Sample Past Year Exam Question

ACT3126 ADVANCED FINANCIAL ACCOUNTING I (SEMESTER 1 2010/2011)

QUESTION 1 (40 MARKS) On 1st January 2007, Kelate Bhd acquired an 80% interest in the equity capital of MUFC Sdn Bhd for a cash consideration of RM16,000,000. On this date, the retained profits of MUFC Sdn Bhd were RM6,000,000. On the same day, Kelate Bhd acquired 3,000,000 redeemable preference shares of MUFC Sdn Bhd at a price of RM1 per share.

The draft accounts of the two companies for the current year ended 31 December 2010 are as follows:

Statements of Comprehensive Incomefor the year ended 31 December 2010

Kelate Bhd MUFC Sdn BhdRM’000 RM’000 RM’000 RM’000

Sales 26,400 13,600Cost of inventories sold:

Opening inventories (8,000) (6,000)Purchases (18,000) (8,000)

(26,000) (14,000)Closing inventories 10,000 (16,000) 6,000 (8,000)

Gross profit 10,400 5,600Operating expenses (1,760) (800)Gain on sales of properties 2,280 2,000Profit from operations 10,920 6,800Finance costs (240) (200)Dividend income (net) 1,120 -------Profit before taxation 11,800 6,600Taxation (1,800) (900)Total comprehensive income for the year 10,000 5,700Movements in Retained ProfitsRetained profits brought forward 10,000 9,300Profit for the year 7,600 4,100Available for appropriation 17,600 13,400Dividends paid (2,600) (1,400)Retained profits carried forward 15,500 12,000

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Statements of Financial Positionas at 31 December 2010

Kelate Bhd MUFC Sdn BhdRM’000 RM’000 RM’000 RM’000

Property, plant and equipment 27,000 17,600Investment in MUFC Sdn Bhd: 6,400,000 ordinary shares of MUFC, at cost 16,000 - 3,000,000 redeemable preference shares of MUFC Sdn Bhd, at cost 3,000 -Long-term loan to MUFC Sdn Bhd 1,000Current assets:Inventories 10,000 6,000Trade receivables 10,000 4,000Other receivables 560 2,000Bank balances 1,960 22,520 5,000 17,000

69,520 34,600Share capital of RM1 each 32,000 8,000Retained profits 15,000 12,000

47,000 20,000Long-term loans 15,000 5,000Redeemable preference shares of RM1 each - 5,000Current liabilities:

Trade payables 3,400 2,800Other payables 1,020 250Taxation 1,800 850Bills payable 1,300 7,520 700 4,600

69,520 34,600

Additional information:

a) Included in the property, plant and equipment of MUFC Sdn Bhd was a freehold land recorded at cost of RM2,000,000. At acquisition date, this land was said to have a fair value of RM6,000,000. No adjustment has been made in the accounts to reflect the fair value.

b) During 2010, Kelate Bhd purchased inventories for RM4,000,000 from MUFC Sdn Bhd. Of this amount, RM1,200,000 remained in the closing inventories of Kelate Bhd at 31 December 2010. The corresponding intragroup sales and closing inventories figures for the 2009 financial years were RM6,000,000 and RM1,600,000 respectively. The profit margin to MUFC Sdn Bhd was 25% on selling price.

c) Kelate Bhd manufactures heavy machinery for sales to customers. In 2008, it transferred two such machines to MUFC Sdn Bhd for the latter’s use as property, plant and equipment. The transfer price was as RM2,000,000 and Kelate Bhd recorded a RM800,000 profit for the transfer. The group depreciates property, plant and equipment

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of this type on a straight line basis over 5 years, charging a full year’s depreciation in the year of purchase.

d) In the statement of financial position of MUFC Sdn Bhd, long-term loans totaled RM5,000,000 of which RM1,000,000 was from Kelate Bhd. MUFC Sdn Bhd treated its redeemable preference shares as a financial liability.

e) It is the group’s policy to measure non-controlling interest at acquisition-date fair value. Ignore tax effects of fair value adjustments and unrealized profits arising on intragroup transactions.

Required:

(i) Determine the amount of goodwill on acquisition.(5 marks)

(ii) Determine the share of non-controlling interest in the realized profit for the financial year end 2010.

(3 marks)(iii) Show all the consolidation entries in relation to the additional information for (b).

(7 marks)(iv)Present the consolidated financial statements of Kelate Bhd for the year ended 31

December 2010.(25 marks)

Note: For convenience, blank worksheets are provided if you need to use them for your workings. However, these workings will NOT be assessed as part of your answer.

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QUESTION 2 (20 MARKS)

(a) Statement of Financial Positions of Ilyas Bhd and Maisarah Sdn Bhd as at 31 December 2010.

Ilyas Bhd Maisarah Sdn BhdRM’000 RM’000

Non-current assets 515 300Investment in Maisarah Sdn Bhd – 50,000ordinary shares of RM1.00 each 100 -

Loan to Maisarah Sdn Bhd 10 -Current assets 50 35

675 335Ordinary shares of RM1.00 each 500 200Accumulated profit 150 110Loan from Ilyas Bhd - 10Current liabilities 25 15

675 335

On 1st January 2008 Ilyas Bhd purchased the shares in Maisarah Sdn Bhd when Maisarah Sdn Bhd’s accumulated profit was RM30,000. The book values of the net assets of Maisarah Sdn Bhd reflected its fair values when Ilyas Bhd purchased the shares.

Required:

(i) Prepare the consolidated statement of financial position of Ilyas Bhd for the year ended 31 December 2010.

(8 marks)(ii) Define the term ‘significant influence’ as prescribed by FRS 128.

(2 marks)


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(b) Statement of Financial Positions of Elsa Bhd and Zahra Sdn Bhd as at 31 December 2010.

Elsa Bhd Zahra Sdn BhdRM’000 RM’000

Non-current assets 570 330Investment in Zahra Sdn Bhd – 50,000ordinary shares of RM1.00 each 100 -Current assets 25 10

695 340Ordinary shares of RM1.00 each 500 200Accumulated profit 150 110Current liabilities 45 30

695 340

On 1st January 2008 Elsa Bhd purchased the shares in Zahra Sdn Bhd when Zahra Sdn Bhd’s accumulated profit was RM30,000. Elsa Bhd has joint control over Zahra Sdn Bhd. The book values of the net assets of Zahra Sdn Bhd reflected its fair values when Elsa Bhd purchased the shares.

Required:

(i) Present the consolidated statement of financial position of Elsa Bhd for the year ended 31 December 2010 using proportionate consolidation.

(8 marks)(ii) Define the term ‘joint control’ as prescribed by FRS 131.

(2 marks)


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(a) The draft consolidated financial statements of Pelabur Berhad for the year ended 31 December 2009 are as follows:

Consolidated Statement of Comprehensive Income

RM’000 RM’000Profit from operations Group entities 16,600 Associate 980Profit before taxation 17,580Income tax expense Group entities 7,900 Associate 420 (8,320)Profit for the year 9,260

Attributable to: Equity holders of the parent 7,710 Non-controlling interest 1,550

9,260

Summarised consolidated Statement of Changes in Equity (in respect to equity holders of the parent)

RM’000Balance at 1 January 2009 21,845Profit for the year 7,710Dividends paid (2,100)New shares issued 2,000Balance at 31 December 2009 29,455

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Consolidated Statement of Financial Position

31 December 2009 31 December 2008RM’000 RM’000 RM’000 RM’000

Non-Current Assets:Investment in associate 6,200 5,700Goodwill on acquisition 680 280Property, Plant and Equipment 21,200 16,900

28,080 22,880Current assets: Inventories 16,600 12,200 Trade receivables 15,000 9,300 Cash 50 31,650 1,445 22,945

59,730 45,825

Ordinary share capital of RM1 each

14,000 13,000

Share premium 2,645 1,645Retained profits 12,810 7,200

29,455 21,845

Non-controlling interests 8,200 6,600Long term loans 1,655 5,280 Current liabilities: Trade payables 7,700 5,800 Tax payable 9,100 4,900 Bank overdraft 3,620 20,420 1,400 12,100

59,730 45,825

Additional information:

(i) On 1 January 2009, the Pelabur Berhad acquired 80% of the issued capital of Pelanggan Berhad, whose net assets at that date were as follows:

RM’000Property, plant and equipment 2,600Inventories 900Trade receivables 980Cash 200Trade payables (1,380)Tax payable (300)

3,000

The purchase consideration was RM2.8 million in cash

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(ii) Depreciation charged for the year amounted to RM2.2 million. There were no disposals of property, plant and equipment during the year.

Required:

(a) Prepare a consolidated statement of cash flow for the year ended 31 December 2009 using the indirect method, in compliance with FRS 107, Cash Flow Statement. Show all your workings.

(16 marks)(b) Briefly explain the effect of the following items/transactions on the consolidated

statement of cash flow:(i) Non-controlling interests(ii) Investment in associates(iii) Acquisition of subsidiary during the year(iv) Disposal of subsidiary during the year

(4 marks)

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(a) In accordance with paragraph 9, FRS 121 The Effects of Changes in Foreign Exchange Rates, state TWO (2) primary factors that an entity needs to consider in determining its functional currency.

(2 marks)

(b) Lemark Bhd, a public limited company incorporated in Malaysia, formed a wholly owned subsidiary in Singapore, called Son Ltd on January 1, 2004 where its share capital is 8,000,000 ordinary shares of S$1 each. Son Ltd is established to manufacture watches for the Singapore market. Majority of the workers (about 97%) are Singaporeans. Son Ltd normally uses the profits to reinvest in the business for expansion purposes. Remittances of cash to the parent are in the form of dividends only.

The draft financial statements for Son Ltd as at 31 December 2009 are as follows:

Son LtdStatement of Comprehensive Income and Movement of Retained Profits

for the year ended 31 December 2009

S$’000 S$’000Sales 20,000Cost of goods sold: Opening inventories 3,200 Purchases 13,000

16,200 Closing inventories (4,800) (11,400)Gross profit 8,600Expenses: Depreciation 680 Interest expense 370 Administrative expense 200 Other expenses 660 (1,910)Profit before taxation 6,690Taxation (1,338)Profit after tax 5,352Retained profit b/f 9,600Retained profit c/f 14,952

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Son LtdStatement of Financial Position

as at 31 December 2009S$’000 S$’000

Non-Current Assets:Land 6,000Property, Plant and Equipment (at cost) 8,680Less: Accumulated depreciation 1,140 7,540

13,540Current assets: Inventories 4,800 Monetary current assets 15,680 20,480

34,020

Ordinary share capital of S$1 each 8,000Revaluation reserve 4,800Retained profits 14,952

27,752Long term liabilities: Loan 5,000Current liabilities: Short term borrowings 1,000 - Bills payable 268 1,268

34,020

Additional information:1. The land was acquired on 10 January 2007 for S$1,200,000 and the company revalued its

land once every three years.2. The relevant rates of exchange for every one unit of Singapore Dollar (S$) were:

Rates of exchange:RM

1 January 2004 2.6010 January 2007 2.6231 December 2008 2.64Average rate for the year ended 31 December 2008 2.6331 December 2009 2.70Average rate for the year ended 31 December 2009 2.66

Required:

(i) Identify the functional currency of Son Ltd. Justify your answer. (3 marks)

(ii) Ignoring your answer in (i), translate the financial statements of Son Ltd into Ringgit Malaysia (RM) in accordance to FRS 121 by assuming the functional currency of Son Ltd is NOT equal to the parent company.

(11 marks)

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(c) On 1 August 2009, Damai Bina Bhd acquired inventories worth US$1.5 million. Subsequently on 1 October 2009, Damai Bina Bhd remitted US$0.75 million in settlement of 50% of the amount owing.

The relevant exchange rates are:

1 August 2009 RM3.50 to US$11 October 2009 RM3.70 to US$131 December 2009 RM3.40 to US$1

Show the relevant journal entries to record the transactions for the year ended 31 December 2009.

(4 marks)

Corrections:EnglishQuestion 2 (a): p.4Non-current assets: RM250 Change to…Non-current assets: RM515

Question 4 (b)(ii): p.10Ignoring your answer in (a), translate the financial statements…Change to…Ignoring your answer in (i), translate the financial statements…

Bahasa MalaysiaSoalan 2 (a): m/s 15Soalan 4 (b)(ii): m/s 21

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Sample Past Year Exam Question

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