AC/APR 2010/FAR450/FAC450

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UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE

GROUP ACCOUNTING AND REPORTING/

ADVANCED FINANCIAL ACCOUNTING 2

COURSE CODE

FAR450/FAC450

EXAMINATION

APRIL 2010

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.
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 8 printed pages
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AC/APR 2010/FAR450/FAC450

QUESTION 1
On 1 January 2009, Flaxseed Bhd purchased 80% of the issued ordinary shares of Sesame
Bhd. The acquisition was through a share exchange of three shares in Flaxseed Bhd for
every five shares in Sesame Bhd. The market price of Flaxseed Bhd's shares on 1 January
2009 was RM5 per share. In addition, Flaxseed Bhd paid RM1 million in professional fees to
the accountants and lawyers for services rendered in relation to the acquisition, and these
costs were charged as administrative expenses.
On 1 October 2009, Flaxseed Bhd acquired 12 million issued ordinary shares in Olive Bhd,
paying RM2 per share in cash and issuing to Olive Bhd's shareholders 6% loan notes on the
basis of RM100 loan note for every 100 shares acquired.
The summarised income statements of Flaxseed Bhd, Sesame Bhd and Olive Bhd for the
year ended 31 December 2009 are as follows:

Revenue
Cost of sales
Gross profit
Dividend received from Sesame Bhd
Distribution costs
Administrative expenses
Finance costs
Profit/(loss) before tax
Taxation
Profit/(loss) for the period

Flaxseed
Bhd
RM'million
210
(136)
74
0.8
(8)
(15)
(2.4)
49.4
(17.4)
32

Sesame
Bhd
RM'million
124
(73)
51

Olive
Bhd
RM'million
100
(80)
20

(4)
(14)
(1.8)
31.2
(5.2)
26

(6)
(16)
(2)
(2)

The following information is relevant:

1.

The details of Flaxseed Bhd's, Sesame Bhd's and Olive Bhd's share capital and
reserves on 1 January 2009 were:
Flaxseed
Sesame
Olive
Bhd
Bhd
Bhd
RM'million
RM'million
RM'million
Ordinary shares of RM1 each
100
40
30
Retained earnings
64
36
70

2.

A fair value exercise was carried out on 1 January 2009 on Sesame Bhd's assets,
and the exercise revealed:

Plant
Land
Intellectual property

Carrying amount
RM'million
60
34
36

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Fair value
RM'million
70
40
44

Remaining life
Five years
Not applicable
Still in
development stage
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AC/APR 2010/FAR450/FAC450

The fair values have not been reflected in Sesame Bhd's financial statements.
No fair value adjustments were required on the acquisition of Olive Bhd.
3.

Plant depreciation is included in cost of sales.

4.

During the year ended 31 December 2009, Flaxseed Bhd sold goods to Sesame Bhd
invoiced at RM36 million, which was cost plus 25%. RM15 million (at invoice value)
of these goods were still in the inventories of Sesame Bhd at 31 December 2009.

5.

Impairment tests for both Sesame Bhd and Olive Bhd were conducted on 31
December 2009. Goodwill of Sesame Bhd was impaired and should be written down
by RM3.2 million. The recoverable amount of Flaxseed Bhd's investment in Olive
Bhd was RM35 million.

6.

All profits and losses are deemed to accrue evenly throughout the year.

Required:
a.

Calculate the goodwill arising on the acquisition of Sesame Bhd at 1 January 2009.
(5 marks)

b.

Calculate the carrying amount of the investment in Olive Bhd at 31 December 2009
prior to the impairment test.
(4 marks)

c.

Prepare the consolidated income statement for the Flaxseed Bhd Group for the year
ended 31 December 2009.
(10 marks)

d.

Show the composition of retained profits as at 31 December 2009.

(5 marks)

e.

Assuming that Olive Bhd reports a loss of RM100 million for the year ending 31
December 2010, explain how this loss will affect the carrying amount of the
Investment in Olive Bhd in that year's group balance sheet.
(3 marks)
(Total: 27 marks)

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AC/APR 2010/FAR450/FAC450

QUESTION 2
On 1 January 2009, Millet Bhd acquired 6 million equity shares in Soy Bhd. The purchase
consideration was discharged as follows:
a. an exchange of one share in Millet Bhd for every two shares in Soy Bhd. The par
value of the equity shares of Millet Bhd and Soy Bhd are RM1 each. The market
price of Millet Bhd's shares on 1 January 2009 was RM4 per share.
b. an immediate cash payment of RM5 million.
c. a deferred cash payment on 1 January 2010 of RM2 per share acquired. Based on
Millet Bhd's cost of capital, RM1 receivable in one years' time can be taken to have a
present value of RM0.90.
Only the immediate cash payment has been recorded by Millet Bhd.
On 1 July 2009, Soy Bhd acquired 60% of the equity shares of Rye Bhd for RM9 million and
20% of the redeemable preference shares of Rye Bhd for RM2 million.
The summarised balance sheets of Millet Bhd, Soy Bhd and Rye Bhd at 31 December 2009
are as follows:

Assets
Property, plant and equipment
Investment in Soy Bhd
Investment in Rye Bhd
Inventory
Receivables
Current account - Millet Bhd
Ordinary dividend receivable
Bank

Equity and liabilities

Ordinary shares
Retained profit
- at 31 December 2008
- for the year ended 31 December 2009
8% Debentures
Redeemable preference shares
Payables
Current account - Soy Bhd
Ordinary dividend payable
Bank overdraft

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Millet Bhd
RM'million

Soy Bhd
RM'million

Rye Bhd
RM'million

49.8
5

15.8

23.4

0.3
2

11
8.3
1.8
1.5
0.6
1.2

79

40.2

37.1

20

10

22
16
10

13
4.8
6

6.5
3.4

8
1
2

7.8
0.4
0.2

79

40.2

37.1

13.8
8.1

9.8
3

0.9

10
6.2

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AC/APR 2010/FAR450/FAC450

The following information is relevant:

1.

On 1 January 2009, the carrying values of all the assets and liabilities of Soy Bhd
reflected their fair values. On the same date, Soy Bhd had an unrecognised
identifiable trademark with a fair value of RM2 million, and a contingent liability of
RM1.4 million which will arise only on a business combination. The trademark has an
indefinite economic life. The contingent liability has not been settled as at 31
December 2009.

2.

On 1 January 2009, Millet Bhd sold an item of plant to Soy Bhd at its agreed fair
value of RM5 million. Its carrying amount prior to the sale was RM4 million. The
estimated remaining life of the plant at the date of sale was five years. Plant is
depreciated using the straight line method, with no residual value.

3.

During the year ended 31 December 2009, Soy Bhd sold goods to Millet Bhd for
RM5.4 million. Soy Bhd had marked up these goods by 50%. Millet Bhd had one third
of the goods still in its inventory at 31 December 2009.

4.

Soy Bhd's bank has not credited its account for RM500,000 remitted by Millet Bhd on
31 December 2009.

5.

Impairment tests on 31 December 2009 indicated that goodwill on acquisition of Soy

Bhd was impaired by RM1.8 million.

Required:
a.

Explain how the trademark and contingent liability in note (1) above will be dealt with
in the consolidated accounts of Millet Bhd.
(3 marks)

b.

Compute the cost of acquisition in Soy Bhd, and show the journal entries to record
the acquisition in the books of Millet Bhd.
(5 marks)

c.

Prepare the consolidated balance sheet for Millet Bhd Group as at 31 December
2009.
(25 marks)
(Total: 33 marks)

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AC/APR 2010/FAR450/FAC450

QUESTION 3
Given below are the consolidated balance sheets of Cayenne Bhd Group:
Consolidated Balance Sheet as at 31 December
2009
RM'million
Assets
Property
Plant
Deferred development expenditure
Goodwill on consolidation
Inventory
Trade receivables
Interest receivable
Short term deposits
Cash and bank

210
260
50
100
210
359
2
60
35
1,286

294
146
235
50
175
404
3
135
8_

1,450
Equity and liabilities
Ordinary shares at RM l e a c h
Share premium
Revaluation reserve
Retained profit
Minority interest
10% Debentures
Deferred tax
Trade payables
Tax payable
Bank overdraft

2008
RM'million

350
30
56
572
31
10
45
265
28
63
1,450

200
23
583
54
75
38
258
55

1,286

The following additional information is relevant:

1.

Property and plant

Cost / valuation
Accumulated depreciation
Carrying value

31 December 2009
Property
Plant
RM'million RM'million
300
220
6
74

294

146

31 December 2008
Property
Plant
RM'million RM'million

250
40
210

312
52
260

Property was revalued on 1 January 2009 resulting in a surplus of RM35 million. On

31 December 2009, RM2 million was transferred to retained earnings representing
the realisation of the revaluation reserve due to depreciation of buildings.
During the year, a new plant costing RM30 million was acquired and some old plant
were disposed for RM7.5 million at a loss of RM6 million.

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AC/APR 2010/FAR450/FAC450

2.

The following extract is from the draft consolidated income statement for the year
ended 31 December 2009:
RM'million
Operating profit
24
Interest receivable
12
Gain on disposal of subsidiary
8
Finance costs
(24)
Profit before tax
20
Tax
(5)
Profit after tax
15

3.

The operating expenses include impairment of goodwill, amortisation charges,

depreciation charges and loss on disposal of plant.

4.

Profits for the year attributable to minority interest was RM3 million.

5.

Dividends of RM25 million were paid during the year by Cayenne Bhd.

6.

Cayenne Bhd successfully completed the development of a new product during the
current year, capitalising a further RM250 million before amortisation charges for the
period.

7.

On 1 April 2009, Cayenne Bhd sold off all of its 85% interest in Chilly Bhd for
RM131.5 million cash. The carrying value of the goodwill in Chilly Bhd on 1 April
2009 was RM30 million.
On the date of disposal the assets and liabilities of Chilly Bhd were as follows:

Plant
Accumulated depreciation
Inventory
Trade receivables
Bank balance
Trade payables
10% Debentures
8.

RM'million
90
30
20
30
80
15
65

The short term deposits meet the definition of cash equivalents.

Required:
Prepare the consolidated cash flow statement using the indirect method for Cayenne Bhd
Group for the year ended 31 December 2009. Notes are not required.
(21 marks)

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AC/APR 2010/FAR450/FAC450

QUESTION 4
On 1 January 2006, Taupo Bhd purchased 400,000 ordinary shares in Reinga Bhd for RM5
million. The issued share capital of Reinga Bhd of RM500,000 comprise ordinary shares of
nominal value of 50 sen each. Taupo Bhd was able to cast the majority of votes at the
annual general meeting of Reinga Bhd.
On 1 July 2009, Taupo Bhd sold 50% of its shares in Reinga Bhd for RM4 million and
Taupo Bhd lost control of Reinga Bhd. Taupo Bhd had computed the gain on disposal of the
shares in Reinga Bhd by comparing the sale proceeds with the corresponding cost of
investment. Taupo Bhd has credited the gain on disposal to both its individual and group
income statements.
The reserves of Reinga Bhd were as follows:
Date
1 January 2006
1 January 2009
31 December 2009

Retained profit
RM'000
3,000
5,000
5,450

Revaluation reserves
RM'000
500
600
600

Goodwill was impaired by 20% on 31 December 2008 and there was no further impairment.
Required:
a.

Calculate the gain on disposal of shares in Reinga Bhd as computed by Taupo Bhd.
(2 marks)

b.

Do you agree that the same amount of gain on disposal as calculated in (a) above
can be credited to both Taupo Bhd's individual and group income statements? State
your reasons and numerically support your answers.
(10 marks)

c.

How would Taupo Bhd account for its investment in Reinga Bhd in the group balance
sheet as at 31 December 2009? Show the detail composition of Taupo Bhd's interest
in Reinga Bhd as would appear in the group balance sheet as at 31 December 2009.
(5 marks)

d.

Explain how the results of the operations of Reinga Bhd would be included in the
group income statement for the year ended 31 December 2009.
(2 marks)
(Total: 19 marks)

END OF QUESTION PAPER

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