CONFIDENTIAL 1 AC/JULY2020/FAR570/SET 1/SESI 1
UNIVERSITI TEKNOLOGI MARA
FINAL ASSESSEMENT
COURSE : FINANCIAL ACCOUNTING AND REPORTING 4
COURSE CODE : FAR570
EXAMINATION : JULY 2020
SET : SET 1
SESSION : SESSION 1
TIME : 2.5 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of three (3) questions. Answer ALL questions.
2. The answer should be in English.
3. Start each answer on a new page. Show your workings where necessary.
4. The answer must be in HANDWRITTEN.
5. Please number your answer sheet and make sure you uploaded all your answers in one
file using Pdf format.
This examination paper consists of 4 pages
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CONFIDENTIAL 2 AC/JULY2020/FAR570/SET 1/SESI 1
QUESTION 1
a. Platinum Construction Bhd is a construction company which financial year ends on 31
December each year. Due to the expanding operation, Platinum Construction Bhd
acquired a 2 million square foot freehold land in Pendang, Kedah on 15 January 2019
under a share-based payment scheme. On that date, the land is valued at
RM35,000,000. The terms of the agreement allow for the acquisition to be settled on 1
May 2019 by issuing 10,000,000 units ordinary shares. The fair value of the company’s
ordinary shares on 15 January 2019 and 1 May 2019 was RM3.75 and RM3.90
respectively.
Required:
i. Discuss how the above transactions should be treated in accordance with MFRS
Share Based Payment. (Support your answer with journal entries to record the initial
recognition and settlement of the acquisition of the land).
(9 marks)
ii. Advice Platinum Construction Bhd on the accounting treatment on the acquisition of
the land above if the fair value of the land cannot be determined reliably (Support
your answer with journal entries).
(6 marks)
b. Zass Bhd enters into a share-based payment transaction to purchase a piece of
machinery. The agreement allows for the acquisition to be settled either by equity
settled or cash settled and Zass Bhd has the choice of settlement.
Required:
Explain the vesting conditions that have to be met if Zass Bhd decides to settle the
obligation by cash in accordance with MFRS 2 Share-based payment.
(5 marks)
(Total: 20 marks)
QUESTION 2
A. Cumil Bhd acquired 1,500,000 ordinary shares of Brave Bhd from the open market at a
price of RM5 per share on 1 July 2019. The company incurred a transaction cost of
RM650,000. On 1 October 2019 the company purchased 500,000 bonds of Ace Bhd
amounting to RM1,000,000 involving a commissioning cost of RM10,000.
Cumil Bhd plans to trade these investments and will sell them when their market prices
increase more than 15%. At the end of the year, the quoted market price of Brave
Bhd’s ordinary shares has increased by RM0.10 per share and the market price of the
bonds of Ace Bhd is RM1.95 per unit.
Cumil Bhd’s financial year ends at 31 December each year.
Required:
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CONFIDENTIAL 3 AC/JULY2020/FAR570/SET 1/SESI 1
a. Discuss the accounting treatment of the transaction cost for the above situation
in accordance with MFRS 9 Financial Instruments. (Support your answer with
journal entries)
(4 marks)
b. Determine any fair value gains or losses and the value of both investments as at
31 December 2019.
(6 marks)
c. On 1 October 2019, Cumil Bhd issued a bond to be held for trading at a fair
value of RM1 million and incurred transaction cost of RM10,000. Advise Cumil
Bhd the accounting treatment for the issuance of bond under MFRS 9 Financial
Instruments.
(4 marks)
B. Sinar decided to raised cash by issuing a four-year convertible bond worth RM600,000
on 1 January 2019. The bond has a coupon interest rate of 5% which are payable
annuall on 31 December each year. Each bond is convertible at any time up to
maturity into 180,000 ordinary shares. On 1 January 2019, the prevailing market
interest rate of a non-convertible bond is 9%. The present value of RM1, interest at 5%
and 9% related to the bond are listed in Table 1.
5% 9%
Year 1 0.952 0.917
Year 2 0.907 0.842
Year 3 0.864 0.772
Year 4 0.823 0.708
Table 1
Required:
Calculate the amount of liability and equity components of the convertible bonds at
initial recognition.
(6 marks)
(Total: 20 marks)
QUESTION 3
Kenchana Bhd operates a defined benefit scheme for its employees. The information below
shows the details of the scheme for the year ended 31 December 2019.
1 January 2019 31 December 2019
(RM’000) (RM’000)
Fair Value of Plan Asset 55,000 63,000
Defined Benefit Obligation 58,000 69,000
Current Service Cost 7,000
Discount Rate 10%
Expected Return 12%
Due to the change in top management, starting from 1 January 2019, the company has
proposed some adjustments to improve the current scheme. The actuary has estimated the
past service cost to be RM9,000,000.
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CONFIDENTIAL 4 AC/JULY2020/FAR570/SET 1/SESI 1
During the year, the company has paid benefits and contributions of RM9,500,000 to retired
employees.
Required:
a. Determine the defined benefit cost to be recognized in the Statement of Profit or Loss
for the year ended 31 December 2019.
(4 marks)
b. Determine the actuarial gain or loss on defined benefit obligation.
(4 marks)
c. Discuss three (3) differences between defined benefit plan and defined contribution
plan with reference to MFRS 119 Employee Benefits.
(6 marks)
d. Let say at the beginning of the year the net pension liability recognized in the
statement of financial position excluded an unrecognized actuarial gain of RM10
million. The entity wishes to spread over the remaining working life of the employees.
Advice Kenchana Berhad on how to account for the unrecognized actuarial gain of
RM10 million.
(6 marks)
(Total: 20 marks)
END OF QUESTION PAPER
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