BBFA3044 Advance Accounting Practice Assignment Questions Analysis of Financial Statements and IFRS Compliance
Section A (50 marks)
Answer ALL TWO (2) compulsory questions.
Question 1
LG Steel Bhd. (LG Steel) It is a company active in downstream steel product manufacturing and trading. As part of its expansion plan, LG Steel acquired 90% of the ordinary shares of AT Steel Sdn. Bhd. (AT Steel) on 1 January 2024. Subsequently, on 1 July 2024, AT Steel purchased 60% of the ordinary shares of RG Steel Sdn. Bhd. (RG Steel).
The statements of financial position of LG Steel, AT Steel and RG Steel as at 31 December 2024 are as follows:
| LG Steel | AT Steel | RG Steel | |||
| RM’000 | RM’000 | RM’000 | |||
| ASSETS | |||||
| Non-current assets | |||||
| Property, plant and equipment | 230,810 | 56,530 | 107,970 | ||
| Investments in : AT Steel | 158,000 | – | – | ||
| : RG Steel | – | 112,800 | – |
| 388,810 | 169,330 | 107,970 |
| Current assets | ||||||
| Inventories | 11,800 | 8,850 | 6,490 | |||
| Trade receivables | 17,700 | 7,080 | 5,880 | |||
| Cash and bank | 12,390 | 10,620 | 11,820 |
41,890 26,550 24,190
Total assets 430,700 195,880 132,160
| EQUITY AND LIABILITIES | |||||
| Equity | |||||
| Ordinary shares | 295,000 | 118,000 | 59,000 | ||
| Revaluation reserves | 29,500 | 23,600 | 18,280 | ||
| Retained earnings | 51,330 | 21,240 | 25,970 |
| Non-current liabilities | ||||||
| Loan notes | 11,800 | 5,900 | 2,950 |
| Current liabilities | ||||||
| Trade payables | 34,810 | 23,010 | 23,600 | |||
| Accruals | 2,950 | 1,770 | 590 | |||
| Tax payable | 5,310 | 2,360 | 1,770 |
43,070 27,140 25,960
Total equity and liabilities 430,700 195,880 132,160
Question 1 (Continued)
The following information is relevant to the preparation of the group financial statements:
On 1 January 2024, the revaluation reserves and retained earnings of AT Steel were RM20 million and RM18 million, respectively. The fair values of the net assets of AT Steel were equal to their carrying amounts, with the exception of a machine. On 1 January 2024, the fair value of the machine was RM25 million, and its carrying value was RM17 million. The machine has a remaining useful life of 5 years. AT Steel has not incorporated the fair value change into its financial statements yet.
On 1 July 2024, RG Steel had revaluation reserves and retained earnings of RM15 million and RM23 million, respectively. The fair values of the net assets of RG Steel at the date of acquisition were equal to their carrying amounts except for the land in note 3.
LG Steel Group has a policy of revaluing its land to fair value. On 1 July 2024, RG Steel’s land had a fair value of RM10 million higher than its carrying amount. This had increased by a further RM2 million as at 31 December 2024. RG Steel did not adjust its books to reflect the latest fair value change.
LG Steel Group’s policy is to value non-controlling interest at a proportionate share of the fair value of the subsidiary’s net assets.
During the post-acquisition period, LG Steel sold goods to AT Steel for RM12 million, on which LG Steel made a profit of 20% on cost. 35% of these goods remained unsold by AT Steel as at 31 December 2024.
LG Steel’s trade receivable balance with AT Steel at 31 December 2024 was RM3.5 million, while AT Steel’s trade payable balance with LG Steel showed RM2.5 million. RM1 million was paid by AT Steel on 29 December 2024, but LG Steel received the remittance only on 2 January 2025.
During the year ended 31 December 2024, LG Steel’s revenues included an amount of RM30 million for cash sales made on behalf of its supplier, EY Steel Sdn. Bhd. (EY Steel). LG Steel is acting as an agent of EY Steel and is entitled to a commission of 8% of the selling price of these goods. On 31 December 2024, LG Steel had remitted to EY Steel RM20 million and recorded this amount in its cost of sales.
Required:
Prepare the consolidated statement of financial position of LG Steel Bhd. Group as at 31 December 2024 in accordance with International Financial Reporting Standards. [Total: 30 marks]
Question 2
(A) Irex Bhd. (Irex) is a Malaysia-based company engaged in manufacturing machinery for food processing companies. On 1 December 2023, Irex entered into a contract with JFood Sdn. Bhd. (JFood) for the production of a machine. It took one year to produce the machine. As of 30 November 2024, JFood had inspected and accepted the machine. However, JFood has requested that the machine to be stored at Irex’s warehouse. JFood has legal title to the machine, and the machine can be identified as belonging to JFood. Irex stores the machine in a separate section of its warehouse, and the machine is ready for immediate shipment at JFood’s request. Irex cannot use the machine or direct it to another customer.
Required:
Assess whether Irex Bhd. should recognise the revenue in respect of the above machine for the year ended 30 November 2024 in accordance with IFRS 15/ MFRS 15 Revenue from Contracts with Customers. (10 marks)
(B) Royal Bhd. (Royal) is primarily involved in the sale of health-oriented and wellness consumer products. On 1 January 2024, Royal acquired an item of office equipment costing RM2 million. Royal depreciates its office equipment at 20% per annum using the straight-line method. Capital allowance of the office equipment for tax purposes is 25% per annum. Revenue generated by the office equipment is taxable. The current tax rate is 24%.
Required:
Assess, with relevant calculations, whether a deferred tax liability should be recognised in respect of the above office equipment for the year ended 31 December 2024 in accordance with IAS 12 / MFRS 112 Income Taxes. (10 marks) [Total: 20 marks]
Section B (50 marks)
Answer ALL TWO (2) compulsory questions.
Question 3
(A) Harta Bhd. (Harta) is a trading, marketing, warehousing, distribution, and service organisation in
Malaysia. It has four operating segments, namely Trading, Warehousing, Distribution and Services.
The financial information for the operating segments for the year ended 31 October 2024 is as follows:
| Trading | Warehousing | Distribution | Services | |
| RM’000 | RM’000 | RM’000 | RM’000 | |
| Revenue from external customers | 140,000 | 160,000 | 11,230 | 6,420 |
| Inter-segment revenues | – | 5,000 | – | 830 |
| Non-current assets | 700,000 | 430,000 | 5,600 | 3,800 |
| Inventories | 20,800 | 16,500 | 500 | 300 |
| Non-current liabilities | 105,600 | 150,800 | 2,500 | 5,800 |
| Current liabilities | 80,200 | 70,200 | 900 | 700 |
| Cost of sales | 56,400 | 66,700 | 7,100 | 5,000 |
| Operating expenses | 22,800 | 33,200 | 2,300 | 1,200 |
| Quick ratio | 2.1:1 | 2.8:1 | 1.3:1 | 1.6:1 |
Required:
Prepare a segment report of Harta Bhd. for the year ended 31 October 2024, assuming that only the Trading and Warehousing segments are identified as reportable segments in accordance with IFRS 8 / MFRS 8 Operating Segments. (14 marks)
(B) NR Plantation Bhd. (NR Plantation) is engaged in the cultivation of rambutan tree plantations. The rambutan trees are mainly planted for their fruits. They can produce rambutan fruits up to 30 years. The rambutan trees will be felled when they rambutan trees no longer bear fruits. The wood of the felled rambutan trees can be sold as scrap. For the year ended 30 September 2024, NR Plantation had harvested rambutan fruits from the rambutan trees. The directors of NR Plantation are seeking your advice on the accounting treatments for the rambutan trees and rambutan fruits.
Required:
Assess, with reasons, whether the rambutan trees and rambutan fruits of NR Plantation Bhd. are within the scope of IAS 41 / MFRS 141 Agriculture. (11 marks) [Total: 25 marks]
Question 4
TEV Bhd. Group (TEV Group) is engaged in manufacturing and selling precision components, tools and other related products. It is an export-oriented organisation. Most of TEV Group’s sales and receivables are denominated in US Dollars. However, the sharp appreciation of the Malaysian Ringgit against the US Dollars in the past few months is expected to dent TEV Group’s financial performance. Therefore, TEV Group’s board of directors is concerned with the performance of TEV Group for the year ended 31 October 2024 as compared to the previous year.
TEV Group’s summarised financial statements for the year ended 31 October 2024 are shown below:
Consolidated statement of financial position as at 31 October 2024:
| RM’000 | |
| ASSETS | |
| Non-current assets | |
| Property, plant and equipment | 102,160 |
| Investments | 15,600 |
| 117,760 | ||
| Current assets | ||
| Inventories | 25,600 | |
| Trade receivables | 24,960 | |
| Cash and bank | 6,400 |
56,960
Total assets 174,720
| EQUITY AND LIABILITIES | ||
| Equity | ||
| Ordinary shares | 52,800 | |
| Retained earnings | 48,000 |
| 100,800 | ||
| Non-current liabilities | ||
| Bank loans | 17,600 | |
| Current liabilities | ||
| Trade payables | 42,240 | |
| Tax payable | 14,080 |
56,320
Total equity and liabilities 174,720
Consolidated statement of profit or loss for the year ended 31 October 2024
Additional information:
The administrative expenses shown in the consolidated statement of profit or loss above included foreign exchange losses of RM3 million for the year ended 31 October 2024.
Below are the relevant financial ratios of TEV Group for the year ended 31 October 2023:
Required:
Prepare a report for the board of directors of TEV Bhd. Group is analysing its financial performance and financial position for the years ended 31 October 2024 and 31 October 2023. [Total: 25 marks