible to produce financial statements which possess all of the qualitative
characteristics?
(5 marks)
(Total: 25 marks)
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Question 5

a) MFRS 136 Impairment of Assets, issued by the Malaysian Accounting Standards Board
became effective on 1 January 2006. The Standard puts in place accounting 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 when an asset may be considered to be impaired in accordance
with MFRS 136 Impairment of Assets.
(14 marks)

b) An asset (which has never been revalued) has a carrying amount of RM100,000. The
asset is being depreciated on a straight line basis, with a remaining useful life of three
years and a residual value of RM10,000.
The asset is expected to generate net cash inflows of RM20,000 per year for the next
three years and then to be sold for RM10,000. Disposal costs are expected to be
negligible.
At present, the asset could be sold for RM50,000. Disposal cost would be RM2,000.

Required:
i) Assuming a discount rate of 10% and that all cash flows occur at the end of the
year concerned, determine the asset’s value in use.
(4 marks)
ii) Calculate the amount of the impairment loss which has occurred and explain how
this should be accounted for.
(4 marks)
iii) Calculate the amount of depreciation that should be charged in relation to the
asset for each of the next three years, assuming that the straight line method will
continue to be used.
(3 marks)
(Total: 25 marks)

-THE END-