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1
MIA QE/MAC 2010
ADVANCED FINANCIAL ACCOUNTING AND REPORTING
QUESTION 1
Investment in Small - 80%
Consideration
Cash
Less:
Equity shares
Retained profit
Goodwill
(24,000)
(4,000)
2,000
Disposal of 12 million shares in Small (50%)
Holding
Proceeds from sale
- COI
30,000 x 50%
Gain on disposal
RM’000
22,000
(15,000)
7,000
Group
Proceeds from sale
Less:
Equity shares
Retained profit b/fwd
Profit up to date of disposal
Goodwill
Loss on disposal
Investment in Ant – 60%
Consideration
Cash
Exchange of shares
Deferred payment
Less:
Equity shares
Retained profit
ARR land
ARR
Goodwill
Impaired
Goodwill to CBS
RM’000
30,000
RM’000
22,000
30,000
10,000
14,000
54,000 x 40%
2,000 x 50%
6,000/3 x 2 x 3
11 sen x 6,000 x 1/1.1
(21,600)
400
(1,000)
( 600)
RM’000
10,000
12,000
600
22,600
(6,000)
27,000 + 2,000 = 29,000
PAT (19,600)
1/10/08 Pre – acquisition 9,400
x 60%
500 x 60%
1,000 x 60%
(5,640)
(300)
(600)
10,060
(2,000)
8,060
CONFIDENTIAL
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MIA QE/MAC 2010
Retained earnings – Ant
Balance b/d
Pre-acquisation profit
Under- provision depreciation
MI
Post acquisition – CIS
27,000 – 200 x 40%
RM’000
27,000
( 5,640)
( 200)
(10,720)
10,440
Retained earnings – High
RM’000
22,000
10,440
1,200
13,200
7,000
(400)
(2,000)
(60)
(1,000)
50,380
Balance b/d
Add: From Ant
Dividends receivable from Ant
Share of associate’s profit
Gain on disposal
Less:URP
Goodwill impaired – Ant
Interest on deferred consideration
Final dividend
To CBS
Investment in associate – 40%
COI
Share of post acquisition profit
To CBS
38,000 – 5,000 x 40%
RM’000
15,000
13,200
28,200
Minority interest – 40%
Equity
Retained profit
ARR land
ARR plant
ARR subsequent revaluation
To CBS
500 x 40%
1,000 x 40%
1,000 x 40%
RM’000
4,000
10,720
200
400
400
15,720
Consolidated income statement for the year ended 30 September 2009
Revenue
COS
GP
Less
Operating expenses
PBT
Share of profit of associate
Tax
Profit for the year
120,000 + 52,000 x6/12 + 34,800 – 6,000
72,000 + 18,000 x 6/12 + 9,000 – 6,000 + URP
400
Loss on disposal
4,900 + 4,400 x 6/12 + 5,000 + depreciation 200
+ goodwill 2,000 + interest 60
28,000 x 6/12 x 40%
6,000 + 1,600 x 6/12 + 1,200
RM’000
174,800
(84,400)
90,400
( 600)
89,800
(14,360)
75,440
5,600
81,040
( 8,000)
73,040
CONFIDENTIAL
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Attributable to:
MI Small 28,000 x 6/12 x 20%
Ant 19,600 – 200 x 40%
Equity holders of parent
MIA QE/MAC 2010
RM’000
2,800
7,760
62,480
73,040
Consolidated statement of changes in equity for the year ended 30 September
2009
RM’000
Retained profit b/fwd High
(15,100)
Small 10,000 – 5,000 x 80%
4,000
(11,100)
Profit for the year
62,480
Dividends – H
(1,000)
Retained profit c/fwd
50,380
Consolidated balance sheet as at 30 September 2009
Non current assets
Goodwill
Investment in associate
Current assets
RM’000
81,300
67,000 + 12,000 + ARR 1,000 + 500 +
1,000 - 200 (depreciation)
8,060
28,200
31,000 + 39,500 – URP 400 – 2,000 +
1,000
69,100
186,660
Total assets
Equity
Share premium
ARR
CIS
MI
Current liabilities
50,000 + 4,000
8,000 + 20,000
24,000 + 14,500 – dividends payable 2,000
– 1,000 + 1,000
Dividend due to MI
Deferred payment
Total equity and liabilities
54,000
28,000
600
50,380
15,720
36,500
800
660
186,660
(Total : 25 marks)
QUESTION 2
a. Recalculate profit for the year :
Profit as per draft accounts
Investment Property surplus
Depreciation – Investment property
Depreciation – Plant
Change in accounting policy
Government grant amortised
Sales not recognised
Cost of sales not recognised
Adjusted profit for the year
RM’000
11,000
2,000
(3,100)
(4,406)
(1,800)
750
(1,000)
800
4,244
(8 marks)
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MIA QE/MAC 2010
b. Statement of changes in equity
Balance as at 1 October
2008
PYA
Adjusted profit
Profit for the year
ARR
Share
capital
RM’000
160,000
Share
ARR
premium
RM’000 RM’000
20,000 16,000
Retained
profits
RM’000
21,000
1,500
22,500
4,244
160,000
20,000
5,100
21,100
Total
RM’000
217,000
1,500
4,244
5,100
26,744 227,844
(5 marks)
c. Balance sheet as at 30 September 2009
RM’000
Non- current asset
Investment property
P/M
Motor vehicle
Equipment
40,000 – 1,800
Current assets
Inventory
A/R
Bank
35,000 + 800
20,000 -1,000
15,000 + 4,000
Equity and reserves
Ordinary shares
ARR
Retained profits
Share premium
Non- current liabilities
Deferred tax
Government grant
Provision for environment
Current liabilities
Accounts payable
Government grant
75,000-4406
64,000
70,594
15,000
38,200
35,800
19,000
19,000
263,094
160,000
21,100
26,744
20,000
15,000
2,250
5,000
12,000
1,000
263,094
Workings
1.) At date of change: 60,000 – 62,000 = increase 2,000
Depreciation for 6 months :- 62,000/10 years x 6/12 = 3,100
Carrying value at year end: 62,000 – 3,100 = 58,900
FV
64,000
CONFIDENTIAL
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5
ARR surplus
MIA QE/MAC 2010
5,100
2.)
RM’000
22,000
( 2,000)
20,000
3,000
500
23,500
Base cost
Less: trade discount
Modifications
Transport
Initial cost
Depreciation 23,500/4 x 9/12
Government grant
Amortised 4,000 /4 x 9/12
4,000 -750 -1,000
3)
= 4,406
= 20,000 x 20% = 4,000 split between current
= 750 , current liability 1,000 non current liability
= 2,250
Change in accounting policy
old policy
30,000/8,000 x 2,000
= 7,500
30,000/8,000 x 800
= 3,000
new policy
30,000 x 20% = 6,000
24,000 x 20% = 4,800
4 ) Sale and return
1,000/ 125 x 25 = 200 profit
Cost
800
(12 marks)
(Total : 25 marks)
QUESTION 3
A.
Memorandum to the Board of Directors of AutoMart
Valuation of showroom as at 31 December 2009 and impairment
implications in accordance to FRS 136.
FRS 136 has concluded that an entity should recognize an impairment loss only
when the recoverable amount of an asset is less than its carrying amount. The
recoverable amount of an asset is the higher of fair value less cost to sell and
value in use. The value in use should be measured based on the present value
of estimated future cash flows from the asset.
In this case, the carrying value of the showroom at 1 January 2010 is RM
7,500,000. This is calculated as below :
Cost
Accumulated depreciation [RM10,000,000/40 years * 10]
(Asset has been in used for 10 years from 2000 – 2009)
Carrying value at 31 December 2009
RM10,000,000
(RM2,500,000)
RM7,500,000
As at 31 December 2009, the fair value less cost to sell of the showroom is
RM5,000,000 less RM200,000 = RM4,800,000.
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MIA QE/MAC 2010
Value in use computation :
Assumption 1 :
The showroom is rented for RM500,000 for 10 years and is subsequently sold.
The value in use is the present value of the estimated future cash flows of
RM500,000 for the next 10 years and the net selling proceeds at the end of 10
years ie. RM500,000 + (RM500,000 * 5.7590) + (3,000,000 * 0.3855) =
RM4,536,000.
As the value in use is lower than the fair value less cost to sell, the recoverable
amount under this assumption is the fair value less cost to sell value ie.
RM4,800,000.
Impairment loss is RM2,700,000 (RM7,500,000 – RM4,800,000)
Assumption 2 :
If AutoMart commence using the showroom for its own operations at the end of
the 10-year period, this raises further the question of permanent impairment as
the future cash flows is uncertain. There is a possibility that the showroom’s
value would exceed the rental value if it were to be used again in operations.
In any case, FRS 136 do provide for the write back of impairment in accordance
with paragraph 114 subject to paragraph 117.
(13 marks)
B.
Prior period errors are omissions from, and misstatements in, the entity’s
financial statements for one or more prior periods arising from a failure to use, or
misuse of, reliable information that :
-
was available when the financial statements for those periods were
authorized for issue; and
could reasonably be expected to have been obtained and taken into
account in the preparation and presentation of those financial statements.
Such errors include the effects of mathematical mistakes, mistakes in applying
accounting policies, oversight or misinterpretations of facts, and fraud.
Entity Quintan shall correct the prior period error retrospectively in the first set of
financial statements authorized for issue after their discovery by
i)
ii)
C.
restating the comparative amounts for the prior period(s) presented which
the error occurred; or
if the error occurred before the earliest prior period presented, restating
the opening balances of assets, liabilities and equity for the earliest prior
period presented.
(6 marks)
An estimate may need revision if changes occur in the circumstances on which
the estimate was based or as a result of new information or more experience. By
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MIA QE/MAC 2010
its nature, the revision of an estimate does not relate to prior periods and is not
the correction of error.
The effect of a change in an accounting estimate shall be recognized
prospectively by including it in the profit or loss in the period of change and future
periods.
(6 marks)
(Total : 25 marks)
QUESTION 4
A.a.
(i) Aye
RM
INR loan to Bee
INR4,600,000/2.2
INR4,600,000/1.7
Gain
2,090,909.09
(2,705,882.35)
614,973.26
(1.5 marks)
INR loan to Cee
INR2,000,000/2
INR2,000,000/1.7
Gain
1,000,000.00
(1,176,470.59)
176,470.59 (1.5 marks)
Net gain
791,443.85
(ii) Bee
No transactions in foreign currency
Recognised in IS (1 mark)
(2 marks)
(iii) Cee
Rupiah
RM trading balance
Carried at
RM250,000 × 2,400
Gain
INR loan from Aye
INR2,000,000 × 1,500
INR2,000,000 × 1,750
Loss
Net loss
625 million
(600 million)
25 million
(1.5 marks)
3,000 million
(3,500 million)
(500 million)
(1.5 marks)
(475 million)
Recognised in IS (1 mark)
(10 marks)
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MIA QE/MAC 2010
A. b. Since the loan is long-term and repayment is not foreseeable, the loan is
considered as part of the net investment in Bee (3 marks). The exchange
difference of RM614,973.26 (gain) should be classified as equity in the CFS.
(1 mark) until the disposal of the net investment (1 mark).
(5 marks)
B
This issue is one of the timing of when revenue should be recognised in the
income statement. This can be a complex issue which involves identifying the
transfer of significant risks, reliable measurement, the probability of receiving
economic benefits, relevant accounting standards and legislation and generally
accepted practice. Applying the general guidance in FRS 118 Revenue, the
previous policy, applied before cancellation insurance was made a condition of
booking, seemed appropriate. The appendix to FRS 118 specifically refers to
payments in advance of the ‘delivery’ of goods and says that revenue should be
recognised when the goods are delivered. Interpreting this for P’s transaction
would seem to confirm the appropriateness of its previous policy.
The directors of P wish to change the timing of recognition of sales because of
the change in circumstances relating to the compulsory cancellation insurance.
Even if this does justify revising the timing of the recognition of revenue, it is not
a change of accounting policy. (Note: circumstances where it becomes
necessary to change an accounting policy? Where it is required by a new or
revised accounting standard, interpretation or applicable legislation or where the
change would result in financial statements giving a more reliable and relevant
representation of the entity’s transactions and events.)
An issue to consider is whether compulsory cancellation insurance represents a
substantial change to the risks that P experiences. An analysis of past
experience of losses caused by uninsured cancellations may help to assess this,
but even if the past losses were material, it is unlikely that this would override the
general guidance in the appendix to FRS 118 relating to payments made in
advance of delivery. It seems the main motivation for the proposed change is to
improve the profit for the year ended 31 December 2009 so that it compares
more favourably with that of the previous period.
(10 marks)
(Total: 25 marks)
CONFIDENTIAL