FAR270 JULY 2022 Solution

SOLUTION 1

a. Euphoria Bhd Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2021 Note RM’000 Revenue (60,467k – 150k) 60,317 Cost of sales (22,380k + 910k) (23,290) Gross Profit 37,027 Administrative expenses (W1) (9,728) 10 Selling & distribution costs (3,630) Profit from operation 23,669 Finance expenses (532) Rental income 2,330 Investment income 1,332 Gain on FV of investment property (6,000k – 5,000k) 1,000 Profit before tax 27,799 Income tax expense (4,000) Profit for the year 23,799 Other Comprehensive Income Surplus on revaluation – Building (18,000k – 16,000k) 2,000 Total Comprehensive Income for the year 25,799 mana dtg 16,000,000?

W1: Administrative expenses As per trial balance Directors’ remuneration 350 Maintenance costs Deficit on revaluation - Land Depreciation – Building (18,000k/40y) Depreciation – P&M [(10,800K- 3,720k)] x 0.1] Damages cost

500 700 450 708 200 9,728

b. Euphoria Bhd Statement of Changes in Equity for the year ended 30 June 2021 Ordinary Shares Balance at 1 July 2020 (+) Prior year error Restated balance Surplus on revaluation Profit for the year Dividend OSC Balance at 30 June 2021

RM’000 28,000

Asset revaluation reserve RM’000 -

Retained Earnings RM’000 48,412 180 48,592

2,000

28,000

2,000

23,799 (880) 71,511

Total RM’000 76,412 180 2,000 23,799 (880) 101,511 c

. Euphoria Bhd Statement of Financial Position as at 30 June 2021 Note Non-current assets 1 Property, plant & equipment Investment property (5,000k + 1,000k) Investment Current assets Inventories (4,540k – 910k) Trade receivables (5,840k – 150k) Less: AFITR Cash at bank TOTAL ASSETS Equity

Total Equity

Non-current liabilities Long term loan

RM’000 61,222 6,000 8,880

3,630 5,690 (292) 30,506 115,636 28,000 73,511 101,511

10,650

Current liabilities Trade payables (3,055k – 180k) Provision for damages Tax payable (4,000k – 3,600k) TOTAL EQUITY & LIABILITIES

2,875 200 400 115,636

d. Notes to the financial statements i.

Property, Plant and Equipment Land RM’000

Building RM’000

Plant & machinery RM’000

Total RM’000

Cost: Balance at 1 July 2020 10,800 Balance at 1 July 2020 Elimination of AD Charge for the year Balance at 30 June 2021 Carrying value Deficit on revaluation

38,000√ (700)√ 37,300 0 37,300

20,000 4,000 2,000√ (4(4 ,000)√ ,000)√ 450 √ 18,000 450 17,550

3,720 708 √ 10,800 4,428 6,372

61,222

Surplus on revaluation Elimination of AD Balance at 30 June 2021 Accum. depreciation: ii.

Capital Commitment On 15 September 2021, Euphoria Bhd entered into a contract with Dynamite Bhd to purchase a new high-tech machine at a cost of RM500,000.

SOLUTION 2 A. i.

Yes

ii.

No B. i.

31 December 2020 Dr Investment property Cr Gain on FV-SOPL

RM710,000 RM710,000

31 December 2021 Dr Loss on FV-SOPL Cr Investment property

RM1,000,000 RM1,000,000

i . On 1 January 2020, Tropika Indah Bhd should recognize the whole building amounted to RM39,290,000 as the investment property under MFRS140 even though the company occupied the last floor for its local show rooms and exhibition center. This is because the owner-occupied property portion cannot be sold separately and insignificant (less than 10%). On 31 December 2020, Tropika Indah Bhd should recognize fair value gain of RM710,000 in SOPL due to adopting FV model for subsequent measurement of investment property. No depreciation is to be provided. Working: (RM35,500,000-710,000) + (RM4,500,000) = RM39,290,000 C. The shop lot premise is accounted as MFRS140 Investment Property when was acquired on 1 January 2018. On 1 January 2021, there was a transfer from IP to PPE due to change in use. The deemed cost of the PPE will be measured at fair value of RM5,000,000. The difference of RM1,800,000 shall be accounted as gain in the statement of profit or loss for the year ended 31 December 2021.

SOLUTION 3

a.

The criteria that determine the promises to transfer goods or services as performance obligations are: • •

a good or service (or bundle of goods or services) that is distinct; or a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

b. (i)

Step 1: Identify the contract with a customer The contract between Zendaya Bhd and Affron Sdn Bhd which was finalized on 8 August 2020 satisfies the MFRS 15 requirements for a contract. Step 2: Identify the performance obligations in the contract The performance obligations in the contract are: 1) Design work 2) Delivery of equipment 3) Maintenance service

Step 3: Determine the transaction price The transaction price agreed was RM7,500,000. Step 4: Allocate the transaction price to the identified performance obligations The transaction price is allocated as follows:

Performance obligation

Stand-alone selling price(RM)

Allocated transaction price (RM)

Design work

1,500,000

1,500,000/8,000,000 x 7,500,000= 1,406,250

Equipment: Manufacturing work Maintenance service

5,500,000

5,500,000/8,000,000 x 7,500,000 = 5,156,250

1,000,000

1,000,000/8,000,000 x 7,500,000=

8,000,000

937,500 7,500,000

Step 5: Recognise revenue (sales) when the entity satisfies the performance obligation

The recognition of revenue from design work should be recognized on 21 September 2020 as the performance obligation for the design work was satisfied. On 8 December 2020, manufacturing work was completed and the customer obtains control of the special equipment upon delivery. Finally, the maintenance work is recognized on 31 May 2021 upon completion of the agreed upon performance obligation.

(ii)

The allocation of the total transaction price to performance obligations is done by 1. Determining the stand-alone selling price of the distinct good or service underlying each performance obligation; and 2. Allocating the transaction price to each of the performance obligations, in the same proportion as the stand-alone selling prices.

c. Date 14/2/2021

1/3/2021

1/4/2021

Accounts Receivable Contract liability

Dr(RM) 300,000

Cr(RM) 300,000

Bank Accounts Receivable

300,000

Contract liability Accounts Receivable Sales Revenue

300,000 400,000

300,000

700,000

SOLUTION 4 A.

a. TWO (2) conditions that are considered as changes in accounting policy. i. ii.

b.

Is required by an MFRS (mandatory change). Results in the financial statements providing reliable and more relevant information about the effects of transactions on financial statements (discretionary change/voluntary change).

TWO (2) situations that specify changes in accounting estimates. i. Revision of remaining useful life of equipment from 10 years to 8 years. iii. Change of depreciation method of machinery from straight line to reducing balance.

B.

a. i.

Change in accounting estimate ii. An error iii. Change in accounting policy

b . i. The change depreciation method from straight-line to reducing balance method which affects the depreciation charge should be adjusted prospectively. The change will affect the period of change (current year 2021) and future periods (if the change affects future years). The current year depreciation shall be RM100,000 (RM400,000x25%) recognized as expense in SOPL. ii. On 30 June 2021, there is a prior period error because overstated in carrying amount of plant account in the current year due to depreciation not provided previous year and it should be accounted retrospectively. The retained earnings are decreased by RM14,000 and Accumulated depreciation on plant is increased by RM14,000. (6 x 1 mark = 6 marks) c.

Restated opening balance of the retained earnings as at 1 July 2020. As at 1 July 2020 Prior year adjustment-under depreciation Restated opening balance as at 1July 2020

150,000 (14,000) 136,000of

SOLUTION 5 A. Identify whether a provision should be recognised: i. ii.

No provision – contingent liability Provision iii. Provision iv. Provision

B. a. Accounting treatment: i.

The company need to recognise a provision on the legal suit claimed by the staff as there is present obligation arising from past event (staff filed legal suit due to damage experience y the staff while on duty). There will be a probable outflow of resources and the amount can be measured reliably.

ii.

This event should be disclosed as contingent asset because there is a high possibility (not virtually certain) that the company will win the case. It is measured reliably; however, the timing of receipt of the compensation is uncertain.

iii.

There is a legal obligation as a result from past event. Even though a reliable estimate can be made, it is not probable that there will be an outflow of resources since no legal action has yet been charged against the company. Thus, a contingent liability should be disclosed in the notes to the financial statements.

b. i.

Statement of Profit or Loss for the year ended 31 December 2021 (extract) RM Expenses: Damages cost

ii.

800,000

Statement of Financial Position as at 31 December 2021 (extract) RM Non-Current Liability Provision for damages

800,000