PRE TEST 1 Solution 1 TUTORIAL QUESTIONS PDF

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING 1 (FAR610)PRE-TEST QUESTIONSQUESTION 1Palie Bhd is the industry leader in production of herbs products. It has expanded its business by investing in Suria Bhd and Lela Bhd. The statements of financial position of Palie Bhd, Suria Bhd and Lela Bhd as at 31 ...

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ADVANCED FINANCIAL ACCOUNTING AND REPORTING 1 (FAR610) PRE-TEST QUESTIONS QUESTION 1 Palie Bhd is the industry leader in production of herbs products. It has expanded its business by investing in Suria Bhd and Lela Bhd. The statements of financial position of Palie Bhd, Suria Bhd and Lela Bhd as at 31 December 2019 are as follows:

ASSETS Property, plant and equipment Investment in Suria Bhd: 3,200,000 Ordinary shares 400,000 Preference shares Investment in Lela Bhd Other investments Intangibles Inventory Bills receivable Trade receivables Ordinary dividends receivable Bank TOTAL EQUITIES AND LIABILITIES Ordinary shares at issue price of RM1 10% Preference shares at issue price of RM1 Other reserves Retained profit as at 1 January 2019 Profit for the year ended 31 December 2019 Long Term loan Bills payable Trade payables Ordinary dividends payable TOTAL

Palie Bhd RM ‘000

Suria Bhd RM ‘000

Lela Bhd RM ‘000

7,000

1,400

2,500

3,750 400 3,000 150 180 1,500 360 560 190 380 17,470

-

-

3,380 300 40 1,100 150 370 80 100 6,920

150 860 80 420 10 140 4,160

11,300 1,500

4,000 1,000

2,500

2,100 1,070 440

340 700 350

250 300 250

380 680 17,470

110 220 200 6,920

500 180 50 130 4,160

Acquisition of Suria Bhd Palie Bhd acquired the ordinary shares and preference shares in Suria Bhd on 1 January 2017 on the following terms: i.

The consideration for the ordinary shares acquired was settled by Suria Bhd’s shareholders accepting 800,000 ordinary shares of Palie Bhd valued at RM2 each, and

ii.

Initial cash payment of RM2,150,000. The cash payment had been recorded by Palie Bhd.

On the date of acquisition, the other reserve and retained profit of Suria Bhd were RM50,000 and RM480,000 respectively. No new shares were issued by Suria Bhd since the acquisition date. On 31 December 2019, goodwill on acquisition of Suria Bhd has been impaired by RM20,000. Acquisition of Lela Bhd On 1 January 2019, Palie Bhd and Suria Bhd acquired 30% and 40% of the issued ordinary shares of Lela Bhd respectively when the other reserve of Lela Bhd was RM130,000. The net assets of Lela Bhd on 1 January 2019 were stated in the books at their fair values except for: i.

A building whose fair value was RM200,000 in excess of its book value. No adjustment was made in the books of Lela Bhd to reflect this value. The remaining life of the building was 25 years.

ii.

A patent of fair value RM4,000,000 which was not recorded in the books since the right was granted at no cost to Lela Bhd. The patent right should be amortised for 10 years.

Acquisition of Aman Bhd The other investment of Palie Bhd refers to a 25% interest in the equity shares of Aman Bhd which was acquired on 1 April 2019. Aman Bhd’s profit for the year ended 31 December 2019 was RM260,000, in which RM60,000 of this profit was made before 1 April 2019. The investment in Aman Bhd was assessed to be impaired by RM10,000. Inter-company transactions 1)

Included in the profit for the year of Palie Bhd is the unrealised profit of RM80,000 on the sale of land to Suria Bhd.

2)

Palie Bhd sold RM400,000 worth of goods to Aman Bhd at cost plus 25% in the month of July 2019. RM200,000 of these goods remained in the inventory of Aman Bhd at 31 December 2019.

3)

Palie Bhd and Suria Bhd have recorded ordinary dividends receivable from their respective investments.

4)

RM200,000 of the long-term loan of Lela Bhd was a loan obtained from Palie Bhd. Palie Bhd had included this amount as part of its bill receivables.

5)

During the year, Suria Bhd sold goods of RM100,000 on credit to Palie Bhd. All these goods were sold by Palie Bhd to third parties during the year. As at

31 December 2019, Palie Bhd paid RM30,000 for the goods purchased from Suria Bhd, but Suria Bhd only received RM20,000 thereof.

Selected Accounting Policies 1) 2)

3)

The non-controlling interest is measured in proportion to the fair value of the net assets of the subsidiary on acquisition date. It is the group’s policy to provide depreciation for all assets using the straightline method and full year depreciation is to be provided in the year of purchase and none in the year of disposal. All profits are deemed to accrue evenly throughout the year, unless told otherwise.

Required: a.

Compute goodwill/bargain purchase on the acquisition of Suria Bhd. (4 marks)

b.

Compute goodwill/bargain purchase on the acquisition of Lela Bhd. (5 marks)

c.

Compute the carrying value of investment in associate as at 31 December 2019. (3 marks)

d.

Compute the group retained profit, group other reserve and non-controlling interest using schedule form. (10 marks)

e.

Prepare a Consolidated Statement of Financial Position for Palie Bhd’s Group as at 31 December 2019. (18 marks) (Total: 40 marks)

FAR610 | OCT 2020 | SUGGESTED SOLUTION TEST 1

Holding

NCI

Palie Bhd direct in Suria Bhd

0.80

0.20

Palie Bhd direct in Lela Bhd

0.30

Palie Bhd indirect in Lela Bhd

W 1

1/1/20 19 1/1/20 19

0.32 0.62

0.38

Suria Bhd 2,150 √ 1,600 √

Goodwill CT – Cash CT – Shares CT – Indirect

Lela Bhd 3,000 √

(0.20 X 4,530)

3,380 √

(0.20 X 3,380) (0.38 X 7,130)

NCI – Indirect NCI

DOA 1/1/20 17

√ 906 √

(676) √ 2,709. √ 4 √ 8,413. 4

4,656 FV of NA of Sub Share capital Retained earning Other reserve ARR – Building ARR – patent

4,000 √ 480 √ 50 √ 0 0 (4,530)

Goodwill Impairment

126 (20) √

To CSOFP

106

2,500 300 130 200 4,000

√ √ √ √ √ (7,130) 1,283. 4 1,283. 4

a. Goodwill Suria Bhd (8√x 1/2-=4 marks) b. Goodwill Lela Bhd (10√x1/2= 5 marks) c. W 2

Investment in Associate Cost of investment Share of profit from Associates (SOPL) RE c/d RE DOA Less: URP Inventory Post acquisition RE Interest in Associate Less: Impairment

Aman Bhd 150 √ 260 √ (60) √ (40) √ 160 25%

40 (10) √

Share of post acquisition profit of Associate Carrying value of investment in A @ YE d. W3

30 √ 180 (6√ x ½= 3 marks)

Analysis of financial statements - c/d GRE NCI's value @ DOA NCI's value @ DOA Investment NCI in NCI's interest in PS of

Suria Bhd Lela Bhd Lela Bhd Suria Bhd

Post RE of RE c/d RE DOA

Suria Bhd 1,050 √ (480) √ 570

Post OR of OR c/d OR DOA

Post RE of RE c/d RE DOA Depn ARR Build (25yr) Amort ARR Patent (10yr)

Post OR of OR c/d OR DOA

RE of RE URP land Impairment of g/will Share of profit from ass Impairment of g/will (A) Group OR To CSOFP

OGR

NCI 906 2,709.4 (676) 600 √

0.6 x 1,000

456

Suria Bhd 340 √ (50) √ 290

114 √

232

58 √

Lela Bhd 550 √ (300) √ (8) √ (400) √ (158)

(97.96)

Lela Bhd 250 √ (130) √ 120 Palie Bhd 1,510 (80) (20) 40 (10)

√ √ √ √

(60.04) √

74.40

45.6 √

1,440 2,100√ 1,798.0 2,406. 4 4

3,696.9 6

(20√ x1/2= 10 marks)

Consolidated Statement of Financial Position as at 31 December 2019 √

GROUP RM’000 Non-current Assets PPE (7+1.4+2.5) +0.2-0.08-0.008 Investment in Associate Aman Bhd (W2) √ Other investment (0.3+0.15) Intangibles (0.18+0.04) +4-0.4 Goodwill (W1) √ Current Assets Inventory (1.5+1.1+0.86) Bills receivable (0.36+0.15+0.08) -0.20 Trade receivables (0.56+0.37+0.42) -0.08 Ordinary dividends receivable (0.19+0.08+0.01) – (80% x 0.2= 0.16) – (30% x 0.13 =0.039) – (40% x 0.13=0.052) Bank (0.38+0.1+0.14) +0.01

11,012 √√√√ 180 450 √ 3,820 √√√ 1,389.4

3,460 √ 390 √√ 1,270 √√ 290 √√√√ 630 √√ 22,630. 4

Equities Ordinary shares of RM1 10% Preference shares of RM1 Other reserve √ (W3) Retained profit √ (W3) Non-controlling interest√ (W3) Non-current Liability Long term loan (0.5-0.20) Current Liabilities Bills payable (0.38+0.11+0.18) Trade payables (0.68+0.22+0.05) -0.07) Ordinary dividends payable (0.2+0.13) -0.16-0.039-0.052

11,300 √ 1,500 √ 2,406.4 1,798.0 4 3,696.9 6

300 √√

670 √ 880 √√ 79 √√√√ 22,630. 4 (36 x ½= 18 marks)...