FINAL
Examination Paper
(COVER PAGE)
Session : June 2019
Programme : Bachelor of Accounting & Finance (Hons)
Course : ACC3210 : Financial Reporting
Date of Examination : August 02, 2019
Time : 9.00 am – 12.10 pm Reading Time : 10 minutes
Duration : 3 Hours and 10 minutes
Special Instructions :
This paper consists of TWO (2) sections. Answer TWO (2) compulsory questions in SECTION A
and any TWO (2) questions in SECTION B in the answer booklet provided.
Materials permitted :
Non programmable calculator
Materials provided :
Nil
Examiner(s) : Mary Mathews
Moderator : Affiza, Kiranjeet & Azliza
This paper consists of 6 printed pages, including the cover page.
ACC 3210 (F) / Page 1 of 5
INTI INTERNATIONAL UNIVERSITY
BACHELOR OF ACCOUNTING & FINANCE (HONS)
ACC3210 : FINANCIAL REPORTING
FINAL EXAMINATION : JUNE 2019 SESSION
This paper consists of 2 sections. Section A, answer all the TWO (2) questions. Section B,
answer any TWO (2) questions out of three.
Section A: Answer all the questions.
Question 1
On 30 September 20x0, Gallon plc acquired 75% of the equity shares, 30% of the preference
shares and 20% of the bonds in Silver plc and gained control. The balance of the retained
earnings on 30 September 20x0 was $16,000. The fair value of the land owned by Silver was
$3,000 above book value. No adjustment has so far been made for this revaluation.
The statement of financial position of Gallon and Silver at 31 December 20x1 were as follows:
Gallon Silver
ASSETS $ $
Property plant & equipment (including land) 82,300 108,550
Investment in Silver 46,000
Current assets:
Inventory 23,200 10,000
Silver current account 20,000
Bond interest payable 175
Other current assets __5,000 __7,500
Total assets 176,675 126,050
EQUITY AND LIABILITIES
Equity share capital 60,000 27,600
Preference shares 10,000 20,000
Retained earnings 75,000 21,200
145,000 68,800
Non-current liabilities – bonds 12,500 17,500
Current liabilities:
Gallon current account 20,000
Bond interest payable 625 875
Other current liabilities 18,550 18,875
Total equity and liabilities 176,675 126,050
ACC 3210 (F) / Page 2 of 5
Additional information:
1. During the year there was impairment of goodwill of 20%.
2. During the year Gallon sold some of its inventory to Silver for $3,000, which represented
cost plus a mark-up of 25%. Half of these goods are still in the inventory of Silver at
31.12.20x1.
3. There is no depreciation of land.
4. There has been no movement on share capital since the acquisition.
5. Method 1 is to be used to compute the non-controlling interest.
Required:
Prepare a consolidated statement of financial position as at 31 December 20x1.
(Total 25 marks)
Question 2
Part A
Handyman Plc has entered into the following transactions during the financial year ended 31
March 2016. The company seeks to maximize the reported value of its assets whenever possible.
(i) On 1 April 2015, Handyman acquired from a bankrupt competitor, a licence to
provide radio broadcast services to a region within West Malaysia. This licence
would have been originally issued by the government for a ten year period at zero
cost, but has a market value due to its exclusivity. The cost of the licence to
Handyman was $3.3 million and the remaining useful economic life was 6 years.
(4 marks)
(ii) On 1 April 2015, Handyman commenced work on developing a new technology to
enhance the quality of the radio broadcasting. It purchased a number of patents at a
cost of $2 million and spend a further $6 million developing the technology, as well
as $2 million researching the international market for the technology in advance of its
launch. The directors of Handyman were confident throughout the development
process that the technology had massive potential to generate future economic
benefits. On 31 March 2016 this opinion was validated when a rival broadcaster
offered handyman $15 million for its partially developed technology project.
(6 marks)
Part B
(i) Hex carried out a development project that met the criteria for recognition as an
asset on 1 April x4. Costs incurred till April x4 were $4.5 million and $3 million
was incurred from April x4 till completion of the project on 31 May x5. The fair
ACC 3210 (F) / Page 3 of 5
value of the development cost as at 31 December x5 was $5.2 million. The
economic life of the asset is indefinite.
Required:
Discuss the accounting treatment of the intangible (MFRS138)
(7 marks)
(ii) On 1 January x1, ABC acquired an identifiable intangible asset for $250,000. The
economic life was established at five years and the entity adopted the revaluation
model. The fair value of the asset on 31 December x1 approximated closely the
carrying amount. The asset’s fair value on 31 December x2 was $240,000.
However, on 31 December x3, the fair value of the asset could not be determined.
(8 marks)
(Total 25 marks)
Section B: Answer any TWO (2) questions
Question 3
Given below are the statements of profit or loss of Happy and Dino for the year ended
31 December x6.
Happy Dino
$ $
Turnover 850,000 550,000
Cost of sales -300,000 -200,000
Gross profit 550,000 350,000
Expenses -150,000 -90,000
Operating profit before tax 400,000 260,000
Dividends from quoted investments 20,000 15,000
Debenture interest - -10,000
Debenture interest from Dino 4,000
Dividends from Dino
Ordinary 24,000
Preference ___3,150 ________
451,150 265,000
Taxation -150,000 -100,000
Profit for the year 301,150 165,000
Additional information:
1. Retained profit on 1 January x6 and dividends for the year x6 were as follows:
ACC 3210 (F) / Page 4 of 5
Happy Dino
$ $
Retained profit at 1 January x6 110,000 50,000
Dividends paid
: Ordinary 60,000 40,000
: Preference for 10,500
2. Happy acquired 120,000 ordinary shares, 60,000 preference shares and $40,000 10
percent debentures on 1 January x1 when the retained profit of Dino was $20,000.
3. The issued share capital of Dino comprised 200,000 ordinary shares and 200,000
preference share.
4. On the acquisition date, the fair value of Dino’s plant was $100,000 more than its
carrying amount. The additional depreciation based on fair value was $10,000 per annum.
5. Sales of Happy includes sales to Dino of $100,000. Happy sells goods to Dino at cost
plus 25 percent and $20,000 of the goods purchased from Happy still remain as closing
inventory of Dino.
6. The group only recognizes the parent’s share of goodwill which was $20,000. As at 31
December x5, 50 percent of goodwill was impaired and there was no impairment in year
x6.
Required:
a. The consolidated statement of profit or loss of Happy and Dino for the year ended
31 December x6.
(17 marks)
b. Calculate the group retained profit as at 1 January x6.
(4 marks)
c. Give 4 examples where companies are exempted from preparing consolidated
financial statements.
(4 marks)
(Total 25 marks)
Question 4
Part A
On 1 January 20x1, Dynamo Bhd entered into a two-year lease for a lorry. The contract contains
an option to extend the lease term for a further year. Dynamo believes that it is reasonably
certain to exercise this option. Lorries have a useful economic life of ten years.
Lease payments are RM10,000 per year for the initial term and RM15,000 per year for the option
period. All payments are due at the end of the year. To obtain the lease, Dynamo incurs initial
ACC 3210 (F) / Page 5 of 5
direct cost of RM3,000. The interest rate within the lease is not readily determinable. Dynamo’s
incremental rate of borrowing is 5%.
Required:
Calculate the initial carrying amount of the lease liability and the right-of-use asset and prepare
extracts from Dynamo’s financial statements in respect of the lease agreement for the year ended
31 December 20x1.
(12 marks)
Part B
On 1 August 2017, Man Plc entered into an agreement to lease a building for 10-year period. The
lease terms stipulated that the annual lease rental would be $100,000 per annum in arrears, with
the first payment due on 31 July 2018. The interest rate implicit in the lease is 7% and the
present value of the minimum lease payments is $702,358. Man Plc incurred cost $30,000 in
entering the lease. The lease terms allow for the extension of the lease at market rental. However,
it is not certain that Man Plc will take up this option.
Explain with appropriate calculation the initial recognition of the leased asset and the lease
obligation. Present the relevant extract from the statement of profit or loss for the year ended 31
July 2018 and the statement of financial position as at that date
(13 marks)
(Total 25 marks)
Question 5
(a) Identify the primary users (5 users) of financial reports and explain why each user might
be interested in the information provided in these reports.
(15 marks)
(b) State the objectives (4 main objectives) of IASB (International Accounting Standard
Board)
(6 marks)
(c) Explain when a parent company is exempted from preparing the consolidated accounts.
(6 marks)
(d) An investor company has control over an investee if it has the power to direct the investee's
activities. Explain the rights which may give raise to this power.
(4 marks)
(Total 25 marks)
-The End -
