FAR460 – DEC 2015

Suggested Solution FAR460

Question 1

SETINGGI BHD
Statement of Profit or Loss and Other Comprehensive Income
for year ended 31 December 2014
RM ‘000
Sales 514,005 √
Cost of sales (204,755√ + 3,400√) (208,155)
Gross profit 305,850
Other income (3,380√– 580√ disposal +2,200 gain√) 5,000
Selling & distribution costs (40,830√ + 1,600√) (42,430)
Administrative costs (80,910)
Finance cost (2,620√ + 400√) (3,020)
Profit before tax 184,490
Income tax expense (10,000) √
Profit after tax 174,490

Other comprehensive income:

Total comprehensive income 174,490

11√

Adm costs:
RM’000
As per trial balance 72,800 √
Depreciation-Buildings 2,200 √
Depreciation-Motor vehicles 850 √
Loss on sale of motor vehicles 60 √
Amortisation of intangibles 2,800 √
Legal costs 200 √
Claims for compensation 2,000 √
Total 80,910 √
8√

SETINGGI BHD
Statement of Changes in Equity for year ended 31 December 2014

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 FAR460 – DEC 2015

Share Capital Retained Profit LRR

Balance as at 1.1.2014 √ 98,900 √ 45,710 √ 750
PAT √ 174,490
Balance as at 31.12.2014 98,900 220,200 750
4√

Note on Property, Plant and Equipment

Freehold Building Machinery Motor

land vehicles
Cost/Valuation RM’000 RM’000 RM’000 RM’000
Balance as at 1.1.2014 17,800 √ 88,000 √ 68,000 √ 10,000 √
Disposal √ (1,500) √
Balance as at 31.12.2014 17,800 88,000 68,000 8,500
Accum. depreciation    
Balance as at 1.1.2014 13,700 √ 22,300 √ 3,200 √
Disposal √ (860) √
Charge for the year 2,200 √√ 3,400 √√ 850 √√
Balance as at 31.12.2014 15,900 25,700 3,190
Carrying Amount 17,800 72,100 42,300 5,310
Total 137,510
17√

(40√ @ ½ = 20 marks)

b.
SETINGGI BHD

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 FAR460 – DEC 2015

Statement of Financial Position as at 31 December 2014

RM’000

Non-current Assets    
Property, plant & equipment √ 137,510
Investment property 17,530 √
Biological asset 73,340 √
Intangibles 11,200 14,000 √ - 2,800√

Current Assets    
Inventories 37,820 √
Trade receivables 59,700 √
Bank 25,900 √
363,000  

Equity    
Shares capital √ 98,900  
Retained profit √ 220,200
Other reserves √ 750  

Non-current liabilities    
8% CIMB loan 10,000 √

Current liabilities    
Trade payables 28,780 √
Tax payable 1,770 10,000√- 1,600√ - 6,570√
Accruals 600 400√ + 200√
Provision for claims √ 2,000 √
363,000 20√

(20√ @ ½ = 10 marks)
(Total: 30 marks)

Question 2

a.. Classification of the buses as assets according to MFRS 116 Property, plant and
equipment.
(2 marks)
The information is useful to assist the users:

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 FAR460 – DEC 2015

o Assess an entity’s prospects for future net cash inflows

o Assess how efficient entity’s management discharge responsibilities to use the
resources
o and protect the resources from unfavourable economic effects
o Make decision whether to invest or not
o Assess the entity’s ability to pay back their debts as the assets can be used as
collateral.
(Any 3 = 3 marks)

b. Seri Mutiara Bhd shall choose either the cost model or the revaluation model as its
accounting policy. //
Cost Model – an item of PPE shall be carried at its cost less any accumulated
depreciation and any accumulated impairment losses. ///
Revaluation Model - an item of PPE whose fair value can be measured reliably shall be
carried at its revalued amount less any subsequent accumulated depreciation and
subsequent accumulated impairment losses. ///
However it is unlikely that the revaluation model is chosen as the subsequent
measurement of the asset. The absence of its fair value may result in the company using
the costs model. //
(10/ @ ½ =5 marks)

c. It is the company’s policy to have the engines of its buses inspected and serviced once
every three years.
It is considered as compulsory inspection and services.
It is to enhance the useful life of the buses and it meets the asset recognition criteria
Therefore, the expenditure incurred on the inspection and services will be capitalized.
(2 marks)

Dr Buses / RM60,000 /
Cr Bank/liability / RM60,000
(4 x RM15,000)
(3/ = 3marks)

d. The replacement cost of RM90,000 can either be:

Capitalized / if it meets the asset recognition criteria
e.g. enhancement of useful life or minimize operational cost /
and will be added to the carrying amount /
Written off as expense / if it does not meet the asset recognition criteria

In either situation above:

There will be de-recognition of the carrying amount of the old part. /
or
New depreciation will be calculated based on the revised carrying amount of the asset. /
(5/ = 5 marks)

e. Advise on the appropriate accounting treatment for the following:

I. Engines replacement costs
Capitalised the replacement cost incurred and de-recognise the carrying amount
of the old engines replaced //

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 FAR460 – DEC 2015

II. New tyres

The new tyres are separate components classified as prepaid expenses,
therefore spread over 3 years. //

III. Rust proof

Capitalised and added to the carrying amount of the buses as it increases the
useful life by 3 years. /
(5/ = 5 marks)
(Total: 25 marks)

Question 3

a. Identify the classification of the following:

i. Product warranty
As a liability /
It is a provision, liability of uncertain timing or amount or both /

ii. Lawsuit claim by the parents.

Not a liability /
It is contingent liability, a possible obligation or a present obligation /

A liability is an obligation of the entity arising from past events, expected to result in an
outflow of resources embodying economic benefits. /
(5/ = 5 marks)

b. Compare the recognition treatment of the product warranty and the lawsuit claim above.

i. Product warranty - provision

Para 14 MFRS 137
A provision shall be recognised when:
(a) an entity has a present obligation (legal or constructive) as a result of a
past event;
(b) it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation; and
(c) a reliable estimate can be made of the amount of the obligation.
If these conditions are not met, no provision shall be recognised.
There will be ‘provision for restoration’ and ‘provision for compensation’.
(3 marks)

ii. Lawsuit claim - contingent liability

Para 27 MFRS 137
An entity shall not recognize a liability.
(2 marks)

c. As it is probable that BFF Bhd incurred warranty cost and the amount can be reasonably
estimated.
A provision related to warranty cost should be recorded in the financial statements.
(2 marks)

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 FAR460 – DEC 2015

The cost will be charged to SOPL.

A corresponding amount, which is the liability, will be presented in the SOFP under
current liabilities.
The amount involved is RM200,000 (5000 units x RM40).
(3 marks)

d. After much discussion with its in-house legal adviser the management concluded that
BFF Bhd need to be prepared for possible contingency loss in its financial statements.
It is a possible contingency loss as it is not probable.
Therefore no liability incurred yet for BFF Bhd.
(2 marks)

There was not enough information to estimate the potential loss.

(i.e. the amount cannot be measured with sufficient reliability).
The expected outflow is not probable.
The contingent liability shall only be disclosed in the notes to the financial statements
(3 marks)
(Total: 20 marks)

Question 4
a. BESTARI BHD
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2015
RM ‘000 RM ‘000
CASH FLOWS FROM OPERATING ACTIVITIES:    

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 FAR460 – DEC 2015

Cash received from customers (6+71.6-9.99) 67,610 3√

Cash payment for expenses and employees (54,325) 11√
Cash generated from operations 13,285
Interest paid (315) √
Income taxes paid (1.75-1.25-0.24) (260) 3√  
Net cash flows from operating activities   12,710 
   
CASH FLOWS FROM INVESTING ACTIVITIES:  
Purchase of property, plant and equipment (7,415) 5√  
Disposal of plant and machinery (1.48-0.5) 1,430 2√  
Disposal of investments (1.5+.08) 1,580 2√  
Interest income received 220 √
Net cash flows from investing activities   (4,185) 
     
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares issued 6,400 2√
Payment of loan (3.7-1.875) (1,825) 2√
Dividend paid (15.575+11.61-17.165) (10,020)  3√
Net cash flow from financing activities   (5,445) 
Net increase or decrease in cash and cash equivalents √ 3080
Cash and cash equivalents at beginning of period √ √ 5,750
Cash and cash equivalents at end of period √ √ 8,830
(40√ x ½ = 20 marks)
Workings
Cash payments = 54.325 Suppliers 16.5+19.68-17.1+4.25-5.55 =17.780
Admin exp 20.72-1.2-0.315-0.05-0.75 =18.405
Distribution exp =18.140

Purchase of PPE 1.48+1.2+49.51-44.425-.035 =7.415

b. The company’s operating performance is good as its cash generated from operations is
positive.
The net increase in cash and cash equivalents shows an improvement in the company’s
liquidity position.
The company has enough cash to meet its obligations.
(3 marks)
The company may be expanding rapidly, investing in new PPE as shown by the negative
investing cash flows. (2 marks)
or
The financing cash flows show that the company is issuing new shares and made payment
for borrowings and dividends. (2 marks)
or any other relevant answers. (Total: 25 marks)