ACC3201 (F) / Page 1 of 5

INTI INTERNATIONAL UNIVERSITY

BACHELOR OF ACCOUNTANCY (HONS) PROGRAMME
ACC3201: FINANCIAL REPORTING 1
FINAL EXAMINATION: AUGUST 2014 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

Given below are the draft financial statements of Fest Bhd.

Statement of comprehensive income for the year ended 31 December x3

RM’000 RM’000
Sales revenue 20,500
Dividend received 100
Profit on sale of property _____3,500
24,100
Less: expenses
Cost of sales 8,300
Administrative expenses 4,250
Selling and distribution expenses 5,920
Misappropriation of funds 2,000
Deficit on revaluation of freehold land 2,100
Dividend paid 500 23,070
_1,030

Statement of financial position as at 31 December x3 RM ‘000

Property, plant and equipment 13,680
Research and development 920
Investment 1,400
Inventory 880
Tax paid 1,300
Accounts receivable 2,170
Bank ___250
20,600

Accounts payable 620

Accrued expenses 140
12% loan stock (maturing in x15) 3,000
Deferred taxation 800
Ordinary shares of RM 1 each 6,300
Share premium 2,000
Asset revaluation reserve (Note iv) 4,200
Retained profits _3,540
20,600
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You are given the following information:

(a) Sales include RM 1 million for goods sold to Easy Finance, a finance company, on 1
July x3. The cost of these goods of RM600,000 was included in the cost of sales. Easy
Finance would resell the goods to Fest Bhd in June x4 for RM1.6 million.
(b) The inventory included slow-moving goods costing RM400,000 that were expected to
be sold for RM100,000.
(c) The loan stock was issued on 1 January x3 to be repaid on 31 December x15 at 3.3
million. The interest payable was 12% but the effective interest rate was 15%.
Finance cost for the year had not been accrued.
(d) The property sold was previously revalued and the surplus remaining in the asset
revaluation reserve was RM800,000. Additional depreciation charged for the year
based on the revalued amount of a certain plant was RM200,000. Freehold land was
previously revalued and the surplus on the previous revaluation was RM1.5 million.
As at 31 December x3, there was a deficit on revaluation which the bookkeeper had
charged in the income statement.
(e) In February x3 it was discovered that a senior employee who left the company in
December x2 had committed a fraud in divesting some of the company’s investments.
(f) The accounts receivable was after factoring RM 1 million of the receivables on a
recourse basis. The company had received RM900,000 and it had charged the
difference of RM100,000 as administrative expenses.
(g) During the year, there was a rights issue of 1.3 million shares issued at par.
(h) Tax expense for the year was calculated to be RM1.5 million.

Required:

Based on the information provided, prepare:

(a) The statement of comprehensive income for Fest Bhd for the year to 31 December x3.
(b) The statement of changes in equity for the year to 31 December x3.
(c) The statement of financial position as at 31 December x3.
(Total 25 marks)
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Question 2
Alpha Ltd makes one standard article. You have been given the following information:

1. The inventory sheets at the year-end show the following items:

Raw materials 100 tons of steel
Cost RM140 per ton
Present price RM130 per ton
40 semi-finished units Cost of materials RM 50 per unit
Labour cost to date RM 100 per unit
Selling price RM 500 per unit (completed)
Finished goods 100 finished units:
Cost of materials RM 50 per unit
Labour cost RM 150 per unit
Selling price RM 500 per unit
10 damaged finished Cost to rectify the damage RM 200 per unit
units Selling price RM 500 per unit (when rectified)

2. Manufacturing overheads are 100% of labour cost.

Selling and distribution expenses are RM 60 per unit (mainly salespeople’s
commission and freight charges).

Required:

From the information in notes 1 and 2, state the amounts to be included in the statement of
financial position of Alpha Ltd in respect of inventory (MFRS 102). State also the principles
you have applied and show your workings clearly.

(Total 25 marks)

Section B: Answer any TWO (2) questions.

Question 3

Pacific Cruise operates ships that ply the Straits of Malacca. One of its ships was acquired on
1 January x2 for a total cost of RM400 million. The ship’s components were as follows:

Component Cost RM1 million Useful life

Engine 80 5 years
Hull and decks 200 25 years
Furniture and fittings 120 10 years

On 1.7.x5 it was discovered that there was an unexpected level of engine trouble and the
company decided to replace the engine with a new engine at a cost of RM120 million. The
expected life of the new engine was determined to be six years.
At the same time the company did a limited upgrade to its furniture and fittings at a cost of
RM30 million. The remaining life of the furniture and fitting was revised to ten years as at
1.7.x5. The company completed repainting the ship at a cost of RM5 million.
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Required:

Calculate the depreciation charge for the year ended 31 December x5 and disclose the
carrying amount of the ship. Explain your calculations if necessary.
(Total 25 marks)

Question 4

Part A

In relation to a failed acquisition, a firm of accountants has invoiced Gear for the sum of
RM300,000. Gear has paid RM 20,000 in full settlement of the debt and states that this was a
reasonable sum for the advice given and is not prepared to pay any further sum. The
accountants are pressing for payment of the full amount, but on the advice of its solicitors,
Gear is not going to settle the balance outstanding . Additionally, Gear is involved in a court
case concerning the plagiarism of software. Another games company has accused Gear of
copying their games software and currently legal opinion seems to indicate that Gear will lose
the case. Management estimates that the most likely outcome will be a payment of costs and
royalties to the third party of RM 1 million in two years’ time. The best case scenario is
deemed to be a payment of RM 500,000 in one year’s time and the worst case scenario that of
a payment of RM 2 million in three years’ time. These scenarios are based on the amount of
the royalty payment and the potential duration and costs of the court case. Management has
estimated that the relative likelihood of the above payments are: best case – 30% change;
most likely outcome – 60% chance; and worst case – 10% chance of occurrence. The
directors are unsure as to whether any provision for the above amounts should be made in the
financial statements.

Required:

Write a report to the directors of Gear Software explaining the implications of the above
information. Beginning your answer by explaining when a provision should be made as per
MFRS 137 “Provision, contingent liabilities and contingent assets”.
(15 marks)

Part B

Y Stretch entered into an agreement with Y Exercise to use Y Exercise’s concept to operate a
health and fitness centre. Y Exercise will help set up the centre and provide consultation
service. Y Stretch had to pay RM4 million to Y Exercise to use the logo and exercise
techniques of Y Exercise.
Y Stretch also paid another RM6 million to Y Exercise for renovating the premises and its
acquisition of Y Exercise’s equipment. The agreement is for five years. At the end of the five
year period, the agreement can be renewed at a minimal charge.

Required:

Discuss the accounting treatment (as per MFRS 138) of the RM10 million spent by Y Stretch.
(10 marks)

(Total 25 marks)
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Question 5

Part A

On 1 January x5, JJ Bhd raised finance amounting to RM400,000. The borrowing was to
finance both a construction of a plant and for operations. On 31 December x5, the
outstanding borrowings were RM400,000 with no capital repayment in year x5. The
borrowing were mainly used for the construction of the plant at a cost of RM300,000. JJ Bhd
wants to capitalize borrowing costs on qualifying assets. The details of the borrowings were
as follows:

31.12.x5
RM
12% loan stock 100,000
10% term loan 220,000
8% redeemable preference shares 80,000

Required:

Compute the capitalization rate and the amount of interest that qualifies for capitalization for
the year ended 31 December x5.

(13 marks)

Part B

‘For accounting information to be useful, the accountant must be clear about for whom the
information is being prepared and for what purpose the information will be used.’ (McLaney
& Atrill, 1999).

We will identify 4 main users, and they are, (1) the public ; (2) management ; (3) employees;
(4) investors.

Required:
What are their information requirements and how do the current financial statements meet
these requirements?
(12 marks)
(Total 25 marks)
-THE END-
ACC3201 / Mary.M / Final / Aug 2014