CT Dec 2021-FAR210 SUGGESTED SOLUTION PART B PDF

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SUGGESTED SOLUTION -CT FAR210 DEC 2021PART B: SHORT STRUCTURED QUESTIONSQUESTION 1a. The 2018 Conceptual Framework defines a liability as “a present obligation of the entity to transfer an economic resource as a result of past events”. For a liability to exist, the three criteria that must all be sa...

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SUGGESTED SOLUTION -CT FAR210 DEC 2021

PART B: SHORT STRUCTURED QUESTIONS QUESTION 1 a. The 2018 Conceptual Framework defines a liability as “a present obligation of the entity to transfer an economic resource as a result of past events”. For a liability to exist, the three criteria that must all be satisfied are: (a) the entity has a present obligation – a current duty or responsibility that an entity has no practical ability to avoid ; (b) the obligation is to transfer an economic resource - an entity has the obligation to transfer an economic resource (eg. To pay cash, deliver goods or provide service) until it has settled, transferred or replaced that obligation ; and (c) the obligation is a result of past events - only if the entity has already obtained economic benefits or taken goods or services; and as a consequence, the entity will or may have to transfer an economic resource that it would not otherwise have had to transfer. b. On 15 March 2021, the printing of pamphlets worth RM800 are completed and the pamphlets are collected by En. Ahmad, the owner of Mega Trading (past event) . Upon collection of the pamphlets, En. Ahmad, the owner of Mega Trading paid the full amount of printing charge RM800 by cheque immediately. Therefore, there is no present obligation (no present obligation) for Mega Trading to transfer cash to Color Print Ent. in the future (no potential transfer of economic resource) . Therefore, Color Print Ent. cannot be considered as a liability to Mega Trading.

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QUESTION 2 a.

Information regarding the purchase of new machine would be useful to the shareholders of Bonda Berhad: • To monitor the company’s prospects of future net cash inflows, the resources of the

company as well as claims against the company. • How effective & efficient entity’s mgmt. & governing body discharging their

responsibilities in managing the entity’s resources (potential return - the new machine are resources of the company and used in the production process of bahulu cupcakes). • Ability of company to generate income from selling of their products and cost of producing of products (e.g. purchase of assets). • Acquisition of PPE provide relevant info about cash generating potential of company (The new machine would help the company to generate cash inflow and is expected to increase the company’s profit). • Provide info about the extent to which services potential of PPE were consumed in the reporting period & potential to be consumed in the future. • Investors are required to use professional estimates & judgement in assessing info about co’s asset and its potential to generate future net cash flow, both the financial & non-financial info. b.

Asset is a present economic resource controlled by the entity as a result of past events. The machine Model GE101 is an asset of Bonda Berhad since it satisfies the definition of an asset: • The new machine was purchased on 2 December 2020 (past event) . • The new machine is used at the company’s discretion to manufacture the company’s products (resource controlled by the entity) . • The new machine is able to facilitate the production process and to meet the increasing demand of bahulu cupcakes and thus, is expected to result in the flow of cash from the customers to Bonda Berhad (present economic resource) .

c.

A property, plant & equipment (PPE) is a tangible ites that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, & are expected to be used during more than 1 accounting period. The machine Model GE101 can be classified as an item of Property, Plant and Equipment in accordance with MFRS 116 Property, Plant and Equipment because: • The machine has physical form/structure (tangible item) . • The machine is held for use in the production of company’s bahulu cupcakes (held for use in the production of goods) . • The machine is expected to be used for five (5) years (more than one (1) accounting period) .

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d.

The initial cost of the new machine: Invoice price Less: rebate Any directly attributable cost incurred in bringing the asset into intended use and location: Installation cost and assembly cost Delivery and handling cost Testing cost Total

e.

RM 150,000 (5,000) 145,000

20,000 15,000 4,000 184,000

The current year depreciation of the new machine as at 30 June 2021:

Depreciation Expense:( RM184,000 - 25,000) x 7/12 5 years =18,550

f.

2 situations encountered by Bonda Berhad for the month of July 2021: i. Situation 1: accounting treatment Subsequent costs are treated as a capital expenditure only when it enhances the value of the property, plant and equipment i.e. increase the future benefit of the existing asset beyond its originally assessed standards of performance. Otherwise, the subsequent costs are treated as revenue expenditure when it does not enhances the value of the property, plant and equipment. The amount of RM10,000 for installation of special component to the machine Model GE101 is expected to increase the operating capacity i.e. increase the future economic benefit of the machine. Therefore, this amount be treated as capital expenditure and to be added to the carrying value of GE101 The amount cash of RM300 being minor repair cost for another machine Model AA50 is to ensure that this asset to be in proper working condition without increasing the future economic benefit of the machine. Therefore, the cost is regarded as revenue expenditure and recognized in profit or loss as expenses.

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ii. Situation 2: Advise Bonda Berhad on the accounting treatment for the disposal of the machine Model SB20. Accounting Treatment •

Remove the cost of old machine RM35,000 from the company's book of accounts .

•

Eliminate the accumulated depreciation of RM28,000 from the company’s book of accounts .

•

The carrying Amount of RM7,000 [35,000-28,000] must be removed from the company’s SOFP.

•

Recognised the sales proceed of RM9,000 as increase in the company’s cash/bank .

•

Gain on disposal of RM2,000 [9,000-7,000] is recognised as income in the SOPL OR

Cost

35,000

1. Remove cost of 35,000 from the company’s book .

(-) Acc deprn

28,000

2. Remove accumulated depreciation RM28,000 from company’s book .

Carrying value [RM35k – RM28k]

7,000

3. Remove carrying value of RM7,000 from company’s SOFP.

(-) Sales proceed

9,000

4. Sales proceed received of RM9,000 is recognised as increase in company’s bank/cash .

Gain on disposal [RM9k – RM7k]

2,000

5. From this disposal, there is a gain on disposal of RM2,000. The gain on disposal is recognised as other revenue in the SOPL.

END OF SOLUTIONS

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