AC/JAN 2024/FAR570

c-:;^/p\

^ v

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE FINANCIAL ACCOUNTING AND REPORTING 4

COURSE CODE FAR570
EXAMINATION JANUARY 2024
TIME 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions.

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) an Answer Booklet - provided by the Faculty.

Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 6 printed pages
i Hak Cipta Universiti Teknologi MARA
 2 AC/JAN 2024/FAR570

QUESTION 1

Padu Jaya Bhd. a construction company, was established in January 2010. Padu Jaya Bhd.
has consistently prepared its financial statements each year, ending on December 31. The
following information was extracted from the Statement of Financial Position of Padu Jaya
Bhd. as at December 31, 2022:
RM UNITS
Equity and Reserves
Issued ordinary shares 40,000,000 20,000,000
5% non-cumulative preference shares 500,000 500,000
4% cumulative preference shares 400,000 200,000

Additional information:

1. On 1 March 2023, a rights issue of 1 for every 5 ordinary shares was made at RM5.00
each. The market value of the entity's ordinary shares immediately before the right's
issue was RM6.00.

2. On 1 April 2023, Padu Jaya Bhd. issued RM20 million in 10% convertible debentures.
The debentures can be converted into ordinary shares in the ratio of 100 ordinary
shares for every RM200 debenture. On 1 October 2023, 25% of the 10% convertible
debentures were converted into Padu Jaya Bhd. ordinary shares.

3. 1 million ordinary shares of RM5 each were issued on 1 December 2023. The shares
were fully subscribed and paid upon their issuance.

4. Profit after tax for the year ended 31 December 2023 was RM12,000,000.

5. Padu Jaya Bhd. declared and paid RM20.000 dividend for its 5% non-cumulative
preference shares and RM10,000 dividend for its 4% cumulative preference shares.

6. The tax rate is 25%.

7. Basic EPS for the year ended 31 December 2022 was RM0.75.

Required:

a. Briefly explain the importance of diluted earnings per share to shareholders.

(3 marks)

b. Discuss briefly how share buy back and share consolidation will adjust the computation
of weighted average number of ordinary shares (WANOS) outstanding during the
period.
(4 marks)

c. Compute the basic earnings per share (BEPS) and diluted earnings per share (DEPS)
for Padu Jaya Bhd. for the year ended 31 December 2023. Restate comparative
figures where necessary.
(13 marks)
(Total: 20 marks)

© Hak Cipta Universiti Teknologi MARA

 3 AC/JAN 2024/FAR570

QUESTION 2

Roze Food Bhd., a Malaysian company specialising in the production of sugar candies,
chocolate biscuits, wafer rolls, and crackers, has been actively operating since January 2000.
In response to the growing demand for the company's products, Roze Food Bhd. has made
substantial investments, primarily in the acquisition of various non-current assets aimed at
augmenting its production capabilities. The company has procured two different types of
machines to accommodate the rising demand for large-scale production. The particulars of
the asset acquisitions are as follows:

Asset Purchase Date RM

Machine 1 (M12) 25 September 2021 600,000
Machine 2 (DM23) 15 June 2022 400,000

The company depreciated its machines using the straight-line method at 10% per annum on
a yearly basis. The machines qualify for an initial allowance of 10% and an annual allowance
of 20%.

The following balances were extracted from the company's Statements of Financial Position:

As at 31 RM
December
2022 Deferred tax liability 90,000
2023 Accrued expenses 4,000 Refer note 1
2023 Interest revenue received in advance 1000 Refer note 2
2023 Accrued fines and penalties 500 Refer note 3
2023 Loan payable 50,000 Refer note 4
2023 Net accounts receivable 25,000 Refer note 5

Notes:
1 The related expenses will be deducted for tax purposes on a cash basis.
2 The related interest revenue was taxed on a cash basis.
3 Fines and penalties are not deductible for tax purposes.
4 The repayment of the loan will have no tax consequences.
5 I After deducting the general provision for doubtful debts of RM2,000.

The tax rate was 25% in year 2022. The government reduced and enacted the tax rate for
2023 to 24%.

Required:

a. Identify the steps needed by Roze Food Bhd. to determine the deferred tax asset or
liability in accordance with MFRS 112 Income Taxes.
(4 marks)

b. Differentiate between permanent and temporary differences. Provide an example for

each type.
(4 marks)
© Hak Cipta Universiti Teknologi MARA
 4 AC/JAN 2024/FAR570

c. Compute the deferred tax to be recognised in the financial statement for the year
ended 31 December 2023. Show all workings.
(12 marks)
(Total: 20 marks)

QUESTION 3

Castle Bhd. is engaged in the real estate industry within Malaysia, with its fiscal year
concluding on December 31st annually. The company has introduced a share option scheme
to incentivize its property agents to stay with the company.

On 1 January 2021, Castle Bhd. granted share options to 300 property agents. Each agent
possesses the privilege to procure 1,500 options for buying company shares at a rate of RM10
per share. These options can be executed on January 1, 2024, contingent upon the property
agents maintaining continuous employment with Castle Bhd. for a three-year period
commencing from the date of the options' allocation. Additionally, if their sales performance
improves by at least 10%, the granted options will be increased by 10%. Relevant data is as
follows:

Date Share Fair value of Expected number of

price options employees for whom
(RM) (RM) the options will vest
1 January 2021 10 3.10 290
31 December 2022 11 3.40 285
31 December 2023 12 3.50 280

In the year 2023, sales revenue increased to 15%, and only 5 out of 300 agents left the
company.

On 1 October 2023, Castie Bhd. obtained a building in Kuala Lumpur from Ace Bhd. through
a share-based payment arrangement. The sale and purchase agreement provides two options
for settling the acquisition:

1. By cash, equivalent to the market value of 1,000,000 ordinary shares of Castle Bhd.
2. By issuing 1,000,000 of Castle Bhd.'s ordinary shares on 31 October 2023.

The following are the share prices of Castle Bhd.'s ordinary shares.

Date Share price

RM
1 October 2023 7.50
31 October 2023 8.00
1 November 2023 8.20
30 November 2023 8.10

© Hak Cipta Universiti Teknologi MARA

 5 AC/JAN 2024/FAR570

Required:

a. Assess the types of vesting conditions for the share options scheme introduced by
Castle Bhd. following MFRS 2 Share-based payment.
(6 marks)

b. Compute the amount that shall be recognised as an expenses and equity for the
services rendered by the property agents in each year until the end of vesting period.

(9 marks)
c. Determine the journal entries for the acquisition of the building if Castle Bhd. has a
past practice for settling such purchases in cash with reference to MFRS 2 Share-
based Payment. The settlement of this transaction was made on 30 November 2023.
(5 marks)
(Total: 20 marks)

QUESTION 4

Muammar Bhd. is a publicly listed company that specialises in the manufacturing of electrical
appliances. On 1 January 2022, Muammar Bhd. issued a debt instrument with a nominal value
of RM5,000,000 for RM4,500,000 (inclusive of the transaction cost of RM300,000). The debt
instrument was measured at amortised cost. The instrument matures in five years at its
nominal value. The coupon interest rate of the debt instrument is 6% and is payable at the end
of the year. The effective interest rate is 9%.
On 1 July 2023, Muammar Bhd. acquired equity shares from two different companies. The
details of the purchases were as follows:

Equity shares in Saeid Bhd. 1,500,000 shares at a price of RM2 per share.
Equity shares in Izdihar Bhd. 500,000 shares at a price of RM5 per share.

The transaction costs for both investments were 10% of the investment value. Muammar Bhd.
made an irrevocable election for investment in Saeid Bhd. and investment in Izdihar Bhd. was
held for trading.

On 31 December 2023, the quoted market prices of Saeid Bhd. and Izdihar Bhd. were RM2.10
per share and RM4.50 per share, respectively.

Required:

a. Prepare an extract of the Statement of Profit or Loss and Statement of Financial

Position for the year ended 31 December 2023, for the presentation of the debt
instruments issued by Muammar Bhd. Show all workings.
(6 marks)
b. Differentiate the classification of both equity shares acquired by Muammar Bhd. in
accordance with MFRS 9 Financial Instruments. Show the journal entries to record the
transactions for the year ending 31 December 2023.
(9 marks)

© Hak Cipta Universiti Teknologi MARA

 6 AC/JAN 2024/FAR570

c. Explain the treatment of transaction costs on the initial measurement of the financial
assets and financial liabilities.
(5 marks)
(Total: 20 marks)
QUESTION 5

Virtue Bhd. is a publicly traded company, has designated 31 December as its fiscal year-end
and maintains a fully funded, defined benefit plan for its' employees. As of January 1, 2023,
the present value of obligations stood at RM1,790,000, while the fair value of plan assets
amounted to RM 1,188,000. Additional information regarding the scheme for the year ending
December 31, 2023, is as follows:

Current service cost RM50,000

Past service cost RM8,000
Benefit paid to employees RM68.500
Contribution paid to the plan RM76,520
Expected return on plan asset 8%

The company used a discount rate of 10% that reflected the yield of corporate bonds issued
by AZB Bank.

On 31 December 2023, the actuaries estimated that the present value of obligations and the
fair value of the plan asset as at that date were RM2,100,000 and RM2,450,000, respectively.
The present value of any economic benefits available in the form of refunds from the plan
amounts to RM300,000.

Required:

a. Compute the actuarial gain or loss on obligations and plan assets for the year ending
31 December 2023.
(4 marks)
b. Compute the defined benefit liability/(asset) to be disclosed in the Statement of
Financial Position as at 31 December 2023.
(4 marks)
c. Analyse how Virtue Bhd. should account for the effect of asset ceiling with the
requirements of MFRS119 Employee Benefits (show the workings of the adjustment
of asset ceiling for the accounting period ended 31 December 2023).
(7 marks)
d. Paid absences in MFRS119 Employee Benefits refer to short-term employee benefits
in the form of compensated absences.
Explain the accounting treatment of accumulating and non-accumulating paid
absences.
(5 marks)
(Total: 20 marks)

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA