SUGGESTED ANSWERS
SET A
QUESTION 1
Acquisition of Hobbit in Summer on 1 July 2009
Parent NCI Total
Consideration transferred
FVNCI at date of acquisition
FVNA at date of acquisition:
Equity 125
Retained earnings 9/
FV adjustment 8/
OCE 6/
--------
148
Goodwill
RM million RM million RM million
100 100/
(88.8)
11.2
80
(59.2)
20.8
80/
(148)
32
(1.8)/
9.4
(1.2)/
19.6
( 3)
29
Goodwill impaired
Acquisition in Sunny on 1 July 2011
Consideration transferred
-
Direct
-
Indirect 40 x 60%
FVNCI at date of acquisition
FVNA at date of acquisition:
Equity 80
Retained earnings 3/
-----
83
Goodwill
Goodwill impaired
Parent
RM million
60/
24/
(54.78)
29.22
(1.32)/
27.9
NCI
RM million
40/
(28.22)
11.78
(0.68)/
11.1
Total
RM million
84
40
(83)
41
(2)
39

Acquisition in Autumn on 1 January 2012
Consideration transferred:
80 x 40% = 32 /4 x 2 x 3
FVNA at date of acquisition:
Equity 80
Retained earnings PFY 26 x 6/12 = 13/
a + n b/f 20
113 x 40%
Goodwill
Impaired 10%
RM million
48//
(45.2)
2.8
(0.28)/
2.52
RM million
Consideration transferred
Share of post acquisition profits:
26 x 6/12 x 40%
Goodwill impaired
URP 1/125 x 25 x 40%
Carrying value of investment in associate
Analysis of retained earnings
Balance b/d
Pre acquisition profits
Hobbit
RM million
41
48
5.2/
(0.28)/
(0.08)/
52.84
Summer
RM million
31
(9)
Sunny
RM million
49
(3)
Post acquisition profits
URP
Depreciation : 1.6 x 3 years
Dividends proposed
Dividends receivable :
From Summer 3.75 x 60%
Sunny 2.4 x 30%
2.4 x 60%
Goodwill impaired:
Summer
Sunny
Autumn
Post acquisition profits
Share of post acquisition profits:
Summer 13.39 x 60%/
Sunny 24.6 x 66%/
Autumn 13 x 40%/
To CSFP
(0.08)/
(12)/
2.25/
0.72/
(1.8)/
(1.32)/
(0.28)/
8.03
28.78
5.2
70.5
22
(1.5)/
(4.8)//
(3.75)/
1.44/
13.39
46
(2.4)/
Autumn
RM million
46
(33)
13
43.6 13

NCI - Summer 40%
FVNCI at date of acquisition
Share of post acquisition profits:
13.39 x 40%
OCE
RM million
80
5.36/
1.6/
Goodwill impaired
Indirect investment
40 x 40%
To CSFP
NCI - Sunny 34%
FVNCI at date of acquisition
(1.2)/
(16)/
69.76
Share of post acquisition profits:
43.6 x 34%
Goodwill impaired
To CSFP
Analysis of OCE
RM million
40
14.82/
(0.68/)
54.14
Balance b/d
Pre acquisition
Share of post acquisition
4 x 60%
Hobbit
RM million RM million
7
2.4
Summer
10
(6)
4
To CSFP 9.4
Consolidated statement of financial position of Hobbit’s Group as at 30 June 2012
PPE
Goodwill
Investment in associate
130 + 110 + 119 + FV 8 – depreciation 4.8
39 + 29
RM million
362.2//
68/
52.84/
ITA
CA
Total assets
Equity
Share premium
OCE
Retained earnings
58 + 56 + 34 – 1.5 /
240 + shares issued 16/
7 + 2.4/
NCI
NCL
CL
Dividends proposed –Hobbit
69.76 + 54.14
20 + 10 + 15
45 + 35 + 9
5
146.5
634.54
256
32/
9.4
70.5
123.9
45
84
12/

Dividends to NCI 3.75 x 40% + 2.4 x 10% 1.74//
Total equity and liabilities
Consolidated statement of comprehensive income for the year ended 30 June 2012
634.54
RM million
Revenue
COS
Gross profit
Other income
Operating expenses
Share of net profit of associate
Profit before tax
Taxation
250 + 180 +125 -10
(80 + 60 + 40 – 10 + URP1.5 + URP depreciation 1.6
2 + 3
68 + 47 + 29 + goodwill impaired 3 + 2
26/2 x 40% - goodwill impaired 0.288
- URP 0.08
(25 + 16 + 10)
545/
(173.1)/////
371.9
5/
(149)/
4.84//
232.74
(51)/
Profit for the year
OCI
Total comprehensive income for the year
5 + 4
Profit for the year attributable to:
181.74
9/
190.74
NCI : Summer
Sunny
Parent /
60 – 1.5(URP) – 1.6(Deprn) – goodwill impaired
3 x 40%
46 – goodwill impaired 2 x 34%
Total comprehensive income attributable to:
RM million
21.56//
14.96/
145.22
181.74
NCI : Summer
Sunny
Parent/
64 -1.5 (URP) – 1.6(Deprn) – goodwill impaired
3 x 40%
46 – goodwill impaired 2 x 34%
RM million
23.16//
14.96/
152.62
190.74
Retained profit b / fwd
Hobbit
Summer (29 – preacq [9] – Deprn [1.6 x 2] x 6%
PFTY
Retained profit c / fwd
Dividend (Hobbit)
RM
(38)
(24.72)
145.22
(12)
70.5
75/3 = 25 marks

QUESTION 2
Petroco Bhd
Statement of Comprehensive Income for the year ended 30 June 2012
RM
Revenue
Cost of sales (W1)
22,425,000
(12,987,000)
Gross profit
Income from investments
Administrative expenses (W1)
Distribution expenses
Other operating expense (W1)
9,438,000
260,000
(2,128,100)
(1,860,000)
(2,281,300)
Profit from operations
Finance expense (W1)
Profit before tax
Taxation (435,000 + 60,000)
Profit for the year
Other Comprehensive Income
Revaluation surplus - land
Total comprehensive Income √
3,428,600
(125,650)
3,302,950
(495,000)
2,807,950
500,000
3,307,950
20 x ½ = 10 marks
Petroco Bhd
Statement of changes in equity for the year ended 30 June 2012
As at 1 July 2011
PYA
Profit for the year
Interim dividend
Revaluation surplus
As at 30 June 2012
Total Reserves: 5,226,950
Share capital
Share premium
RM RM
7,650,000 827,000
-
7,650,000 827,000
Revaluation reserve
RM
-
100,000
Retained earnings
RM
1,182,000
(100,000)
2,807,950
(90,000)
500,000
600,000 3,799,950
8 x ½ - 4 marks

Petroco Bhd √
Statement of financial position as at 30 June 2012
Non - Current Assets:
Property, plant and equipment (W2)
Investments
Intangibles: license
Patents and trademarks
Current Assets:
Inventories
Trade receivables
(1,883,000 – 200,000)
Bank and cash
(1,750,000 – 77,500)
Non-Current Assets Held For Sale
(1,150,000 x 95%)
Equity and Liabilities
Share capital
Reserves
RM
1,240,000
1,683,000
1,672,500
RM
7,228,400 11
3,250,000
8,745,200
555,000
19,753,600
4,595,500
1,092,500
25,446,600
7,650,000
5,226,950
Non Current Liabilities
Long term loan
deferred tax liability
lease creditor
500,000
560,000
77,500
246,000
1,038,650
167,500
10,000,000
12,876,950
1,137,500
Current Liabilities
Trade payables
Accruals and provisions
(14,000 + 931,500 + 93,150)
lease creditor
Other payables
11,452,150
25,466,600
33 x 1/3 = 11
(Total 25 marks)
Note: The ticks ( √ ) are counted based on the face of financial statements. The ticks ( √ ) in the workings are only for reference.
Workings:

(W1) Allocation of expenses
As per question
Interim dividend
Lease interest – see below
Depreciation - building
Depreciation - machinery
Depreciation - vehicles
Depreciation- leased machinery
Amortisation - licence
Impairment - NCAHFS
Cost/Valuation
As at 1 July 2011
cost of sales admin
12,735,000 1,682,000
192,000
60,000
83,100
163,000
others
Bad debt written off
Interest – unwinding cost
200,000
12,987,000 2,128,100 2,281,300
(W2) Leased Machinery
Year
1 July 2011 Cash
(-) payment
30 June 2012 Balance c/f
1 July 2012 (+) Interest (10% x 222,500)
(-) payment
30 June 2013 Balance c/f
(W3) Property, Plant and equipment
RM
300,000
(77,500)
222,500
22,500
245,000
(77,500)
167,500
2,186,300
95,000
finance
100,000
(90,000)
22,500
93,150
125,650
Land Building
Plant &
Machinery
Motor
Vehicles
1,500,000 4,780,000 1,920,000 815,000
Leased
Machinery
Reclassification to NCAHFS
Revaluation surplus
Addition
As at 30 June 2012
√ 500,000
(1,250,000)
300,000
2,000,000 3,530,000 1,920,000 815,000 300,000
Accumulated depreciation
As at 1 July 2011 √
Eliminations to NCAHFS
Charge for the year–see below
As at 30 June 2012
Carrying amount as at 30
June 2012
191,000 384,000 326,000
(62,500)
83,100
- 211,600
192,000 163,000 60,000
576,000 489,000 60,000
2,000,000 3,318,400 1,344,000 326,000 240,000
11
Total PPE = 7,228,400

Depreciation charge – building
NCAHFS – before classification
(1,250,000 x 6/12)
Remaining:
50
3,530,000
50
= 12,500
= 70,600
83,100
Acc. Depreciation eliminated due to reclassification to NCAHFS:
1,250,000 x 21/2 = 62,500
50
(W4) Intangible NCA: License and Provision for restoration landscape:
The PV of RM1,500,000 discounted at 10% over 5 years:
RM1,500,000 x 0.621 = 931,500
Intangible NCA: License = RM10,000,000 + 931,500
Amortisation = RM10,931,500
5
= RM10,931,500
= RM 2,186,300
Carrying amount at 30 June 2012
Finance cost: Unwinding discount (931,500 x 10%)
= RM8,745,200
= RM93,150
QUESTION 3
1. The change in the useful lives of the asset and a change in accounting method of depreciation is a change in accounting estimates. The effect of the change in the accounting estimate should be included in the determination of the net profit or loss in:
-
The period of the change, if the change affects only that period; or
-
The period of the change and future periods, if the change affects both.
The change in the useful life of the equipment will affect both the current period and the future depreciation charge. Therefore the depreciation charged for the current year should be calculated as below:
300/10 x 2 years = 60 p.a
NBV at 1 July 2011 = 240/5 years = 48 p.a for current year and future period/
The change in depreciation method from straight line method to reducing balance method is allowed and be treated as a change in accounting policy only if the change will result in a more appropriate presentation of events or transactions in the financial statements of the company. The accounting treatment is to apply the change retrospectively. However, if the company is unable to determine the cumulative effect, then it can apply the new method prospectively and adjust the comparative information from the earliest date practicable//.

2.
3.
4.
A non-current asset held for sale is measured at the lower of carrying amount and fair value less cost to sell and classify under current assets. No depreciation is charged on these assets and the company is not allowed to make use of the asset as it must be available for immediate sale. (MFRS 5)/
Since the economy has improved and the company is using the plant to help cope with the demand, there is a change of plan and therefore the plant must be re classify as a non current asset (PPE) subject to depreciation as required by MFRS 116./
On re classification, the asset should be measured at the lower of:
•
Carrying amount before classification as held for sale less depreciation, as if the asset were never classified as “held for sale”, and /
•
Its recoverable value/
The above adjustment to the carrying amount of the non current asset may result in a gain or loss. This amount will be included in profit or loss from continuing operations./
The sale of goods and the sale of the car are related party transactions. MFRS 124 requires disclosure of transactions with key personnel and sales of assets to directors where control exists. An important aspect of MFRS124 is the assessment of both the materiality and significance of the transactions to the reporting company. Transactions need only be disclosed if they are material. Transactions are material where the users of financial statements might reasonably be influenced by such transactions///
In this case, Johan has purchased RM360,000 of goods from the company and a car for
RM50,000 with a market value of RM60,000. Johan effectively controls Wellness.
Although neither of these transactions is material or significant to the company or the directors, in the spirit of good corporate governance, transactions with directors are extremely sensitive and therefore disclosure would be recommended.//
The cost of an item comprises of the initial purchase price, including taxes, duties after deducting trade discounts, and any other directly attributable costs incurred in bringing the asset into working condition and intended location and use and decommissioning costs./
Finance expenses of RM30,000 should be expensed to statement of comprehensive income. It cannot be capitalized as it is not related to a qualifying asset. The deferred payment has to be discounted to present value.
Gross cost:
Less discount
RM’000
2,000
(200)
1,800
Initial cost of machinery:-
Site preparation
Rectification cost
Payment on delivery:
1,800 x 6%
RM’000
60
15
1,080

Deferred payment
720 x 0.909 =
SCI (extract) for year ended 30.6.2012
Finance expenses
Depreciation 1809/5
Financial cost
654/
1,809
30/
361.8/
65.4/
SFP (extract) as at 30.6.2012
PPE
Acc deprn
Current liability
Deferred payment:
654 + 65.4 =
1,809
(361.8)
1,447.2
720/
(9/3 = 3 marks)
5. This a sale and leaseback arrangement and cannot be treated as a sale as in substance
Wellness still enjoy the economic benefits of using the asset .The proceeds from the sale should be treated as a secured loan as it is a financing arrangement . As the lease back is an operating lease and the selling price is greater than the fair value, the gain is not recognised immediately but is defer and amortize //
Dr Bank
Accumulated depreciation
800,000/
150,000/
Cr Machine
Deferred gain
800/
50/
Statement of comprehensive income 100
Dr Lease rental expense 200,000/
Cr Bank 200,000/
Dr Deferred gain 10,000/
Cr Statement of comprehensive income 10,000/
(Total: 9/3 = 3 marks)
QUESTION 4
(a) (i) The two accounting concepts:
•
Accruals – The effects of transactions and other events are recognized when they occur (and not as cash or its equivalent is received or paid) and they are

recorded in the accounting records and reported in the financial statements in the period to which they relate.
•
Prudence – In the preparation of financial statements, prepare need to be cautious in the exercise of judgement to ensure that income and assets are not overstated and expenses and liabilities are not understated.
(1 ½ each: total 3 marks)
(ii) Accounting inventory by adjusting purchases for the opening and closing inventories is a classic example of the application of the accruals principle whereby revenues earned are matched with costs incurred. Closing inventory is by definition an example of goods that have been purchased, but not yet consumed. In other words the entity has not yet had the ‘benefit’ (i.e. the sales revenue they will generate) from the closing inventory; therefore the cost of the closing inventory should not be charged to the current year’s income statement.
At the year end, the value of an entity’s closing inventory is, by its nature, uncertain. In the next accounting period it may be sold at a profit or a loss.
Accounting standards require inventory to be valued at the lower of cost and net realisable value. This is the application of prudence. If the inventory is expected to sell at a profit, the profit is deferred (by valuing inventory at cost) until it is actually sold. However, if the goods are expected to sell for a (net) loss, then that loss must be recognized immediately by valuing the inventory at its net realisable value.
Note: other appropriate examples would be acceptable.
(5 marks)
(b) (i) Calculation of impairment loss for the machine as at 30 June 2012
Cost 1 July 2010
Acc. Depreciation (1 July 2010–30 June 2012)
Carrying amount 30 June 2012
Recoverable amount: higher of:
Net selling price RM525,000
Value in use RM443,224
Impairment loss
Value in Use as at 30 June 2012
RM
880,000
176,000
704,000
525,000
179,000
Year
2013
2014
2015
2016
2017
Estimated
Cash flow
RM
123,660
122,300
115,350
112,330
107,000
Discount rate (10%)
0.909
0.826
0.751
0.683
0.621
VIU
Discounted
Amount
RM
112,407
101,020
86,628
76,722
66,447
443,224

Statement of Financial Position as 30 June 2012
Machine
Cost
Accumulated depreciation.
RM
880,000
(176,000)
Impairment loss
Carrying amount
179,000)
525,000
(10 x ½ = 5 marks)
(ii) Any 4 indicators of impairments:
(a) Market value declines
(b) Negative changes in technology, markets, economy, or laws
(c) Obsolescence or physical damage
(d) Worse economic performance than expected and other relevant indicator
(c) (i) Initial recognition of the HFT investment is at cost and the transaction costs are charged to the Income Statement:
Dr. HFT Investment
Cr. Bank
RM5,600,000
RM5,600,000
(Being recognition of investment: 1,000,000 shares x RM5.60)
Dr. Income Statement RM28,000
Cr. Bank RM28,000
(Being transaction costs (RM5,600,000 x 0.5%) taken through profit and loss because the investment is classified as HFT)
Subsequent measurement is at fair value with gain or loss taken to profit and loss:
Dr. HFT Investment RM400,000
Cr. Income Statement RM400,000
(Being the gain on HFT investment recognized in profit for the year)
8 x ½ = 4 marks
(ii) The investment made by LBS should be classified as held to maturity investment since LBS would like to hold it until redemption date.
Initial measurement of the investment will be at fair value (which is its cost) plus any associated issue costs . The journal entry will be:
DR. Investment in HTM investment RM8,400,000

Cr. Bank RM8,400,000
Subsequent measurement will be based on amortised cost basis:
Year end Opening balance
RM000
30 June 2011 8,400
30 June 2012 8,474
Effective interest 8.5%
RM000
714
720
Interest received
(8% x RM8m)
RM000
(640)
(640)
Closing balance
RM000
8,474
8,554
The investment will be recorded at RM8,554,000 in the statement of financial position as at 30 June 2012.
12 x ½ = 6 marks