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 Income for the year ended 31 December 2010 Kelate Bhd RM000 RM000 26,400 (8,000) (18,000) (26,000) 10,000 MUFC Sdn Bhd RM000 RM000 13,600 (6,000) (8,000) (14,000) 6,000

Sales Cost of inventories sold: Opening inventories Purchases

Closing inventories Gross profit Operating expenses Gain on sales of properties Profit from operations Finance costs Dividend income (net) Profit before taxation Taxation Total comprehensive income for the year Movements in Retained Profits Retained profits brought forward Profit for the year Available for appropriation Dividends paid Retained profits carried forward

(16,000) 10,400 (1,760) 2,280 10,920 (240) 1,120 11,800 (1,800) 10,000 10,000 7,600 17,600 (2,600) 15,500

(8,000) 5,600 (800) 2,000 6,800 (200) ------6,600 (900) 5,700 9,300 4,100 13,400 (1,400) 12,000

ACT3126 ADVANCED FINANCIAL ACCOUNTING I (SEMESTER 1 2010/2011) Statements of Financial Position as at 31 December 2010 Kelate Bhd RM000 RM000 27,000 16,000 3,000 1,000 6,000 4,000 2,000 5,000 MUFC Sdn Bhd RM000 RM000 17,600 -

Property, plant and equipment Investment in MUFC Sdn Bhd: 6,400,000 ordinary shares of MUFC, at cost 3,000,000 redeemable preference shares of MUFC Sdn Bhd, at cost Long-term loan to MUFC Sdn Bhd Current assets: Inventories 10,000 Trade receivables 10,000 Other receivables 560 Bank balances 1,960 Share capital of RM1 each Retained profits Long-term loans Redeemable preference shares of RM1 each Current liabilities: Trade payables 3,400 Other payables 1,020 Taxation 1,800 Bills payable 1,300 Additional information:

22,520 69,520 32,000 15,000 47,000 15,000 -

17,000 34,600 8,000 12,000 20,000 5,000 5,000

7,520 69,520

2,800 250 850 700

4,600 34,600

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 latters 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 2

ACT3126 ADVANCED FINANCIAL ACCOUNTING I (SEMESTER 1 2010/2011) of this type on a straight line basis over 5 years, charging a full years 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 groups 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.

ACT3126 ADVANCED FINANCIAL ACCOUNTING I (SEMESTER 1 2010/2011) 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 Bhd RM000 RM000 Non-current assets 515 300 Investment in Maisarah Sdn Bhd 50,000 ordinary shares of RM1.00 each 100 Loan to Maisarah Sdn Bhd Current assets Ordinary shares of RM1.00 each Accumulated profit Loan from Ilyas Bhd Current liabilities 10 50 675 500 150 25 675 35 335 200 110 10 15 335

On 1st January 2008 Ilyas Bhd purchased the shares in Maisarah Sdn Bhd when Maisarah Sdn Bhds 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) 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.

ACT3126 ADVANCED FINANCIAL ACCOUNTING I (SEMESTER 1 2010/2011) (b) Statement of Financial Positions of Elsa Bhd and Zahra Sdn Bhd as at 31 December 2010. Elsa Bhd RM000 570 100 25 695 500 150 45 695 Zahra Sdn Bhd RM000 330 10 340 200 110 30 340

Non-current assets Investment in Zahra Sdn Bhd 50,000 ordinary shares of RM1.00 each Current assets Ordinary shares of RM1.00 each Accumulated profit Current liabilities

On 1st January 2008 Elsa Bhd purchased the shares in Zahra Sdn Bhd when Zahra Sdn Bhds 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) 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.

ACT3126 ADVANCED FINANCIAL ACCOUNTING I (SEMESTER 1 2010/2011) QUESTION 3 (20 MARKS) (a) The draft consolidated financial statements of Pelabur Berhad for the year ended 31 December 2009 are as follows: Consolidated Statement of Comprehensive Income RM000 Profit from operations Group entities Associate Profit before taxation Income tax expense Group entities Associate Profit for the year Attributable to: Equity holders of the parent Non-controlling interest RM000 16,600 980 17,580 7,900 420 (8,320) 9,260

7,710 1,550 9,260

Summarised consolidated Statement of Changes in Equity (in respect to equity holders of the parent) Balance at 1 January 2009 Profit for the year Dividends paid New shares issued Balance at 31 December 2009 RM000 21,845 7,710 (2,100) 2,000 29,455

ACT3126 ADVANCED FINANCIAL ACCOUNTING I (SEMESTER 1 2010/2011) Consolidated Statement of Financial Position 31 December 2009 RM000 RM000 Non-Current Assets: Investment in associate Goodwill on acquisition Property, Plant and Equipment Current assets: Inventories Trade receivables Cash 16,600 15,000 50 6,200 680 21,200 28,080 12,200 9,300 1,445 31 December 2008 RM000 RM000 5,700 280 16,900 22,880

31,650 59,730 14,000 2,645 12,810 29,455 8,200 1,655

22,945 45,825 13,000 1,645 7,200 21,845 6,600 5,280

Ordinary share capital of RM1 each Share premium Retained profits Non-controlling interests Long term loans Current liabilities: Trade payables Tax payable Bank overdraft 7,700 9,100 3,620

20,420 59,730

5,800 4,900 1,400

12,100 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: Property, plant and equipment Inventories Trade receivables Cash Trade payables Tax payable RM000 2,600 900 980 200 (1,380) (300) 3,000

The purchase consideration was RM2.8 million in cash 7

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

ACT3126 ADVANCED FINANCIAL ACCOUNTING I (SEMESTER 1 2010/2011) QUESTION 4 (20 MARKS) (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 Ltd Statement of Comprehensive Income and Movement of Retained Profits for the year ended 31 December 2009 S$000 Sales Cost of goods sold: Opening inventories Purchases Closing inventories Gross profit Expenses: Depreciation Interest expense Administrative expense Other expenses Profit before taxation Taxation Profit after tax Retained profit b/f Retained profit c/f 3,200 13,000 16,200 (4,800) S$000 20,000

(11,400 ) 8,600

680 370 200 660

(1,910) 6,690 (1,338) 5,352 9,600 14,952

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

Son Ltd Statement of Financial Position as at 31 December 2009 S$000 Non-Current Assets: Land Property, Plant and Equipment (at cost) Less: Accumulated depreciation Current assets: Inventories Monetary current assets 8,680 1,140 4,800 15,680

S$000 6,000 7,540 13,540 20,480 34,020 8,000 4,800 14,952 27,752 5,000

Ordinary share capital of S$1 each Revaluation reserve Retained profits Long term liabilities: Loan Current liabilities: Short term borrowings Bills payable

1,000 268

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 2.60 10 January 2007 2.62 31 December 2008 2.64 Average rate for the year ended 31 December 2008 2.63 31 December 2009 2.70 Average 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. 10

ACT3126 ADVANCED FINANCIAL ACCOUNTING I (SEMESTER 1 2010/2011) (11 marks)

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ACT3126 ADVANCED FINANCIAL ACCOUNTING I (SEMESTER 1 2010/2011) (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 1 October 2009 31 December 2009 RM3.50 to US$1 RM3.70 to US$1 RM3.40 to US$1

Show the relevant journal entries to record the transactions for the year ended 31 December 2009. (4 marks) Corrections: English Question 2 (a): p.4 Non-current assets: RM250 Change to Non-current assets: RM515 Question 4 (b)(ii): p.10 Ignoring your answer in (a), translate the financial statements Change to Ignoring your answer in (i), translate the financial statements Bahasa Malaysia Soalan 2 (a): m/s 15 Soalan 4 (b)(ii): m/s 21

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