BKAF3073 SEM A151

TUTORIAL CHAPTER 5 ASSOCIATED COMPANY

SUBMISSION DATE:

QUESTION 1

Manis Bhd acquired 90% interest in Cuka Bhd on 11 September 2010 at a cost of
RM600,000. At that time, the share capital (RM1 each) and retained profits of Cuka Bhd was
RM600,000 and RM49,000 respectively. The remaining 10% non-controlling interest was
measured at fair value of RM136,000. On 14 June 2011, Manis Bhd acquired 10% in Pedas
Bhd for RM48,000. At this date, the share capital (RM1 each) and retained profits of Pedas
Bhd was RM400,000 and RM60,000 respectively.
In year 2012, an impairment loss on goodwill arising from investment in Cuka Bhd amounted
to RM1,000 was reported. On 1 March 2013, Manis Bhd sold 180,000 units of share in Cuka
Bhd for a cash consideration of RM220,000. At this date, Cuka Bhds share was traded at
RM1.05 in local stock exchange. On 13 July 2013, Cuka Bhd acquired 70% interest of Pedas
Bhd for a cash consideration of RM400,000.
During the year 2013, Manis Bhd sold merchandise goods to Cuka Bhd at cost plus 25%. At
the end of the year, RM200,000 still remained in the ending inventories of Cuka Bhd.
The group used the proportionate share of net identifiable assets method to record the non-
controlling interest.
The following was the partial statement of changes in equity for the three companies for the
year ended 31 December 2013:
Manis Bhd Cuka Bhd Pedas Bhd
RM RM RM
Retained earnings brought forward 102,500 80,390 70,450
+ Profit for the period* 28,840 24,240 14,250
Retained earnings carried forward 131,340 104,630 84,700
*Assume revenue accrued evenly throughout the year

REQUIRED:
(a) Calculate the amount the group should record for the disposal of its shares in Cuka Bhd
that took place on 1 March 2013.

(b) Record the consolidation journal entries for Manis Bhd that relate ONLY to the
disposal of its shares in Cuka Bhd.

(c) Assume that Manis Bhd disposed 360,000 units of share in Cuka Bhd in the above
scenario (on 1 March 2013). Explain the accounting consequences in year 2013 for the
group.
QUESTION 2

Raja Bhd acquired 75% of Putera Bhd on 31 December 2005 when the latters retained
earnings were RM200,000. On 1 January 2007, Raja Bhd acquired a 40% interest in the share
capital of Puteri Bhd. The retained earnings of Puteri Bhd were RM100,000. All the net
assets at acquisition dates of both companies (Putera Bhd and Puteri Bhd) were stated at their
fair values.

For the year 2008, RM50,000 and RM10,000 were reported as impairment losses on goodwill
arising from investment in Putera Bhd and Puteri Bhd.

During the year 2010, Raja Bhd provided long term loans to Putera Bhd and Puteri Bhd.

On 1 February 2010, Raja Bhd sold goods to Puteri Bhd amounting to RM200,000 at 10% of
sales. At year end 2010, Puteri Bhds inventory included RM50,000 of goods from Raja Bhd.

On 30 June 2010, Puteri Bhd sold a piece of land to Raja Bhd at RM150,000. The land was
bought in 2000 at a cost of RM75,000.

The draft financial statements of the three companies for the year ended 31 December 2010
are as follows:

Raja Group Bhd

Statement of Comprehensive Income for the Year Ended 31 December 2010

Raja Putera Puteri

RM RM RM
Sales 2,000,000 1,600,000 1,400,000
Cost of Goods Sold (800,000) (600,000) (600,000)
Gross Profit 1,200,000 1,000,000 800,000
Operating Expenses (480,000) (400,000) (300,000)
Dividend from Putera Bhd. 300,000 - -
Dividend from Puteri Bhd. 120,000 - -
Profit before Tax 1,140,00 600,000 500,000
Tax Expense (342,000) (180,000) (150,000)
Profit after Tax 798,000 420,000 350,000
Dividend Paid (200,000) (280,000) (210,000)
Profit for the Year 598,000 140,000 140,000
Retained Earnings Brought Forward 400,000 580,000 400,000
Retained Earnings Carried Forward 998,000 720,000 540,000
 Raja Group Bhd

Statement of Financial Position as at 31 December 2008

Raja Putera Puteri

RM RM RM
Assets:
Investment in Putera Bhd. 900,000 - -
Investment in Puteri Bhd. 150,000 - -
Loan due from Putera Bhd. 500,000 - -
Loan due from Puteri Bhd. 200,000 - -
Other Net Assets 248,000 2,020,000 940,000
Total Assets 1,998,000 1,900,000 940,000

Shareholders Equity:
Ordinary Shares (RM1.00 each) 1,000,000 800,000 200,000
Retained Earning 998,000 720,000 540,000
Liabilities:
Loan due to Raja Bhd. - 500,000 200,000
Total Equity and Liabilities 1,998,000 2,020,000 940,000

Assumptions:

i. The same accounting principles are practiced by all the companies.

ii. The fiscal year for all the companies is at 31 December.
iii. The statutory tax rate is 30% and all tax effects on unrealized profit or loss on
intercompany transactions should be ignored.
iv. All the companies have adopted MFRS 3 Business Combination since 1 January
2006.
v. Goodwill is recorded at net identifiable assets.

Required:

Prepare the relevant consolidation journal entries at 31 December 2010 for Raja Group Bhd.