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AC/JAN 2013/FAR450/FAC450

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE

GROUP ACCOUNTING AND REPORTING/

ADVANCED FINANCIAL ACCOUNTING 2

COURSE CODE

FAR450/FAC450

EXAMINATION

JANUARY 2013

TIME

3 HOURS

INSTRUCTIONS TO CANDIDATES
1.

This question paper consists of four (4) 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.

4.

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

the Question Paper

an Answer Booklet - provided by the Faculty

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

This examination paper consists of 9 printed pages
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AC/JAN 2013/FAR450/FAC450

QUESTION 1
Given below are the statements of comprehensive income and statements of changes in
equity of Cake Bhd, Muffin Bhd and Bun Bhd for the year ended 30 June 2012.
Statements of Comprehensive Income for the year ending 30 June 2012
Muffin Bhd
Bun Bhd
Cake Bhd
RM'000
RM'000
RM'000
270,000
180,000
Revenue
320,000
Cost of sales
(70,000)
(110,000)
(70,000)
Gross profit
200,000
110,000
210,000
Gain on disposal
2,000
Investment income
3,000
3,000
(including intragroup dividends
paid in June 2012)
Operating expenses
(140,000)
(113,000)
(29,000)
Profit before tax
75,000
90,000
81,000
Taxation
(25,000)
(20,000)
(30,000)
Profit after tax
55,000
60,000
56,000
Statements of Changes in Equity for the year endinc1 30 June 2012 (extract)
Cake Bhd
Muffin Bhd
Bun Bhd
RM'000
RM'000
RM'000
Retained profit at 1 July 2011
90,000
70,000
85,000
Profit for the year
55,000
60,000
56,000
Transfer to general reserve
(1,000)
Ordinary dividend paid
(5,000)
(2,500)
(1,000)
Retained profit at 30 June 2012
134,000
147,500
125,000
Additional information:
1.

Cake Bhd acquired 60% of the issued ordinary shares of Muffin Bhd on 1 July 2008
when the retained profit and share premium of Muffin Bhd showed a balance of
RM12,000,000 and RM2,000,000 respectively. The purchase consideration was
settled through an exchange of one share in Cake Bhd for every two shares in Muffin
Bhd and a cash payment of RM20,000,000. On 1 July 2008, the market prices of the
shares of Cake Bhd and Muffin Bhd were RM3.00 and RM2.20 respectively.
The issued and paid up capital of Muffin Bhd is made up of 100,000,000 ordinary
shares at RM1.00 each. The fair values of Muffin Bhd's assets were equal to their
book values except for a piece of land, which had a fair value of RM2,000,000 in
excess of its book value. Goodwill on the acquisition of Muffin Bhd was impaired by
50% at 30 June 2010.

2.

On 1 October 2011, Cake Bhd acquired another 20% of its interest in Muffin Bhd for
RM48,800,000 when the market price of Muffin Bhd's ordinary share was RM2.50
each.

3.

On 1 January 2012, Cake Bhd acquired 80% of the issued ordinary shares of Bun Bhd
when the share premium and general reserve of Bun Bhd showed a balance of
RM2,000,000 and RM3,000,000 respectively. At the date of acquisition, the carrying

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AC/JAN 2013/FAR450/FAC450

value of Bun Bhd's net assets reflected its fair value. On 1 January 2012, Cake Bhd
also valued Bun Bhd's customer relationships as a customer base intangible asset at a
fair value of RM10,000,000. Bun Bhd has not accounted for this asset. Trading
relationship with Bun Bhd's customer last on average for five years.
The bargain purchase arising on the acquisition of Bun Bhd was RM6,400,000. The
issued and paid-up capital of Bun Bhd comprises 50,000,000 ordinary shares at
RM2.00 each.
4.

On 1 March 2012, Bun Bhd sold inventories valued at RM40,000,000 to Cake Bhd at
cost plus 25%. Cake Bhd had sold 40% of these inventories.

5.

During the year, Cake Bhd sold a machine to Muffin Bhd at a profit of RM2,000,000.
The remaining life of the machine was 5 years.

6.

Cake Bhd retains all its investments at cost.

7.

All items in the income statements are deemed to accrue evenly throughout the year
unless otherwise stated.

8.

It is the group's policy to value the non-controlling interest at its proportionate share of
the fair value of the subsidiary's identifiable net asset at the date of acquisition.

Required:
a.

Calculate the goodwill on acquisition of Muffin Bhd.

(4 marks)

b.

Prepare the Consolidated Statement of Comprehensive Income of Cake Bhd group for
the year ended 30 June 2012
(16 marks)

c.

Prepare the Consolidated Statement of Changes in Equity of Cake Bhd group for the
year ended 30 June 2012 showing retained profit and non-controlling interest.
(8 marks)

d.

Explain the accounting treatment of the goodwill on the acquisition of Muffin Bhd if
Cake Bhd values non-controlling interest at fair value on the date of acquisition.
(5 marks)
(Total: 33 marks)

QUESTION 2
A.

Grape Bhd, a public listed company, is a distributor of canned fruit products in the
Klang Valley. Grape Bhd acquired 80% of the equity shares in Berry Bhd on 1 July
2010 when the retained earnings and share premium of Berry Bhd had credit balances
of RM12 million and RM10 million respectively. The acquisition was settled through a
share exchange of one share in Grape Bhd for every one share in Berry Bhd. The
market prices of the shares of Grape Bhd and Berry Bhd on the date of acquisition
were RM3.00 and RM4.00 each respectively.

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On 1 July 2010, the fair values of Berry Bhd's assets were equal to their carrying
amounts with the exception of Berry Bhd's equipment which had a fair value of RM2
million above its carrying amount. The remaining life of the equipment was five years.
Berry Bhd has not adjusted the carrying amount of the equipment as a result of the fair
value exercise. On 1 July 2010, Berry Bhd also owned the licence of a popular internet
website which is renewable indefinitely at a nominal cost. The licence has not been
recognised by Berry Bhd. At the date of acquisition, a specialist valued the licence at
RM6 million and determined its life to be indefinite.
On 1 July 2011, Grape Bhd and Berry Bhd acquired 30% and 60% of the ordinary
shares in Cherry Bhd for a cash consideration of RM40 million and RM80 million
respectively when the market price of the ordinary shares of Cherry Bhd was RM4.00
each. At the date of acquisition, the fair values of the net assets of Cherry Bhd were
equal to their carrying amounts with the exception of a plant which had a fair value of
RM17 million and a carrying amount of RM12 million. This plant had a remaining life of
5 years .
On 1 January 2012, Grape Bhd acquired 40% of the ordinary shares of Lychee Bhd
paying RM3.00 per share when the fair values of the net assets of Lychee Bhd were
equal to their carrying amounts.This acquisition has not been recorded by Grape Bhd.
The summarised statements of financial position of the four companies are as follows:
Statements of financial position as at 30 June 2012

Assets
Property, plant and equipment
Investments
Inventories
Current Account - Berry Bhd
Current Account - Cherry Bhd
Accounts receivable
Bank
Equity and liabilities
Ordinary shares of RM2 each
Share premium
Retained earnings as at 1 July 2011
Retained earnings for the year ended
30 June 2012
8% Debentures
Accounts payable
Current Account

Grape
Bhd
RM'000

Berry
Bhd
RM'000

Cherry
Bhd
RM'000

Lychee
Bhd
RM'000

251,000
280,000
25,000
10,000

210,000 130,000
80,000
9,000
23,000

45,000

20,000
14,000
600.000

6,000
7,000
19,000
6.000
12.000
350.000 152.000

350,000
50,000
30,000

200,000 120,000
10,000
7,000
25,000

45,000

16,000
140,000
14,000

10,000
8,000
77,000
20,000
12,000
5,000
8.000
350.000 152.000

2,000

600.000

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8,000

5,500
1.500
60.000

12,000

1,000
60.000

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Additional information:
1.

During the year, Berry Bhd sold inventories valued at RM3 million to Grape Bhd
at a mark-up of 20% on cost. Half of these inventories remain unsold at the end
of the year.

2.

Grape Bhd sold inventories worth RM3 million to Lychee Bhd during the post
acquisition period at a profit of RM1 million. All these inventories remain unsold
at the end of the year.

3.

During the year, Berry Bhd sold an equipment with a carrying value of RM26
million to Cherry Bhd for RM30 million. The equipment has a remaining useful
life of four years.

4.

The board of directors of Grape Bhd, Berry Bhd and Cherry Bhd had declared an
ordinary dividend of 5% before the year end, which had not been provided for.

5.

Impairment tests were carried out on 30 June 2012 which concluded that
consolidated goodwill of Berry Bhd was impaired by 10% and the value of the
investment in Lychee Bhd was impaired by RM2,000,000

6.

Assume all profits accrue evenly throughout the year.

7.

It's the group's policy to value the non-controlling interest at fair value at the date
of acquisition.

Required:

B.

a.

Prepare the Consolidated Statement of Financial Position of Grape Bhd group as

at 30 June 2012.
(30 marks)

b.

FRS 127 requires every parent company to prepare consolidated financial

statements of their group. However a parent may be exempted from preparing
such statements under certain conditions. State the four conditions that must
exist for a parent to be exempted from preparing consolidated financial
statements.
(4 marks)

At 30 June 2012, the remaining 60% of the equity shares in Lychee Bhd were owned
by many separate investors. In July 2012, Basil Bhd a company unrelated to Grape
Bhd accumulated a 55% interest in Lychee Bhd by buying shares from the other
shareholders. In August 2012, a meeting of the board of directors of Lychee Bhd was
held at which Grape Bhd lost its seat on Lychee Bhd's board.
Required:
Explain how Grape Bhd would account for the investment in Lychee Bhd when it
prepares its financial statements for the year ended 30 June 2013.
(3 marks)
(Total: 37 marks)

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AC/JAN 2013/FAR450/FAC450

QUESTION 3
On 1 July 2011, Pahlawan Bhd acquired all of the 200 million issued ordinary shares of
Shears which is situated in Swanland, where the currency is 'SL'. The only reserves of
Shears on that date was retained earnings of SL40 million. Shears's issued ordinary shares
capital remains the same since 2011. The nominal value of the ordinary share is SL1 each.
The net assets of Shears on 30 June 2012 were as follows:

Land (acquired on 1 January 2011)

Machine (acquired on 1 October 2011)
Accumulated depreciation
Inventory
Monetary assets
Monetary liabilities

SLmillion
200
80
(20)
30
60
(80)

Additional information:
1.

The inventory represents approximately the final three months purchase.

2.

The translated retained profit for the year was RM17 million

3.

The exchange rates were as follows:

1 January 2011
1 July 2011
1 October 2011
30 June 2012
Average rate for year
Average rate for final quarter

SL 1 = RM
1.00
0.95
0.90
0.85
0.83
0.80

Required:
a.

Give three situations where the functional currency of Shears is Ringgit Malaysia (RM).
(3 marks)

b.

On the assumption that the functional currency of Shears is Ringgit Malaysia (RM),
calculate the difference on exchange for the year ended 30 June 2012.
(7 marks)
(Total: 10 marks)

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QUESTION 4
The following are the consolidated financial statements of Furher Bhd and its subsidiaries for
the year ended 30 June 2012.
Consolidated Statement of Financial Position as at 30 June
2012
2011
RM'000
RM'000
Non-current assets
Property, plant and equipment
Goodwill on consolidation
Current assets
Inventories
Trade receivables
Cash at bank

Equity
Ordinary shares of RM1 each
Share premium
Retained earnings
Revaluation reserve
Non controlling interest

226,666
5,156

163,028
600

45,228
21,064
5,096
303,210

42,450
27,738
3,138
236,954

57,522
24,036
79,995
20,302
11,273

45,522
20,036
65,949
10,502
9,179

52,340

41,802

12,288
32,670
6,164
6,620
303,210

154
32,478
5,652
5,680
236,954

Non-current liabilities
6% Debentures
Current liabilities
Bank overdraft
Trade and other payables
Current tax payable
Proposed dividends

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AC/JAN 2013/FAR450/FAC450

Consolidated Statement of Comprehensive Income for the year ended 30 June 2012
RM'000
Revenue
156,420
Cost of sales

(84,386)

Gross profit
Distribution costs
Administrative expenses

72,034
(24,152)

Investment income
Interest expenses
Profit before tax
Tax expense

(16,926)
222
(3,112)
28,066
(7,542)

Profit for the year

Other comprehensive income:

20,524

Surplus on fair value of property, plant and equipment

12,250

Total comprehensive income

32,774

Profit after tax attributable to:

Equity holders of parent
Non controlling interest

16 320
4,204
20,524

Total comprehensive income for the year attributable to:

Equity holders of parent
Non controlling interest 4,204 + (12,250 x 20%)

26,120
6,654
32,774

Additional information:
1.

On 1 September 2011, Furher Bhd acquired 80% equity interest in Dominic Bhd for
RM31,100,000. The purchase consideration consists of 10,000,000 ordinary shares
issued at par of RM1 each and the balance in cash. The net assets of Dominic Bhd on
the date of acquisition were as follows:

Property, plant and equipment at carrying amount

Trade receivables
Inventory
Bank
Trade payables

RM'000
22,500
5,500
2,120
2,260
(1,560)
30,820

The goodwill on consolidation of Dominic Bhd was RM6,444,000.

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2.

During the year, the company sold a piece of equipment for RM9,800,000, realising a
profit of RM2,872,000. There were no other disposals of non-current assets during the
year.

3.

The administrative expenses include depreciation charge on property, plant and

equipment of RM13,982,000, gain on disposal of equipment and impairment of
goodwill on consolidation.

4.

It is the group's policy to value the non-controlling interest at its proportionate share of
the fair value of the subsidiary's identifiable net asset at the date of acquisition.

Required:
Prepare the Consolidated Statement of Cash Flow for Furher Bhd group for the year ended
30 June 2012 using the indirect method. Notes to the accounts are not required.
(20 marks)

END OF QUESTION PAPER

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