CONFIDENTIAL AC/APR2019/FAR320

UNIVERSITI TEKNOLOGI MARA

COMMON TEST 1
SUGGESTED SOLUTION

COURSE : FINANCIAL ACCOUNTING 5

COURSE CODE : FAR320

EXAMINATION : APRIL 2019

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QUESTION 1

A.
a. Calculate the initial cost of the aquarium:

Aquarium
RM
Purchase price 55,000√
Delivery and handling 3,500√
Testing 4,500√
Total 63,000√

(4√ x 1/2=2 marks)

b. According to MFRS116 PPE, an entity shall choose Cost Model√ or Revaluation Model√
Cost model = Item carried at its cost less accumulated depreciation and accumulated
impairment losses√
Revaluation model = Item carried at revalued amount (FV) less subsequent accumulated
depreciation and subsequent accumulated impairment losses√

(4√ x1= 4 marks)

c. i. On 1 January 2017, there was a replacement of air pump. The cost of the new air pump,
RM2,800√ will be capitalised√ because the replacement will reduce the operating cost of the
aquarium√. The carrying amount of the old pump of RM1,400√ will be derecognized√ from
the CA of the aquarium. CA of the aquarium after the replacement was RM45,500√.

Workings:
CA old air pump = RM2,000 – (RM2,000/10x 3 yrs) = RM1,400^^
CA aquarium before replacement = RM63,000 – (63,000/10x 3 yrs) = RM44,100
CA aquarium after replacement = RM44,100 + RM2,800 – RM1,400 = RM45,500^^
(6√ x1 = 6 marks)

ii. Journal entries

Particulars Debit (RM) Credit (RM)
Aquarium√ 2,800
Bank√ 2,800√

Accumulated depreciation√ 600

SOPL√ 1,400
Aquarium √ 2,000
(6√ x1/2 = 3 marks)

d. Impairment loss = RM32,500√ – 32,000√

= RM500√

Workings:
CA 31/12/18 = RM45,500 – (RM45,500/7 x 2yrs)
= RM32,500

RA was RM32,000 the higher between FV-CTS (RM32,000) and VIU (RM31,000).
(3√ x1 = 3 marks)

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B. Movement of the property, plant and equipment for the year ended 31 December 2017
and 31 December 2019.

Machine
Valuation 2017 2019
Opening balance 1,500,000√ 1,400,000√
ARR-Surplus (1.4M-1.2M) 200,000√
Elimination acc dep (300,000)√ (1.5M/10 x 2 )
Disposal (1,400,000) √
Closing balance 1,400,000 -

Accumulated depreciation
Opening balance 300,000√ 420,000√
Depreciation 175,000√ (1.4M/8) 61,250 √ (1,225,000/5 x 3/12)
Elimination acc dep (300,000) √
Disposal (481,250) √
Closing balance 175,000 -

Carrying value 1,225,000√ -

(12√ x ½ = 6 marks)
(Total: 24 marks)
QUESTION 2
a.
i. Explain the accounting treatment for research costs.
Research costs should be expensed off into SOPL because the amount of
future benefits from research activities, is too uncertain to establish.
(2√ x ½ = 1 mark)

ii. List any TWO (2) of the criteria:

 There is technical feasibility of completing the intangible assets;
 There is intention to complete the intangible asset and use or sell it;
 There is ability to use or sell the intangible assets;
 The entity can demonstrate the existence of a market for the output of the
intangible assets, or if used internally, it has usefulness;
 There is adequate technical, financial and other resources to complete the
development;
 Able to measure reliable the expenditure attributable to the intangible asset.
(Any 2 points = 2 marks)
b.
i. Calculate development costs that can be capitalized.
Particulars RM
Material 5,000,000 
Depreciation 100,000 
Consultant fees 2,000,000 
Legal fees 45,000 
7,145,000

Development costs expensed off:

1/8/2016 - 31/12/2016= 5 months
Development costs capitalized (1/1/2017 – 31/12/2017 = 12 months)
RM7,145,000OF x 12/17 months = 5,043,529
(6 x ½ mark= 3 marks)

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ii. Briefly explain the accounting treatment for the internally generated customer
lists.
The internally generated customer lists of RM50,000 is to be expensed off into
SOPL because the cost cannot be distinguished from the cost of running the
business (violate identifiability characteristic of an IA).
(2 x ½ mark= 1 mark)

iii. Prepare Statement of Profit or Loss (extract) for the year ended 31 December
2016, 2017 and 2018.
(Give full tick for correct classification)
Statement of Profit or Loss (extract) for the year ended:
31/12/2016 31/12/2017 31/12/2018
RM RM RM
Research expenses 98,000 - -
Development expenses 2,101,471 - -
Amortization-Development - - 504,353
Amortization-Trademark - - 100,000
Impairment Loss-Trademark 75,000
Customer lists 50,000
(14 x ½ mark= 7 marks)
[Workings-Give full tick for correct calculation]

Research expenses:
RM
Survey costs 25,000
Salary 30,000
Other research costs 43,000
98,000 

Development costs expensed off:

1/8 - 31/12/2016= 5 months (5/17 months x RM7,145,000) = RM2,101,471

Amortization-Development
RM5,043,529/10 years = RM504,353

Amortization-Trademark
RM600,000/3 years x 6/12 = RM100,000

Impairment Loss
VIU=RA= RM600,000
CV= RM675,000

CV > RA
Impairment loss = RM675,000-600,000 = RM75,000

(Total= 14 marks)

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QUESTION 3

A. i) On 1 January 2019, there was a transfer from IP to PPE√ when there is a change of
use√ from rent out to third party to rent out to its workers.
(2√ x 1 mark = 2 marks)

ii) According to MFRS140, investment property can be removed from SOFP when the
investment property permanently withdrawn from use√ and no future economic benefits
are expected from its disposal√.
(2√ x 1 mark = 2 marks)

B.
i) In 2015, the office building can be classified as investment property√ as the office
building was rented out to third party√. Even though Star Bhd provides security
and maintenance to the occupants of the office building, these services are
insignificant to the whole arrangement. Thus the building can be classified as
investment property.
(2√ x 1 mark = 2 marks)
ii) Journal Entries on 31 December 2016:

Dr Investment Property RM200,000√

Cr SOPL – Gain in Fair Value RM200,000√

Journal Entries on 31 December 2018:

Dr Investment Property√ RM400,000
Cr SOPL – Gain in Fair Value√ RM400,000
(4√ x 1 mark = 4 marks)
iii) CA – RM6,100,000
FV – RM6,000,000
Loss on disposal√ = RM100,000√
(2√ x 1 mark = 2 marks)
(Total: 12 marks)

END OF SUGGESTED SOLUTION