CHARTERED TAX INSTITUTE OF MALAYSIA (225750 T)

(Institut Percukaian Malaysia)

PROFESSIONAL EXAMINATION

INTERMEDIATE LEVEL

FINANCIAL ACCOUNTING

DECEMBER 2021

Student Date
Registration No.

Desk No.
Examination Centre

Time allowed: 3 hours

INSTRUCTIONS TO CANDIDATES

1. You may answer this paper EITHER in English OR in Bahasa Malaysia. Only ONE language
is to be used.

2. This paper consists of FOUR questions.

3. Answer ALL questions.

4. Each answer should begin on a separate answer template.

5. All workings MUST be shown as marks will be awarded.

DO NOT TURN OVER THIS PAGE UNTIL INSTRUCTED BY THE INVIGILATOR

Question 1

The trial balance for Pfiser Bhd as at 31 March 2021 is shown below:

Debit Credit
RM’ 000 RM’ 000
Revenue 94,000
Cost of Sales 42,200
Inventory at 31 March 2021 9,800
Trade receivables and trade payables 7,500 5,000
Land 2,000
Revaluation reserve - Land 100
Factory land and buildings at cost 26,000
Accumulated depreciation at 31 March 2021 - Factory land and
buildings 6,000
Investment property (fair value at 31 March 2021) 3,550
8% Loan notes 2024 1,000
Loan interest paid 80
Current tax 150
Development cost 2,000
Accumulated amortisation of development cost at 31 March 2021 280
Share Capital 14,800
6% Preference Share Capital 2,000
Retained Earnings at 31 March 2021 12,070
Preference dividend paid 80
Bank 30,190
Distribution cost 6,200
Administration expenses 5,800
135,400 135,400

Additional Information:

1. Land is measured under revaluation model as per MFRS116 Property, Plant and Equipment.
As at 31 March 2021, the land was professionally valued at RM1.7million.

2. Factory land and buildings was depreciated on a straight-line basis during its 26-year useful
life until 31 March 2020. However, as of 1 April 2020, the remaining useful life of Factory land
and buildings was predicted to be fifteen (15) years. Factory land and buildings depreciation is
charged to the cost of sales.

3. The development cost figure in the trial balance comprises the following:

RM
Balance at 1 April 2020 1,400,000 Note 1
Research into new product 200,000
Development costs for new products 50,000 Note 2
Development costs for new products 350,000 Note 3

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 Note 1: These development costs are being amortised on a straight-line basis over ten (10)
years.

Note 2: These development costs relate to the development of a new product which the
company believes will be successful if there is a change in current health and safety
legalisation.

Note 3: These costs relate to the development of a new product which the company is
confident will be successful. It is envisaged that the sales of this new product will
commence in July 2021. All research and development related costs are charged to
cost of sales.

4. In March 2021, 500,000 equity shares were issued at RM2 each. All proceeds were received
and correctly entered in the bank account, but the corresponding entry was credited to
administration expenses. No new preference shares were issued during the year ended 31
March 2021.

5. In June 2020, the Financial Controller discovered a substantial error in the financial accounts
for the year ended 31 March 2020. This miscalculation resulted from a RM5 million
overstatement of closing inventory. No adjustment has been made to correct this error.

6. Pfiser Bhd estimates that an income tax provision of RM8 million is required for the year ended
31 March 2021. The current tax figure in the trial balance represents the under/over provision
for the year ended 31 March 2020.

7. The loan notes were issued on 1 April 2020, Pfiser Bhd incurred issue cost of RM60,000 and
these were charged to administration costs. On redemption Pfiser Bhd has to pay a large
premium as the loan notes have an effective rate of interest of 10% per annum. The loan notes
are accounted for under the amortised cost method.

8. Revenue includes a non-refundable deposit of RM100,000, which was received in February

2021. The deposit relates to a product which will be delivered in May 2021.

9. As at 31 March 2021, the fair value of the investment property was RM3.6 million.

Required:

Prepare the following, in a form suitable for publication, after taking into consideration the
above information:

(i) A Statement of Profit or Loss and other Comprehensive Income for the year ended 31
March 2021;
(12 marks)

(ii) A Statement of Changes in Equity for the year ended 31 March 2021;
(6 marks)

(iii) A Statement of Financial Position as at 31 March 2021.

(12 marks)

[Total: 30 marks]

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Question 2

James Wu operates a small sole proprietorship business dealing in plumbing products, such as PVC
water pipes, water taps and other related plumbing materials. He does not keep proper complete
records of his business transactions. However, James Wu was able to furnish the following
summarised particulars pertaining to his business for the year ended 31 December 2020:

Balance as at 1 January 2020

RM
Inventories 18,100
Trade payables 12,000
Trade receivables 18,000
Fixtures & Fittings (at cost) 36,000
Accumulated depreciation 7,200 Note 1
Accrued rental expenses 1,000

* Note 1: The ‘Accumulated depreciation’ is in relation to the Fixtures and Fittings.

In addition, James Wu also provided summarised information in relation to cash receipts and
payments of his business, as follows:

RM
Balance of cash (1 January 2020) 22,000

Receipts from cash sales 10,000

Receipts from trade receivables 13,000
Loan from bank (repayable in 3 years) 30,000
Sale of Fixtures & Fittings 11,000 (Note 2)

Drawings 6,000
Cash purchases 8,000
Payments to trade payables 19,000
Purchase of new Fixtures & Fittings 4,000
Rental expenses 10,000
Other business operating expenses 24,000

* Note 2: The original cost of the Fixtures & Fittings sold was for RM15,000, of which
accumulated depreciation of RM3,000 has been provided.

Additional information:

1. Based on the records of previous years, it was found and confirmed that on an average, the
gross profit margin is 20%.

2. During the year ended 31 December 2020, credit sales amounted to RM40,000 while credit
purchases amounted to RM20,500, and bad debts written off amounted to RM1,000.

3. Allowance for doubtful debts is to be provided at 5% of the balance of trade receivables at 31

December 2020.

4. Annual depreciation on the Fixtures & Fittings is 20% on cost based on the balance at the end
of the year.

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Required:

Based on the above information:

(i) Determine the amount of capital of James Wu’s business as at 1 January 2020.
(3 marks)

(ii) Prepare (in a proper format) a Statement of Profit or Loss for the year ended 31
December 2020.
(10.5 marks)
(iii) Prepare a Statement of Financial Position as at 31 December 2020.
(11.5 marks)

Show all necessary workings. Marks will be awarded for all necessary and appropriate workings.

[Total: 25 marks]

Question 3

Ah Hua Electric Suppler (AHES) and Bob Li Electric Accessories (BLEA) are both in the business of
selling electric products such as electric light bulbs, switches, plugs, wire, cable and other associated
electric components and accessories. AHES’ and BLEA’s business premises are located within the
same township, but about 10 kilometres apart from each other. Most of their customers are self-
employed electric technicians dealing in repairs and installations of electric devices in residential
premises.

Below are the respective Financial Statements of AHES and BLEA:

Income Statement for the year ended 31 December 2020

AHES BLEA
RM RM
Sales Note 1 250,000 400,000
Cost of goods sold (150,000) (320,000)
Gross profit 100,000 80,000
Operating expenses (72,000) (35,000)
Profit before interests 28,000 45,000
Interest expense (2,400) (2,000)
Net profit 25,600 43,000

Statement of Financial Position as at 31 December 2020

AHES BLEA
RM RM
Current Assets
Inventories 25,000 38,000
Trade receivables 45,000 40,000
Cash / Bank 30,000 55,000
100,000 133,000
Current Liabilities
Trade payables (86,000) (58,000)
14,000 75,000
Non-Current Assets Note 2 116,000 70,000
130,000 145,000

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 Non-Current Liabilities
Bank loan Note 3 30,000 25,000

Capital 100,000 120,000

130,000 145,000

Note 1: Of the total sales revenue, 30% of AHES’ sales were from cash sales while 70% of BLEA’s
sales were from cash sales. The remaining sales revenue were from credit sales.

Note 2: All non-current assets are tangible assets.

Note 3: Both the bank loans carry an interest of 8% p.a.

Other information:

AHES BLEA
RM RM
Inventories (as at 1 January 2020) 22,000 40,000
Trade debtors (as at 1 January 2020) 40,000 37,000

Required:

(i) Based on the above information, compute the following financial ratios for both Ah Hua
Electric Suppler (AHES) and Bob Li Electric Accessories (BLEA)

a. Current Ratio
b. Acid Test Ratio
c. Average Collection Period (days)
d. Inventory Turnover Ratio (days)
e. Gross profit margin
f. Net profit margin

Show all necessary workings, including the formulae applied.

(12 marks)

(ii) Based on the computed ratios, discuss the comparative significant and implication of
AHES’ and BLEA’s business operations in relation to:

a. liquidity
b. efficiency
c. performance
(8 marks)

[Total: 20 marks]

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Question 4

The following are the lists of the balance in the accounts of Spruce Wood Sdn Bhd as at:

30 June 2021 30 June 2020

RM RM
Land and building at carrying value 1,505,000 1,250,000
Plant and machinery at carrying value 211,700 300,000
Motor vehicles at carrying value 234,500 200,000
Investments 320,000 400,000
Inventories 263,500 244,500
Trade receivables 328,000 213,500
Bank 238,500 209,500
Tax payable 15,000 10,000
Trade payables 254,250 210,000
Ordinary share capital 1,755,000 1,490,000
Retained profits as at 1 July 2020 576,950 482,500
10% Debentures 370,000 450,000
Long term loan (from Japan) 80,000 150,000
Deferred taxation 50,000 25,000

Additional information:

1. List of accounts related to cost of sales, profit and expenses for the year ended 30 June 2021
is as follows:
RM
Cost of sales 228,000
Profit on disposal of:
Plant and machinery 10,000
Investment 2,000
Depreciation:
Plant and machinery 11,000
Motor vehicles 25,000
Interest expense 18,000
Loss on exchange difference on loan 5,000
Taxation expenses 65,000

2. Disposal of plant and machinery was for cash and there was no purchase of plant and
machinery during the year.

3. Land and building were purchased for cash.

4. RM80,000 10% debentures were redeemed on 1 July 2020 at par.

5. The increase in the issued share capital was due to the issue of shares, for cash.

6. The long-term loan from Japan was denominated in yen.

7. Some dividends were paid.

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Required:

(i) Compute profit before tax.

(4 marks)

(ii) Prepare a statement of Cash flows for Spruce Wood Sdn Bhd for the year ended 30 June
2021 in compliance with the requirement of MFRS 107 Statement of Cash Flows, using
the indirect method.
(16 marks)

(iii) Briefly comment on the cash flow management of Spruce Wood Sdn Bhd.
(5 marks)

Show your workings.

[Total: 25 marks]

(END OF QUESTION PAPER)