AC220/TEST/FEB2024

UNIVERSITI TEKNOLOGI MARA

TEST

COURSE : FINANCIAL ACCOUNTING AND REPORTING 4

COURSE CODE : FAR570
ASSESSMENT : NOV 2023
TIME : 1 HOUR 30 MINUTES

INSTRUCTIONS TO CANDIDATES:

1. This question paper consists of TWO (PARTS).

Part A: 14 Multiple Choice Question
Part B: 2 Structured Questions

2. i) Answer ALL questions. Start each answer on a new page.

ii) Show your workings (if any) for each question in Part B.

3. Answer ALL questions in English

NAME
METRIC NUMBER
CLASS

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 6 printed pages.

PART A

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This part consists of 10 multiple choice questions. Circle the most suitable answer.

1. When an entity makes a bonus issue, share split or right issue, then:
a. The previous year’s EPS is not adjusted for the issue.
b. The previous year's EPS is adjusted for only the bonus issue.
c. The previous year's EPS is adjusted for the issue.
d. The previous year's EPS is adjusted for the bonus issue and share split.
(1 mark)
2. A company with a higher EPS is generally considered:
a. Less attractive to investors.
b. More attractive to investors.
c. Equally attractive to investors.
d. Dependent on other financial metrics.
(1 mark)
3. What is the significance of EPS for investors?
a. It indicates the company's liquidity position.
b. It helps assess the company's ability to generate cash flow.
c. It provides information on the profitability available to common shareholders.
d. It reflects the company's total shareholder equity.
(1 mark)
4. The diluted EPS calculation considers:
a. Only common shares outstanding.
b. Only preferred shares outstanding.
c. Potential dilutive securities.
d. Retained earnings.
(1 mark)
5. Which of the following is not the examples of potential ordinary shares?
a. Options and warrants
b. Redeemable preference shares
c. Convertible debenture
d. Employee share option schemes
(1 mark)

6. Which of the following is not the valuation approach within the scope of MFRS 13?
a. Income approach
b. Market approach
c. Cost approach
d. Financial approach
(1 mark)

7. Which of the following is true about fair value measurement of assets and liabilities?
a. Fair value is market-based measurement and focuses on entry prices.
b. Fair value is entity-based measurement and focuses on entry prices.
c. Fair value is entity-based measurement and focuses on exit prices.
d. Fair value is market-based measurement and focuses on exit prices.
(1 mark)

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8. For liabilities and own equity instruments under MFRS 13, if a bond is unquoted and
there are no similar quoted bonds in the market, how should its fair value at year-end be
determined?
a. Fair value should be based on market price of similar unquoted bonds.
b. Fair value should be based on its original issue price.
c. Fair value should be based on present value of the expected cash flow associated
with the bond.
d. Fair value should be based on its nominal value
(1 mark)

Question 9 and 10

An entity has an asset that could be sold in two different active markets: Market A and
Market B. The entity enters transactions to sell the asset in both markets. The following table
provides the relevant details, including sale prices, transaction costs, transportation costs,
and net amounts:

Market Sales Transaction Transportation Net

costs costs
Market A RM50,000 RM2,000 RM1,500 RM46,500
Market B RM55,000 RM3,000 RM2,000 RM50,000

9. Which market is the most advantageous for the entity in terms of net cash inflows,
considering both transaction costs and transportation costs?
a. Market A
b. Market B
c. Both markets are equally advantageous
d. Not enough information to determine
(1 mark)

10. Based on the information as above, what is the fair value of the asset for financial
reporting purposes?
a. RM46,500
b. RM52,000
c. RM53,000
d. Not enough information to determine

(2 marks)

11. What is the primary reason for the existence of deferred tax liabilities?

a. Temporary differences between book and tax accounting.

b. Permanent differences between book and tax accounting.
c. Timing differences in recognizing revenue.
d. Changes in accounting principles.
(1 mark)

12. What is the purpose of recognizing deferred tax assets and liabilities?

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a. To smooth out fluctuations in taxable income.

b. To recognize income tax revenue in advance.
c. To accurately reflect the income tax consequences of temporary differences.
d. To reduce the company's current income tax expense.
(1 mark)

13. Which financial statement would you find information about a company's deferred tax
assets and liabilities?

a. Income Statement.
b. Statement of Retained Earnings.
c. Statement of Cash Flows.
d. Statement of Financial Position.
(1 mark)
14. How does a change in tax rates affect deferred tax liabilities and assets?

a. It has no effect on deferred tax liabilities and assets.

b. It may increase or decrease deferred tax liabilities and assets.
c. It always increases deferred tax liabilities and decreases deferred tax assets.
d. It always decreases deferred tax liabilities and increases deferred tax assets.
(1 mark)
(Total :15 marks)

PART B

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QUESTION 1

Kuchai Bhd has the following issued share capital as at 1 January 2021:
 400,000 ordinary shares of RM1 per share
 100,000 10% cumulative preference shares of RM1 per share

Kuchai Bhd’s financial statements (extract) for the year ended 31 December 2021 and 31
December 2022 showed the following:

2021 2022
RM RM
Net profit before taxation 80,000 60,000
Taxation (15,000) (10,000)
Net profit after taxation 65,000 50,000

Additional information:

1. On 1 April 2021, bought back 100,000 ordinary shares at an average price of RM1.20
per share.

2. On 1 June 2022, issued 50,000 ordinary shares for cash at a price of RM1.50 per
share.

3. On 30 September 2022, the company issued 15,000 options to its executive

employees at an exercise price of RM1 each. The average market price of the
company’s ordinary shares is RM5, and it is assumed at fair value. As at 31
December 2022, none of the options has been exercised.

4. The income tax rate for 2021 and 2022 is 25%.

Required:

a. Compute the basic EPS of Kuchai Bhd for the year ended 31 December 2021 and 31
December 2022.
(14 marks)

b. Compute the diluted EPS of Kuchai Bhd for the year ended 31 December 2022.
(6 marks)
(Total: 20 marks)

QUESTION 2

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Teguh Alam Berhad is a manufacturing company, which started business on 1 January

2017. It manufactures and sells a wide variety of tiles, specifically for the Northern region
customers. The following information relates to assets and liabilities of Teguh Alam Berhad
for the year ended 31 December 2022:

a) An equipment was purchased on 1 January 2020 at a cost of RM1,700,000. The

equipment is depreciated at 10% per annum on a straight-line method yearly basis.
For income tax purposes, the equipment qualifies for initial allowance of 20% and
annual allowance of 10%.
b) As at 31 December 2022, the company’s account receivables have an amount of
RM125,000. An allowance for doubtful debts of 10% is to be made and the tax rules
only allow specific provision for bad debts.
c) On 31 December 2022, the company acknowledges a liability of RM375,000
pertaining to accrued product warranty costs. Tax deductions for these product
warranty costs will only be applicable when the entity settles any claims, if occurred.
d) The company has incurred research and development costs of RM200,000, of which
RM80,000 was eligible for capitalization. For income tax purposes, research and
development cost is deducted in the same year as it is incurred.
e) The company paid a penalty payment of RM10,000. Penalty payments have no tax
implications.

Required:

a. Determine the net taxable temporary difference or deductible temporary difference

for the year ended 31 December 2022.
(15 marks)

END OF QUESTIONS