FAR 610 GROUP PROJECT 1 September 27, 2019

UNIVERSITI TEKNOLOGI MARA

GROUP PROJECT 1 & PRESENTATION

COURSE : ADVANCED FINANCING ACCOUNTING AND

REPORTING 1
COURSE CODE : FAR610
SEMESTER : SEPTEMBER 2019 - JANUARY 2020

INSTRUCTIONS

1. This assignment contains FOUR questions.

2. This assignment should be prepared in group of 4 students.

3. You should not copy another group’s assignment. The submitted assignment will
automatically undergo a similarity check. If plagiarism is detected, marks would be
deducted based on discretion of the examiner.

4. Each group is required to submit the answer on or before Monday in Week 12 OR on the
first working day in the Week 12. Submission later than that date will NOT be accepted.
Each group is advised to keep a copy of your submitted assignment for future reference.
Where necessary, show your workings clearly.

5. The group project to be evaluated as follows:

%
Written report the answer of the group project 10
Group presentation – Presentation of the answer (within 20 Minutes) 5
Total 15

6. Each group will be assessed for their presentation according to the following rubrics:

Language Audio- Q&A Total

visual Sessions
aids &
Content
NO Name of student Scale 1 - 5 Scale 1 - Scale 1 - 20 marks
marks 5 marks 10 marks
(Individual) (Group) (Group) (Weighted: 5%)
1 -
2 -
3 -
4 -

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 FAR 610 GROUP PROJECT 1 September 27, 2019

QUESTION 1

Introduction

New Castle Bhd (NCB) was incorporated in 2001, originally to undertake sizable civil
engineering projects. Over the years, it has transformed itself into a conglomerate with projects
in Malaysia and India.

Acquisition of companies

NCB acquired 100% ordinary shares of Golden Sand Bhd (GSB) on 1 January 2017 when the
latter’s retained earnings and other reserves stood at RM6 million and RM0.5 million
respectively. GSB acquired 70% ordinary shares in White Sand Bhd (WSB) on 1 January
2018. At the same time, NCB also acquired 10% ordinary shares of WSB for RM3 million cash,
buying the shares at its market price.

Restructuring of group structure

In response to the company’s strategic planning, on 1 September 2018, NCB disposed its
entire shares in WSB for RM4.5 million and fully utilized the proceeds as full payment to
acquire 20% interest in Fox Cave Bhd (FCB). NCB has since is able to exert significant
influence on FCB financial policies.

The followings are the financial statements of the companies:

Statements of Financial Position as at 31 December 2018

RM Million RM Million RM Million RM Million
New Castle Golden White Sand Fox Cave
Bhd Sand Bhd Bhd Bhd
Property, Plant & Equipment 25 25 32 25
Investment in Subsidiaries 38 21 - -
Inventories 3 4 5 2
Trade Receivables 5 5 3 1
Other receivables 1 2 - 1
Bank 2 2.24 3 4
TOTAL 74 59.24 43 33
Share Capital 55 30 30 25
Reserves 8 10.24 2 2
Long Term Borrowings 5 9 3 3
Trade Payables 4 6 4 2
Dividend Payables 0.5 1.5 0.5 1
Other Payables 1.5 2.5 3.5 -
TOTAL 74 59.24 43 33

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FAR 610 GROUP PROJECT 1 September 27, 2019

Statements of Profit or Loss for the year ending 31 December 2018

RM Million RM Million RM Million RM Million
New Castle Golden White Sand Fox Cave
Bhd Sand Bhd Bhd Bhd
Revenues 6.00 8.90 2.66 2.57
Cost Of Sales (1.20) (2.05) (0.58) (0.33)
Gross profit 4.80 6.85 2.08 2.24
Administrative Expenses (1.80) (2.00) (0.83) (0.70)
Selling & Distribution Expenses (0.50) (0.60) (0.52) (0.65)
Rental Income - 0.12 - -
Gain on disposal of assets - 0.12 - -
2.50 4.37 0.73 0.89
Finance Cost (0.25) (0.50) (0.18) (0.18)
2.25 3.99 0.55 0.71
Taxation (0.25) (0.75) (0.10) (0.11)
Net profit 2.00 3.24 0.45 0.60

New Castle Bhd

Statement of Changes in Equities for the year ending 31 December 2018
RM Million RM Million RM Million RM Million
4% Preference Ordinary Retained Other
Shares Shares Earnings Reserves
Balance b/f 5 49.5 6.5 -
Issuance of shares - 0.5 - -
Retained profits for the year - - 2 -
Dividend - - (0.5) -
Transfer - - (1) 1
Balance c/f 5 50 7 1

Golden Sand Bhd

Statement of Changes in Equities for the year ending 31 December 2018
RM Million RM Million RM Million RM Million
5% Preference Ordinary Retained Other
Shares Shares Earnings Reserves
Balance b/f 3 27 8 0.5
Issuance of shares - - - -
Retained profits for the year - - 3.24 -
Dividend - - (1.5) -
Transfer - - (0.5) 0.5
Balance c/f 3 27 9.24 1

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 FAR 610 GROUP PROJECT 1 September 27, 2019

White Sand Bhd

Statement of Changes in Equities for the year ending 31 December 2018
RM Million RM Million RM Million RM Million
5% Preference Ordinary Retained Other
Shares Shares Earnings Reserves
Balance b/f 5 25 1.80 0.25
Issuance of shares - - - -
Retained profits for the year - - 0.45 -
Dividend - - (0.50) -
Balance c/f 5 25 1.75 0.25

Fox Cave Bhd

Statement of Changes in Equities for the year ending 31 December 2018
RM Million RM Million RM Million RM Million
5% Preference Ordinary Retained Other
Shares Shares Earnings Reserves
Balance b/f - 25 1.40 -
Issuance of shares - - - -
Retained profits for the year - - 0.60 -
Dividend - - - -
Balance c/f - 25 2 -

Revaluation

On the acquisition date of the subsidiaries and associate company, NCB appointed charted
valuers to revalue assets and liabilities of subsidiaries as part of due diligence process. A
machine of WSB was revalued from RM3 million to RM2 million only. No other significant
proposal was made by the valuers.

Intercompany transactions

1. In May 2018, NCB sold goods worth RM1.05 million to GSB at the margin allowed.
GSB managed to sell half of the goods to WSB at the cost price and another half to its
customers at the market price. As at the year end, WSB still keep the inventory and
has not paid GSB for this amount.
2. WSB rented a shop house from GSB at RM10,000 a month since 1 January 2018.
3. On 1 July 2018, GSB sold a motor vehicle with a carrying value of RM1.2 million to
NCB at the margin allowed.
4. In December 2018, NCB provided training to staffs from its subsidiaries to shape them
into skilled personnel. Total cost incurred was RM200,000. 10 staffs each from GSB
and WSB attended the training. NCB fully absorbed the cost.
5. All companies have declared full year dividend on preference shares and dividend on
ordinary shares. However, the parent companies have yet to recognize its share of
the dividends.

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 FAR 610 GROUP PROJECT 1 September 27, 2019

Related parties

NCB sold goods worth RM500,000 to Grand Bali Bhd at the market price. Grand Bali Bhd is
managed by the spouse of the general manager of NCB.

Selected significant accounting policies

1. The Non-Controlling Interest in the subsidiaries is valued using the full goodwill method
2. Depreciation rate:
Property: 5% p.a on yearly rest
Plant& Equipment: 10% p.a on yearly rest
3. Margin on intercompany sales of goods: 5%
4. Margin on intercompany sale of property, plant & equipment: 10%

Assumption
1. Profit and loss were accrued evenly throughout 2017-2018.

Required:

a) Draw and explain the group structure before and after the restructuring exercise.
(4 marks)
b) Calculate goodwill or bargain purchase on acquisition of GSB and WSB
(9 marks)
c) Calculate gain/loss on disposal of shares in WSB
(2 marks)
d) Calculate goodwill/bargain purchase on acquisition of FCB
(4 marks)
e) Prepare the schedule showing retained earnings of parent and subsidiaries
(7 marks)
f) Prepare the consolidated statement of profits or loss of NCB Group for the year ended
31 December 2018.
(18 marks)
g) Prepare the consolidated statement of changes in equities of NCB Group for the year
ended 31 December 2018 showing the retained earnings and non-controlling interest
column only.
(9 marks)
h) Prepare the consolidated statement of financial position of NCB Group as at 31
December 2018.
(17 marks)
(TOTAL: 70 marks)

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FAR 610 GROUP PROJECT 1 September 27, 2019

QUESTION 2

a) Explain two situations where control is achieved even though the parent company
acquired less than 50% ordinary shares in the subsidiary.
(6 marks)
b) Explain two situations where control is not established even though the investor
acquired more than 50% ordinary shares of the investee.
(6 marks)
(TOTAL: 12 marks)

QUESTION 3

a) With the help of examples, explain the difference between ‘control” and “joint control”.
(8 marks)
b) Identify and explain the parties who jointly control (if any) the investee company for
the following cases:
i. Guchil Bhd, Jeli Bhd and Tumpat Bhd each has 40%, 35% and 25% shares
respectively in KB Bhd. The agreement between them requires simple
majority (51%) to change significant policies of KB Bhd
ii. Wakaf Baru Bhd, Melor Bhd and Cabang Tiga Bhd each has equal shares
in GM Bhd. The agreement between them requires unanimous decision to
change significant policies of GM Bhd
(10 marks)
(TOTAL: 18 marks)

[END OF QUESTIONS]