DPA40093 FINANCIAL ACCOUNTING 4 94 PRESENTATION AND DISCLOSURE REQUIRED IN THE EXTRACT OF FINANCIAL STATEMENTS FOR IMPAIRMENT OF ASSETS. According to MFRS 136, an entity must disclose the impairment loss and the reversal of impairment loss in the Financial Statements annually. For asset carried at cost, any impairment loss will be treated as expenses in the statement of Profit or Loss whereas the reversal of impairment loss is treated as an income in the Statement of Profit or Loss. The value of the assets will be adjusted accordingly to the increase or decrease of that particular assets. For assets carried at revaluation amount, any impairment loss will be treated as decrease in the Revaluation Reserves whereas the reversal of impairment loss is an increase in the Revaluation Reserves. Example 8: Emu Berhad purchased land for RM150,000 on 1 July 2019 and its financial year end is 30 June every year. Emu Berhad has adapted the revaluation model as its accounting policy for the land. The fair value of the land on 30 June 2020 and 30 June 2021 is RM180,000 and RM185,000 respectively. The recoverable amount of the land on 30 June 2020 and 30 June 2021 is RM175,000 and RM190,000 respectively. You are required to determine the revaluation surplus and impairment loss for the land in year 30 June 2020 and 30 June 2021 and the proper recording in the journal entry for both the financial year end. Solution:
DPA40093 FINANCIAL ACCOUNTING 4 95
DPA40093 FINANCIAL ACCOUNTING 4 96 CHECK YOUR OUTCOMES QUESTION 1 a. Define the following: i. impairment loss ii. recoverable amount iii. carrying amount iv. Cash-generating unit b. Provide two (2) internal indicator and external indicator in determine the impairment loss. c. Draw the impairment review process. QUESTION 2 On 1 January 2019, Donut Berhad acquired a plant for RM630,000. Management estimates the useful life of the plant is 6 years and the residual value is RM30,000. On 31 December 2020, the plant damaged and its recoverable amount was estimated at RM350,000. You are required to determine the impairment loss and prepare the journal entry. QUESTION 3 As at 1 January 2018, Koci Berhad has equipment with a cost of RM36,000, and accumulated depreciation of RM12,000. The following information relates to this equipment. i. Koci Berhad uses reducing balance method for depreciation and the depreciation rate per annum is 10%. ii. Koci has determined that the recoverable amount for this asset at 31 December 2020 is RM15,000. You are required: a. Determine the impairment loss for the year 2020 (if any) b. Prepare the journal entries and the extract Financial statement for the year 2020.
DPA40093 FINANCIAL ACCOUNTING 4 97 QUESTION 4 Kecorot Berhad has one machinery that cost RM150,000 and have an estimated useful life of 5 years. The machine has been used for 3 years back and due to physical condition, the production of the machine dropped. In 2019 and 2020, Kecorot Berhad can only generate RM25,000 and RM23,000 respectively and the interest rate is 8%. Kecorot Berhad have done market survey and the fair value is RM42,000 and cost to sell is RM2,000. You are required to: a. Calculate the carrying value of the machine b. Calculate the recoverable amount c. Determine if any impairment loss to be recognized d. Prepare the journal entry and extract Financial Statements. QUESTION 5 Bongkol Berhad had been producing beauty products for many years. The company purchased a machine on 1 January 2018 for RM300,000. The depreciation rate is 10%, straight line method with no residual value. This year 2020, the company decided to provide for impairment loss for the year ended 31 December 2020. The company estimated that fair value less cost to sell and value in use of the machine as that date was RM155,000 and RM138,000 respectively. You are required to: a. Identify the carrying value b. Identify the recoverable value c. Calculate the impairment loss d. Prepare the journal entry e. Construct the extract Financial Statements.
DPA40093 FINANCIAL ACCOUNTING 4 98 QUESTION 6 Murtabak Berhad has a financial year end 31 December annually. It operates a factory which makes headphone. On 1 Jun 2017, the company purchased a machine for RM80,000 with an estimated useful life of 10 years. The machine depreciated using straight line method. On 1 September 2020, a fire at the factory has caused the machine to function with a lower operating capacity. Due to that, Murtabak Berhad has ascertained the following information relating to the machine for the year ended 31 December 2020: i. A new machine would cost RM90,000 if the company is considering to replace the machine. ii. The machine could be sold at its current condition (lower operating capacity) for gross amount RM47,000. Dismantling costs would amount to RM2,000. iii. The machine’s value in use was RM38,685. iv. There was no change to its estimated useful life. You are required to: a. Identify the carrying value b. Identify the recoverable value c. Calculate the impairment loss d. Prepare the journal entry e. Construct the extract Financial Statements. QUESTION 7 Bawang Berhad has the following CGU as at 30 June 2020: RM Goodwill 13,000 Property 20,000 Machinery 49,000 Vehicles 35,000 Intangible assets 14,000 Current assets 19,000 Bawang Berhad carried out an annual impairment review for the CGU and the recoverable amount of the CGU as follows: i. Fair value is RM120,000 and the sales expenses is RM10,000 ii. Present value of the cash flows is determined to be RM105,000.
DPA40093 FINANCIAL ACCOUNTING 4 99 The net selling price of the unit’s asset were insignificant except for property which had a market value of RM35,000. All the current assets will be realized in full based on the carrying amount. You are required to: a. Identify the carrying value b. Identify the recoverable value c. Calculate the impairment loss d. Prepare the journal entry e. Construct the extract Financial Statements. QUESTION 8 The carrying amount of a factory and other assets as CGU as at 1 October 2020 are as follows: RM Plant and machinery 300,000 Building 500,000 Goodwill 40,000 Software 45,000 Cash and bank 185,000 Receivable accounts 100,000 Payable accounts 57,000 At as 30 September 2021, there was a fire in the factory and caused the factory and other assets to function at lower capacity. The recoverable amount of the factory and other assets was estimated to be RM700,000. You are required to: a. Identify the carrying value b. Identify the recoverable value c. Calculate the impairment loss d. Prepare the journal entry e. Construct the extract Financial Statements.
DPA40093 FINANCIAL ACCOUNTING 4 100 QUESTION 9 Below are the information of Garlic Berhad on 31 Mac 2020: RM Plant and machinery 450,000 Motor Vehicles 200,000 Equipment 300,000 Goodwill 185,000 Patent 100,000 Current assets 350,000 Fair value less cost to sell 750,000 Value in use 1,000,000 One of the motor vehicles with carrying amount of RM40,000 incurred total lost during an accident recently. You are required to: a. Identify the carrying value b. Identify the recoverable value c. Calculate the impairment loss d. Prepare the journal entry e. Construct the extract Financial Statements. QUESTION 10 Petola Berhad has been reviewing one item among their pool of assets, which is a piece of machinery to be tested for impairment for the year ended 30 April 2020. The carrying amount as stated in the financial statement is RM180,000 while the fair value less costs to sell is RM150,000. The annual projected cash inflow from this machinery for the next 5 years is RM38,000. The current borrowing rate to purchase the machinery is 7%. You are required to: a. Identify the recoverable value for year 2020 and 2021 b. Calculate the impairment loss for year 2020 c. Prepare the journal entry for 2020 d. Construct the extract Financial Statements for 2020 e. If in the year 2021 the company modified the machinery and revised the fair value less costs to sell to be RM170,000 and value in use is RM190,000. Will there be any reversal for impairment loss in year 2021 f. Based on your answer in (e), prepare the journal entry and the financial statements.
DPA40093 FINANCIAL ACCOUNTING 4 101 QUESTION 11 Pinky Smile Berhad has been producing red velvet cookies in Kuching, Sarawak for many years since 2016. On January 2019, the cost of the group of assets were as follows: RM Dough mixer 50,000 Oven 40,000 Fixture 20,000 Goodwill 30,000 Closing inventories 20,000 Each of these assets does not produce its own cash flows and generate the business’s cash flows a whole. All the assets are depreciated at 5% per annum on reducing balance method. In year 2019, several mechanical problems had caused all the assets to be less productive. Due to that, the production for the cookies declined significantly. For the year ending 2019, the company determined the value in use for these assets were RM57,000. The fair value would be RM60,000 and the costs to sell were estimated at RM2,000. During the year 2020, the company has made some modifications to it mixer, therefore there is an increase of production. On 31 December 2020, the recoverable amount for the group assets was RM80,000. You are required to: a. Identify the carrying value b. Identify the recoverable value for the year 2019 c. Calculate the impairment loss for the year 2019 d. Calculate the reversal impairment loss (if any) for year 2020 e. Prepare the journal entry impairment loss and reversal of impairment loss f. Construct the extract Financial Statements for the year 2019 and 2020
DPA40093 FINANCIAL ACCOUNTING 4 102 QUESTION 12 Pako Berhad is one of the tourism industries is Sarawak. One of the activities of the company is renting out boats to the dam. There are various types of boats available such as speed boat, fishing boat and house boat. One of the house boats was bought on 1 July 2016 for RM1,500,000 and depreciated at 10% annually. During the year 2018, the business was badly hit due to bad weather. On 30 June 2019, the fair value less cost to sell of this boat is RM750,000 and the projected cash flows for the next three years as follows: Year end: RM 30 June 2019 300,000 30 June 2020 250,000 30 June 2021 200,000 The borrowing rate is 10%. You are required to: a. Identify the carrying value b. Identify the recoverable value for the year 2019 c. Calculate the impairment loss for the year 2019 d. Prepare the journal entry impairment loss e. Construct the extract Financial Statements for the year 2019 f. Assuming that, the company revised the cash flows in the year 2020 as follows: Year end: RM 30 June 2020 300,000 30 June 2021 307,000 30 June 2022 315,000 The fair value for year 2020 is estimated to be RM800,000 and the selling costs is RM10,000. Will there be any reversal of the impairment loss? (Include the depreciation expenses for year 2020) If yes, show the journal entry and the extract financial statements.
DPA40093 FINANCIAL ACCOUNTING 4 103 QUESTION 13 At 30 September 2020 Kailan Berhad has a single CGU as follows: RM Cash 400,000 Account receivables 600,000 Provision for doubtful debts (1,000) Inventories 700,000 Property 700,000 Plant and equipment 1,500,000 Accumulated depreciation for plant and equipment (400,000) Goodwill 300,000 Account payables 200,000 Bank loan 100,000 Kailan Berhad determined that value in use is RM3,000,000 whereas the selling price for all the CGU is RM3,200,000 with RM10,000 costs for dismantling the plant. The account receivables are considered collectible except those considered doubtful. The property had a market value of RM720,000. You are required to: a. Identify the carrying value b. Identify the recoverable value for the year 2020 c. Calculate the impairment loss for the year 2020 d. Allocation of the impairment loss for the year 2020 e. Prepare the journal entry impairment loss and construct the extract Financial Statements for the year 2020 f. Assuming that in year 2021, the recoverable amount is RM24,000 greater that the carrying amount in 2021, will there be any reversal of the impairment loss? If yes, show all the relevant calculations, journal entry and the extract financial statements for the year 2021.
DPA40093 FINANCIAL ACCOUNTING 4 104 TOPIC 5 COMPREHENSIVE FINANCIAL STATEMENT - COMPANY MFRS 101
DPA40093 FINANCIAL ACCOUNTING 4 105 INTRODUCTION A company incorporated under the Companies Act 2016 is required to prepare and lays its financial statement before the annual general meeting (AGM) of the company. The reporting period generally covers 12 months but if the period is longer or shorter, the companies must disclose the reason and the fact. Financial reporting in Malaysia is governed by the Companies Act 2016, Financial reporting Act 1997, Central Bank requirements, the Securities Commission Act and the Bursa Malaysia (BM) listing requirements. The preparation of financial statements must comply with the standards set by the Malaysian Accounting Standards Board (MASB). PRESENTATION OF FINANCIAL STATEMENTS MFRS 101 prescribes the basis for presentation of general-purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. MFRS 101 (revised) is a comprehensive guide that covers various aspects of preparing and presenting general purpose financial statements such as those incorporated in the annual reports. To achieve this objective, MFRS 101 sets out: a. overall requirements for the presentation of financial statements; b. guidelines for their structure; and c. Minimum requirements for their contents. LEARNING OUTCOMES At the end of this topic, students should be able to: 5.1 Prepare the Statement of Financial Position and Statement of Profit or Loss and Other Comprehensive Income in accordance with the structure and content prescribed within MFRS and with the relevant accounting treatments as identified. 5.2 Prepare the Statement of Changes in Equity in accordance with the structure and content prescribed within MFRS and with the relevant accounting treatments as identified.
DPA40093 FINANCIAL ACCOUNTING 4 106 Complete Set of Financial Statements: a. Statement of financial position at the end of the period, b. Statement of comprehensive income for the period, c. Statement of changes in equity for the period, d. Statement of cash flows for the period, e. Notes, comprising a summary of significant accounting policies and other explanatory notes f. A statement of financial position at the beginning of the earliest comparative period when the entity makes retrospective adjustments to items in the financial statements or reclassifies them. Financial statements should present fairly the financial position, financial performance and cash flows of an entity. Effects of transactions, events and conditions are accounted and presented with faithful representation to the definition, recognition and measurement criteria for assets, liabilities, income and expenses as set out in the Framework An entity whose financial statements comply with all the requirements of financial reporting standards must disclose explicitly and unreservedly of such compliance in the notes. Fair Presentation requires: i. The selection and application of accounting standards in accordance with MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors. ii. The presentation of information (including accounting policies) in a manner that is relevant, reliable, comparable and understandable. iii. The disclosure of additional information where there is lack of compliance with specific requirements of MASB standards and users may not be able to understand the impact of particular transactions, events and conditions on the position and performance of the entity.
DPA40093 FINANCIAL ACCOUNTING 4 107
DPA40093 FINANCIAL ACCOUNTING 4 108 UNDERLYING PRINCIPLES FOR FINANCIAL STATEMENTS In presenting the financial statements, the following underlying principles are to be followed: i. Going concern ii. Accrual basis of accounting iii. Materiality and aggregation iv. Offsetting STRUCTURE AND CONTENT OF FINANCIAL STATEMENTS An entity or company shall clearly identify the financial statements and distinguish them from other information in the same published document. An entity shall clearly identify each financial statement and the notes. The particulars included the following: i. The name of the reporting entity ii. Whether the financial statements are for an individual entity or a group of entities. iii. The year-end or period covered by the financial statements. iv. The currency v. The level rounding used in presenting amounts in the financial statements. STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME The statement of Profit or Loss and Other Comprehensive Income shall include the income and expenditure accounts, revenue accounts or any other accounts showing the results of the business of a corporation for a certain period. A statement of Profit or Loss and Other Comprehensive Income must be prepared with consistent accounting principles and be presented in a manner which allows easy comparison with previous year results. The statement of Profit or Loss and Other Comprehensive Income is usually prepared by bringing into account all trading income and expenditure to derive the trading profit or loss.
DPA40093 FINANCIAL ACCOUNTING 4 109 BASIC TERMS USED IN STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME REVENUE The Ninth Schedule of the Companies Act requires the sales or other operating revenues of the company to be shown in the comprehensive income and by way of notes stating the basis on which they are determined. INCOME FROM INVESTMENTS The amount of income generated from quoted and unquoted investments should be disclosed separately. DEPRECIATION AND AMORTISATION The amount charged for depreciation of non-current assets must be disclosed by showing the amount charged for each category of depreciable asset. The impairment of goodwill or amortization of other intangible assets must also be disclosed separately. FINANCE COSTS The amount charged in respect of interest on the company’s debentures, loans, overdraft and other borrowings should be disclosed. AUDITORS’ REMUNERATION The total of the amount paid to or receivable by the auditors as remuneration for their services as auditors, inclusive of all fees, percentage or other payments or consideration given by the company or by any subsidiary of the company should be disclosed TAXATION Taxation of the company in respect of the provision made for all taxes on income should be disclosed by distinguishing between taxes payable before double taxation relief in Malaysia; tax payable outside Malaysia; any relief granted because of double taxation; and deferred taxation.
DPA40093 FINANCIAL ACCOUNTING 4 110 DIRECTORS’ REMUNERATION The financial statements of the company should disclose fees and other emoluments paid to or receivable by the directors and past directors of the company. The disclosure is necessary in order to prevent the directors from abusing their power to influence the company into paying them an excessively high remuneration. STATEMENT OF CHANGES IN EQUITY Statement of Changes in Equity details the change in owners' equity over a period. Equity increases with the injection of share capital into the company and with profits earned over a period. Conversely, the Statement of Changes in Equity reports a decrease in equity when a company incurs trading losses and upon repayment of owner's capital and the payment of dividends to owners. The purpose of the statement of changes in equity is to provide investors with the useful information on how the capital or fund of an entity is utilized and used. Since it shows the movements of equity and accumulated earnings and losses, the investors can depict on where the company’s equity came from and where did it go. The disclosure of dividend should include the aggregate amount of the dividends paid and the aggregate amount of the dividends proposed to be paid.
DPA40093 FINANCIAL ACCOUNTING 4 111 BASIC TERMS USED IN STATEMENT OF CHANGES IN EQUITY EQUITY Equity is the residual interest in the assets of the entity after deducting all its liabilities. CAPITAL Capital is funds contributed by owners (shareholders) of the entity, normally called share capital for companies. RESERVE Reserve is an equity account attributable to the owners of the entity other than the amounts directly contributed by the owners. RETAINED EARNINGS Retained earnings are profits or losses that are not distributed but maintained in the entity to finance operations. CAPITAL RESERVE Retained earnings are profits or losses that are not distributed but maintained in the entity to finance operations. REVENUE RESERVE Revenue reserve is reserve that is derived from earnings, and represents appropriation of earnings. DIVIDENDS Distribution of profits to shareholders of a company There are two types of dividends: Cash dividends from retained earnings and share dividends from other reserves Dividends paid on equity instruments are treated as appropriation of profits Dividends declared should not be treated as liability until approved in AGM (MFRS 110.12 -110.13) Interim dividend is the dividend, which is announced and paid before the company has issued its annual financial statements. Final dividend is the dividend, which is paid after the company has issued its annual financial statements for an accounting year.
DPA40093 FINANCIAL ACCOUNTING 4 112 STATEMENT OF FINANCIAL POSITION The function of a statement of financial positions is to give a true and fair view of the state of affairs of the company at a particular date. The Companies Act requires the directors to make out and lay before the company at its annual general meeting with a financial position as at the date at which the profit and loss account is made up. The items in the financial position are normally disclosed under several main headings, namely: a. non-current assets; b. current assets; c. current liabilities; d. non-current liabilities; and e. Shareholders’ equity. BASIC TERMS USED IN STATEMENT OF FINANCIAL POSITION NON-CURRENT ASSETS Non-current assets include property, plant and equipment, intangible assets, financial assets and investments. The valuation bases for each group of assets may be different and therefore they need to be presented under separate line items. The basis of valuation for each group of assets and their corresponding accumulated depreciation must be disclosed. Goodwill, trademark, research and development expenditure, preliminary expenses and patent are categorized as intangible assets. The amount should be shown net of any amount written off and their valuation methods used should also be stated. Investments can be classified as quoted investments and unquoted investments. The market values of the quoted investments should be stated if they differ from the book values.
DPA40093 FINANCIAL ACCOUNTING 4 113 CURRENT ASSETS An asset should be classified as a current asset when it is expected to be realized in, or is held for consumption during the normal course of the enterprise’s operating cycle. Line items under current assets should include inventories; trade and other receivables; and cash and cash equivalents. The valuation method used for inventories should be stated clearly. Description such as “value at lower of cost and net realizable value” or “value at lower of cost and replacement price” can be inserted, by way of note, where applicable. Trade receivables should be distinguished from other receivables. The amount shown as trade receivables should be net of any provision for bad debts. Other receivables should include deposits or prepayments. Cash and cash equivalents include cash on hand and cash at bank. The movements of the cash and cash equivalents are shown in the cash flow statement (NOT COVERED IN THIS SYLLABUS) CURRENT LIABILITIES Current liabilities can be categorized in a similar way to current assets. Liabilities such as trade payables and accruals which form part of the working capital used in the normal operating cycle of the business are classified as current liabilities. Liabilities should be categorized as current liabilities if they become payable within 12 months of the balance sheet date. Payables should include trade payables, other payables and accrued expenses. Other payables consist of dividend payables, income taxes and other non-trade payables. Repayment of bank overdrafts and short-term loans that falls within 12 months of the financial position date should be shown as current liabilities and explained whether they are secured or unsecured. NON-CURRENT LIABILITIES Interest - bearing liabilities that provide the finances for working capital on a long-term basis, and are not due for settlement within 12 months are classified as non-current liabilities. Long-term liabilities should be disclosed separately showing the nature or recipient by groups such as secured loans, unsecured loans, inter-company loans and loans from associated companies.
DPA40093 FINANCIAL ACCOUNTING 4 114 SHAREHOLDERS’ EQUITY Shareholders’ equity is made up of share capital and reserves. Each class of share capital is to be shown separately. The issued capital in each class of share must also be disclosed. The redemption period of the redeemable shares must be disclosed and whether a premium is payable on redemption should also be stated. Capital reserves and revenue reserves make up the total reserves of an enterprise. Movements in share capital and reserves are required to be shown in the statement of changes in equity. Such movements may include transfers between reserves, transfers from reserves to share capital and the application of reserves in writing off items such as dividends expenses. DISCLOSURE AND EXPLANATORY NOTES (EXTERNAL REPORTING ONLY) Disclosure and explanatory notes represent an integral part of and should be read in conjunction with the financial statements of the enterprise. The notes are important as they represent explanation of the financial results of the enterprise. The financial statements may give misleading information if certain items are not disclosed by way of notes. The disclosure and explanatory notes contain information such as significant accounting policies adopted, valuation methods used for assets and liabilities, current market information on securities, extraordinary items, contingent liabilities or any other items which may affect the understanding of the users of the financial statements.
DPA40093 FINANCIAL ACCOUNTING 4 115 FORMAT OF FINANCIAL STATEMENT - INTERNAL PUBLICATION ABC BERHAD STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 RM RM Sales / turnover xx (-) Cost of Goods Sold Opening Stock xx (+) Purchases xx Cost of goods available for sale xx (-) closing stock (xx) Cost of Goods Sold (xx) Gross Profit XX (+) other revenues / income Interest received from investment xx Unrealized gain from quoted/unquoted investment xx Gain on disposal of assets xx xx (-) Operating expenses Selling and distribution expenses: Carriage outwards xx Advertising expenses xx Sales commission xx Administrative expenses: Salaries expenses xx General expenses xx Depreciation expenses on tangible assets xx Directors’ emoluments xx Auditor’s fees xx Impairment of goodwill / assets xx Amortization (write off) of intangible assets (goodwill / preliminary expenses/ R&D expenditure) xx (xx) OPERATING PROFIT xx (-) finance cost/ interest expenses Debenture interest xx Finance cost on lease xx (xx) NET PROFIT BEFORE TAXATION XX (-) Company taxation xx (-) transferred to deferred tax xx (xx) NET PROFIT AFTER TAXATION XX
DPA40093 FINANCIAL ACCOUNTING 4 116 Types of ‘Administrative expenses’
DPA40093 FINANCIAL ACCOUNTING 4 117 ABC BERHAD STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020 Ordinary Shares capital Preference Shares capital General reserves Retained earnings Revaluation reserves RM RM RM RM RM Beginning balance xx xx XX XX xx (+/-) prior period adjustment xx/(xx) Restated beginning balance XX XX XX XX XX Profit for the year (SOPL) xx New issuance of OSC xx Bonus issue for OSC xx (xx) Redemption of PSC (xx) Increase of assets xx (-) appropriation general reserves xx (xx) Interim dividends for: Preference shares (xx) Ordinary shares (xx) Final/Proposed dividends for: Preference shares (xx) Ordinary shares (xx) Ending balance XX XX XX XX XX ABC BERHAD STATEMENT OF FINANCIAL POSITIONS AS AT 31 DECEMBER 2020 RM RM RM NON-CURRENT ASSETS: Land xx Building Xx (-) accumulated depreciation (xx) xx Plant and machinery xx (-) accumulated depreciation (xx) (-) Impairment Loss (xx) xx Right-of-use Assets xx (-) accumulated depreciation (xx) xx XX
DPA40093 FINANCIAL ACCOUNTING 4 118 INVESTMENT Quoted investment xx Unquoted investment xx XX INTANGIBLE ASSETS Research and development expenditure xx (-) accumulated amortization (xx) xx Goodwill xx (-) accumulated impairment loss (xx) xx XX Preliminary expenses (if not written off) xx XX CURENTS ASSETS Inventory xx Debtors /receivable accounts xx (-) Provision for doubtful debts/ Allowance of impairment for doubtful debts (xx) xx Bank / Cash xx Tax recoverable Accrued revenues xx Prepaid expenses xx XX TOTAL ASSETS XXX FINANCED BY ISSUED AND PAID UP CAPITAL Ordinary shares xx X % Preference shares xx XX RESERVES General reserves xx Capital redemption reserves xx Revaluation reserves xx Retained Earnings xx XX NON-CURRENT LIABILITIES X% Debentures xx Deferred taxation xx XX CURRENT LIABILITIES Tax payable xx Creditors/Payable accounts xx Accrued expenses xx Unearned revenues xx Proposed final dividends Preference dividends xx Ordinary dividends xx XX TOTAL EQUITY AND LIABILITIES XXX
DPA40093 FINANCIAL ACCOUNTING 4 119 EXAMPLE 1 This trial balance is derived from Contoh Berhad as follows: Trial Balance as at 30 September 2020 DEBIT (RM) CREDIT (RM) Issued capital: 500,000 ordinary shares of RM1.00 each 500,000 200 000 8% preference shares of RM 1.00 per unit 200,000 10% Debentures 300,000 Retained earnings as 31 October 2019 100,000 Investments – quoted 100,000 Land and buildings 800,000 Office equipment 120,000 Accumulated depreciation 12,000 Closing stock 74,000 Debtors 42,500 Bank 33,000 Gross profit for the year 160,000 Administrative expenses 15,000 Selling expenses 14,000 Directors' remuneration 45,000 Auditors fees 5,500 Software 16,000 Preference dividends 5,000 Ordinary dividends 10,000 Income interest from investment 2,000 Creditors 6,000 1,280,000 1,280,000 Additional Information: a. Land was revalued and the value increase by RM 10,000 on 30 September 2020 and the increase should be credited to the Asset Revaluation Reserve Account. b. Office equipment depreciation is 5% on cost. The management decided to perform impairment test on the office equipment after depreciate the asset. The recoverable amount is 98,000. c. The management have changed the inventory valuation beginning of the year and the effect of the changes in decreased in the inventory amounted to RM12,000. d. transfer RM20,000 to general reserve e. Write off RM2,000 of software as amortization expenses. f. The market value for quoted investment is RM105,000. g. Proposed dividends on preference shares and debentures interest. h. Proposed ordinary dividend of 5% i. company tax is estimated to be RM20,000
DPA40093 FINANCIAL ACCOUNTING 4 120 You are required to: i. Demonstrate the Statement of Profit and Loss and Other Comprehensive Income for the year ended 30 September 2020 ii. Illustrate the Statement of Changes in Equity for the year ended 30 September 2020 iii. Build the Statement of Financial Positions as at 30 September 2020. Solution: Working:
DPA40093 FINANCIAL ACCOUNTING 4 121
DPA40093 FINANCIAL ACCOUNTING 4 122 CONTOH BERHAD STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 2020 RM RM Gross profit for the year (+) other revenues: Income interest from investment (-) operating expenses Administrative expenses Selling expenses Operating profit Finance cost: Net profit before taxation (-) company taxation Net profit after taxation
DPA40093 FINANCIAL ACCOUNTING 4 123 CONTOH BERHAD STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 2020 Ordinary shares capital Preference share capital General reserves Retained earnings Revaluation reserves RM RM RM RM RM Beginning balance (TB) Prior period adjustments Restated beginning balance Profit for the year Increase of assets (-) appropriation Ending balance (SOFP)
DPA40093 FINANCIAL ACCOUNTING 4 124 CONTOH BERHAD STATEMENT OF FINANCIAL POSITIONS AS AT 30 SEPTEMBER 2020 RM RM RM NON-CURRENT ASSETS: INVESTMENT INTANGIBLE ASSETS CURENTS ASSETS TOTAL ASSETS FINANCED BY ISSUED AND PAID UP CAPITAL RESERVES NON-CURRENT LIABILITIES CURRENT LIABILITIES TOTAL EQUITY AND LIABILITIES
DPA40093 FINANCIAL ACCOUNTING 4 125 EXAMPLE 2 The following balances were extracted from the book of Dunia Kita Berhad on 30 April 2020. Dunia Kita Berhad Trial balance as at 30 April 2020 DEBIT (RM) CREDIT (RM) Ordinary shares @ RM1.50 per unit 60,000 7% Debentures 10,000 Retained earnings as at 30 April 2019 36,000 Sales 230,000 Sales return 3,000 Cost of goods sold 140,000 Inventory as at 30 April 2020 24,000 Directors emolument 6,000 Insurance expenses 12,000 Administrative expenses 8,000 Selling and distribution expenses 2,300 Receivable and payable accounts 26,000 11,000 Provision for doubtful debts 400 Fixture and fittings on cost 41,000 Provision for depreciation on fixture and fittings 13,000 Land and buildings on cost 29,000 Bank 16,700 Dividend for ordinary shares capital 3,000 Tax paid 4,000 Goodwill 18,000 Auditors fees 4,000 Wages and salaries 24,000 Deferred taxation 600 361,000 361,000 Additional information: a. The right‐of‐use equipment was acquired on 1 May 2019. The rentals are RM6,000 per annum for four years payable in arrears on 30 April each year. The interest rate implicit in the lease is 10% per annum. Right‐of‐use equipment is depreciated over the lease period. The minimum lease payment of right of use equipment is RM19,014. The accountant yet to record all these transactions. b. Depreciation of Fixture and fittings is calculated on straight line basis with useful lives of 5 years. c. Insurance is paid for a period of one year beginning 1 January 2020 d. Corporate tax rate is 24% and increase the deferred tax to RM1,000. e. The board of directors proposes the following: • Impaired all the goodwill • final dividend of RM0.06 per unit f. Debentures interest is still being accrued for the year. g. Provision for bad debts is increased by RM200. h. The accountant of Dunia Kita Berhad just discovered that the payment made to trade payable accounts totaling RM1,000 in year end 2019 was accounted as employee salaries. You are required to prepare the financial statements for Dunia Kita Berhad for the year ended 30 April 2020 (external publication)
DPA40093 FINANCIAL ACCOUNTING 4 126 Solution: Working:
DPA40093 FINANCIAL ACCOUNTING 4 127
DPA40093 FINANCIAL ACCOUNTING 4 128 DUNIA KITA BERHAD STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 APRIL 2020 NOTES RM RM Sales (-) cost of goods sold Gross profit (+) other revenues (-): operating expenses Operating profit: Net profit before taxation (-) company taxation (-) transferred to deferred tax Net profit after taxation
DPA40093 FINANCIAL ACCOUNTING 4 129 DUNIA KITA BERHAD STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 APRIL 2020 Ordinary shares capital General reserves Retained earnings Beginning balance (TB) Prior period adjustments Restated beginning balance Profit for the year (-) appropriation Ending balance (SOFP) DUNIA KITA BERHAD STATEMENT OF FINANCIAL POSITIONS AS AT 30 APRIL 2020 NOTES RM RM RM NON-CURRENT ASSETS: Land and buildings Fixture and fittings INTANGIBLE ASSETS Goodwill CURRENT ASSETS Closing inventory Receivable accounts Bank Prepaid expenses TOTAL ASSETS FINANCED BY
DPA40093 FINANCIAL ACCOUNTING 4 130 ISSUED AND PAID UP CAPITAL Ordinary shares of RM1.50 each RESERVES General reserves Retained Earnings NON-CURRENT LIABILITIES X% Debentures Deferred taxation CURRENT LIABILITIES Tax payable Proposed dividends Creditors / payable accounts Accrued expenses TOTAL EQUITIES AND LIABILITIES NOTES TO THE ACCOUNT:
DPA40093 FINANCIAL ACCOUNTING 4 131
DPA40093 FINANCIAL ACCOUNTING 4 132 CHECK YOUR OUTCOMES QUESTION 1 The following trial balance has been extracted from the records of Gateway Berhad on 31 December 2020 DEBIT (RM) CREDIT (RM) Profit and loss account 12,000 Sales 400,000 Cost of goods sold 280,000 Wages and salaries 24,600 Administrative expenses 21,500 Debentures interest 1,400 Prepayment expenses 1,200 7% Debentures 20,000 Ordinary shares, RM 2.00 per share 200,000 10% preference shares RM 1.00 per share 30,000 Buildings at cost 100,000 Plant and machinery on cost 120,000 Motor vehicles on cost 60,000 Provision for depreciation: Plant and machinery 28,000 Motor vehicles 11,000 Stock on 31 December 2020 40,000 Debtors and creditors 70,000 52,000 Directors’ emoluments 15,300 Bank 19,000 753,000 753,000 Additional information: a. Included in the prepayment expenses is Insurance expenses for the year ended 31 December 2020. Insurance expenses is RM40 per month. b. Provision for depreciation should be made: 10% Vehicles on carrying amount and Plant and Machinery 5% on cost c. company tax is 24% d. Buildings were valued at RM 140,000 on 31.12.2020. This increase should be credited to the Asset Revaluation Reserve Account. e. Preference share dividend for the year ended on 31.12.2020 will be paid on 1.2.2021 f. Proposed ordinary share dividend 6% to be paid to shareholders. g. An invoice of RM20,000 for a new computer system delivered on 31 December 2020 was yet to received. h. The new carrying amount of plant and machinery is subjected to impairment review and is considered to possess a recoverable value of RM78,000. You are required to prepare: i. Statement of Statement of Profit and Loss and Other Comprehensive Income for the year ended 31 December 2020 ii. Statement of changes in equity for the year ended 31 December 2020 iii. Statement of Financial Positions as at 31 December 2020
DPA40093 FINANCIAL ACCOUNTING 4 133 QUESTION 2 The information below was taken from the book balance of Manual Auto Company on 31 March 2020. Syarikat Manual Auto Berhad Trial Balance at 31 March 2020 DEBIT (RM) CREDIT (RM) Purchases 500,000 Account receivables 46,600 Inventory on 1 April 2019 58,200 Property, plant and equipment (carrying amount) 750,000 Dividends paid 22,000 Distribution expenses 88,500 Administrative expenses 40,600 Bank 100,000 Ordinary shares capital 400,000 General reserves 40,000 Account payable 35,100 Tax payable 9,300 Sales 902,100 Retained earnings 79,400 5% Bank Loan 140,000 1,605,900 1,605,900 The following adjustments need to be considered: a. The inventories on 31 March 2020 amounted at cost, RM61,900. However, management estimated to have a net realized value at RM58,900. b. On 30 March 2020, the company purchased an investment from Kilau Berhad amounted RM40,000 but no entry has yet to been made. c. Current tax estimated is RM58,000. d. Property, plant and equipment are depreciated at a rate of 10% on reducing balance. e. Board of Directors proposes to increase the general reserve to RM45,000 and final dividend of 5%. f. The bank loan was taken on 1 June 2019 to construct a new warehouse. Until the year end, RM80,000 were used to purchase the material for the construction. All the interest expenses of this bank loan are yet to be paid. You are required to: i. Construct the Statement of Statement of Profit and Loss and Other Comprehensive Income for the year ended 31 Mac 2020 ii. Set up the Statement of changes in equity for the year ended 31 Mac 2020 iii. Generalize the Statement of Financial Positions as at 31 Mac 2020
DPA40093 FINANCIAL ACCOUNTING 4 134 QUESTION 3 This trial balance is derived from Lenni as follows: Syarikat Lenni Berhad Trial Balance at 31 December 2020 DEBIT (RM) CREDIT (RM) Ordinary shares capital 240,000 10% Preference shares capital 20,000 Retained earnings 63,250 8% Debentures 28,000 Sales 169,000 Cost of sales 69,310 Ordinary dividend paid 16,000 Administrative expenses 31,025 Selling expenses 28,330 Finance cost 1,900 Land and building 230,560 Plant and equipment 53,430 Accumulated depreciation for plant and equipment 15,915 Unquoted investment 86,000 Trade receivables and payables 4,560 5,280 Bank 16,680 Inventories 3,650 541,445 541,445 Additional Information: a. The fair value of land as at 31 December 2020 is RM245,000. The revaluations not yet recorded in the accounts at the year end. b. The management discovered that a new equipment costing RM6,000 was purchased on 1 January 2020 to replace the old equipment that was purchased on 1 January 2018 at a cost of RM5,500. The selling price is RM5,285. All of this transaction is yet to be recorded. c. Plant and equipment are depreciated over their useful life of 10 years. d. The current tax rate is 24%. e. Finance costs is reflecting the debenture interest for the year ended 2020. f. The board of directors decided to declare the preference dividend and 4% for ordinary shares. g. Market value for unquoted investment is RM88,000. You are required to: i. Expand the Statement of Statement of Profit and Loss and Other Comprehensive Income for the year ended 31 December 2020 ii. Carry out the Statement of changes in equity for the year ended 31 December 2020 iii. Summarize the Statement of Financial Positions as at 31 December 2020
DPA40093 FINANCIAL ACCOUNTING 4 135 QUESTION 4 Given below is the Trial Balance of Harlicks Bhd as at 30 June 2020: DEBIT (RM) CREDIT (RM) Sales 2,648,000 Interest on loan 3,000 Purchases 1,669,000 Distribution expenses 345,000 Administrative expenses 514,000 Dividend paid 6,000 Inventories as at 1 July 2019 444,000 Trade receivables and trade payables 545,000 434,000 Cash and cash equivalents 28,000 Ordinary shares capital @ RM0.50 140,000 General reserves 814,000 Retained profit 349,000 4% Loan 150,000 Land and building 380,000 Plant and equipment 258,000 Accumulated depreciation for plant and equipment 126,000 Quoted Investment 548,000 Dividends income 48,000 Gain on disposal of equipment 7,000 Accrued expenses 24,000 4,740,000 4,740,000 Additional Information: a. Closing inventories were counted and amounted to RM376,000. However, shortly after the stock take took place, inventories at cost of RM10,000 were sold at RM14,000. b. Plant and equipment were depreciated at 10% based on reducing balance method. c. 40% of the accrued expenses has been settled before the year ended. d. Management decided to revalued the land and building and the new value is RM400,000. e. One item of plant with carrying amount RM20,000 (cost RM30,000) was impaired for the year ended 30 June 2020. The fair value is RM16,000 and the value in use is RM15,600. f. The current tax rate is 24%. g. The proposed ordinary dividend is RM0.08 per unit. You are required to: i. Illustrate the Statement of Statement of Profit and Loss and Other Comprehensive Income for the year ended 30 June 2020 ii. Expand the Statement of changes in equity for the year ended 30 June 2020 iii. Generalize the Statement of Financial Positions as at 30 June 2020
DPA40093 FINANCIAL ACCOUNTING 4 136 QUESTION 5 The information below was taken from the book balance of Mila on 31 December2020. DEBIT (RM) CREDIT (RM) Asset revaluation reserves 1,692,000 Ordinary shares capital 2,000,000 7% Preference shares capital 900,000 Retained profits 1,941,250 Sales 3,975,550 Cost of sales 1,673,800 Other revenues 25,000 Administrative expenses 403,200 Selling expenses 142,500 Finance cost 30,000 Preference dividend paid 20,000 Ordinary dividend paid 10,000 Tax paid 43,000 Trade receivables and payables 487,100 474,600 Bank 337,500 8% Long term loan 600,000 Land 2,740,000 Freehold premises 1,620,000 Plant and machinery 805,500 Accumulated depreciation for freehold premises 129,600 Accumulated depreciation for plant and machinery 420,700 Research and development expenditure 80,100 Quoted investment (Market value RM110,000) 106,200 Unquoted investment (Market value RM45,000) 42,400 Inventories 258,750 Cash and cash equivalents 3,358,650 12,158,700 12,158,700 Additional Information: a. Finance costs is related to the interest paid on long term loan. b. The management discovered that RM14,000 received from the trade receivables on October 2019 was recorded as other revenue. c. It is the company policy to depreciated the freehold premises over 40 useful life with RM10,000 scarp value whereas plant and machinery is based on 10 years useful life with no scrap value. d. Amortized 40% of the research and development expenditure as the R&D have been expensed off for the year ended 31 December 2020. e. The board of directors also decided to declare the full year preference shares and 5% dividend for ordinary shares capital. f. The current tax rate is 24% and transfer 10% of the profit to general reserves. You are required to prepare the financial statements for the year ended 31 December 2020 (external publication)
DPA40093 FINANCIAL ACCOUNTING 4 137 QUESTION 6 The Ovaltone Berhad has the following accounts at 31 December 2020 is as follows. RM Inventory at 1 January 2020 82,000 Purchases 707,680 Sales 802,370 Returns inwards 1,490 Return outwards 6,780 Wages 14,980 Salaries of office employees 22,680 Discount received 10,210 Insurance expenses 5,930 Utility expenses 16,700 Repair expenses 3,470 Directors' emoluments 9,600 Advertising expenses 3,290 General expenses 1,720 Tax payable 490 4% Bank Loan 50,000 Goodwill 20,000 Building 200,000 Provision for depreciation of buildings 27,000 Furniture, fittings and fixtures 47,000 Provision for depreciation of furniture, fittings and fixtures 17,900 Vehicle 4,800 Provision for depreciation of Vehicle 2,100 Cash 780 Bank (debit balance) 19,420 Payable Accounts 63,920 Ordinary shares capital 100,000 Retained earnings 1 January 2020 80,770 Additional information: a. Closing inventory at cost is RM95,600 and market value is at RM98,700. b. The rate of depreciation on a straight line: o Buildings 5% o Furniture, fittings and fixtures 10% c. The company changed the depreciation for vehicles from 8 years to 6 years due to the condition of the vehicles. The new remaining useful life of the vehicles is 4 years. d. Corporate tax rate is 25%. e. Proposed dividend is 10%. f. The 4% Bank loan was taken last year to construct a new sales office which was estimated to complete in June 2021. During the year 2020, RM30,000 were used to purchase the material for the construction. The interest expenses are yet to be paid for the year ended 2020. You are required to prepare the financial statement for the year ended 31 December 2020 (external publication)
DPA40093 FINANCIAL ACCOUNTING 4 138 QUESTION 7 Given below is an extract of a trial balance of Borak Berhad as at 30 September 2020. You are required to prepare the Financial Statements based on the requirements of MFRS 101 (internal publication) DEBIT (RM) CREDIT (RM) Ordinary shares of RM1.50 each 600,000 10% Preferences shares of RM2 each 200,000 Retained profits 1 October 2019 120,000 Deferred tax liability 50,000 Purchases and Sales 370,000 890,000 Inventories 120,000 Advertising 45,000 Wages and Office salaries 200,000 Preliminary expenses 5,000 Office expenses 55,000 Directors’ emoluments 20,000 Audit fees 5,000 10% debentures 200,000 Interims dividends Preferences dividends 7,200 Ordinary dividends 25,200 Assets revaluation reserve 50,000 General reserve 40,000 Debenture interest 10,000 Receivable and Payable accounts 90,000 40,000 Tax paid 35,000 Properties (cost) 1,200,000 Office equipment (cost) 100,000 Accumulated depreciation Properties 140,000 Office equipment 60,000 Bank 102,600 2,390,000 2,390,000 Additional information: a. The management decided to change the valuation of inventories from weighted average to FIFO on 1 October 2019 and the new opening inventories based on FIFO is RM125,000 and the closing inventories calculated based on FIFO is RM150,000. b. Provisions are to be made for: - - accrued debenture interest of RM10,000 - depreciation on properties of RM50,000 and office equipment of RM15,000 - preliminary expenses to be written off c. A property was revalued and the value increase by RM 20,000 on 30 September 2020. d. Tax charge on the current year’s profit is estimated to be RM38,000. e. The directors issued additional ordinary shares capital 50,000 unit at RM1.50 and this new issuance is entitled for the final dividends for the year ended 2020. f. The directors propose to provide for final preference dividends and final ordinary dividends of 7%.
DPA40093 FINANCIAL ACCOUNTING 4 139 QUESTION 8 The following trial balance was extracted from JJCM Berhad as at 31 December 2020: (RM) Gross profit for the year 945,000 Revenues on unquoted investment 20,400 Audit fees 26,000 General expenses 45,500 Utilities expense 76,500 Directors’ emolument 26,000 Offices salaries 128,500 Sale expenses 30,500 Administrative expenses 28,300 Ordinary share dividends (interim) 3,500 Preference share dividends (Interim) 2,500 Debtors 128,000 Provision for doubtful debts 2,500 Bank (debit balance) 192,700 Cash 83,000 Stock as at 31 December 2020 32,000 Unquoted investment 150,000 Research and development expenditure 40,000 6% Preference shares capital @ RM2.00 200,000 Ordinary shares capital @ RM1.00 400,000 General reserves 95,000 Profit and Loss Account as at 1 January 2020 412,250 7% Debentures 60,000 Debenture interest 2,000 Creditors 119,850 Land and buildings 620,000 Plant and machinery 370,000 Motor vehicles 270,000 Fixture and fittings 200,000 Accumulated depreciation for plant and machinery 100,000 Accumulated depreciation for motor vehicles 60,000 Accumulated depreciation for fixture and fittings 40,000 Additional information: a. Depreciation of non-current asset as follows: Plant and machinery, motor vehicles - 10% on book value Fixture and fittings - 15% on cost with RM4,000 residual value. b. Revenues on unquoted investment amounted RM4,800 has not been received for the year ended 2020.
DPA40093 FINANCIAL ACCOUNTING 4 140 c. Board of directors proposed the following: - 40% Research and development expenditure to be written off. - Transferred 4% from gross profit to general reserves. - Final dividends on preference shares - 9% final dividends on ordinary shares. d. Debentures interest for the year ended 2020 has not been fully provided yet. e. Company tax is 24%. f. The marketing executive submitted their claims amounting to RM12,000 on 15 November 2019 but no adjustment has been made into the accounts and the claims is yet to be paid. g. The accountant discovered that operation department have leased a new equipment on 1 January 2020 with RM16,000 as annual rentals payment. The lease term is four years payable in advance on 1 January 2020. The interest rate implicit in the lease is 8% per annum. The useful life of this machinery is 6 years. You are required to: i. Illustrate the Statement of Statement of Profit and Loss and Other Comprehensive Income for the year ended 31 December 2020 ii. Expand the Statement of changes in equity for the year ended 31 December 2020 iii. Generalize the Statement of Financial Positions as at 31 December 2020.
TABLE 1 – PRESENT VALUE INTEREST
T FACTORS FOR SINGLE CASH FLOWS
TABLE 2 – PRESENT VALUE INTER