Maxim Bhd acquires 320,000 shares in Profile Sdn Bhd - October 2016

Retained earnings of Profile Sdn Bhd were RM40,000

(i) Maxim Bhd acquired 320,000 shares in Profile Sdn Bhd on 1 October 2016 when Profile Sdn Bhd’s retained earnings were RM40,000.

(ii) At this date, the fair values of Profile Sdn Bhd 's property, plant and equipment were agreed as RM150,000 greater than their book values. These values were not incorporated into Profile Sdn Bhds books. Profile Sdn Bhd has a 10% straight-line depreciation policy.

(iii) Profile Sdn Bhd has sold goods to Maxim Bhd during the year for RM50,000. which included a 25% mark-up on cost. At the year-end one-fifth of these inventories are still held by Maxim Bhd.

(iv)  The review for impairment of goodwill arising on acquisition made at 30 September 2019 revealed that there was an impairment loss of RM8,000. There had been no previous impairment loss.

(v) Retained earnings at 30 September 2018 for Maxim Bhd and Profile Sdn Bhd were RM320,000 and RM90,000 respectively.

(vi) Dividends paid by the companies during the year ended 30 September 2019 were Maxim Bhd RM90,000 and Profile Sdn Bhd 50,000.

Prepare Maxim Bhd's consolidated statement of financial position at 30 September 2019.

(a) Mark Sdn Bhd is developing a new production process. During 2019, expenditure incurred was RM100,000, of which RM90,000 was incurred before 1 December 2019 and RM10,000 between 1 December 2019 and 31 December 2019. Mark Sdn Bhd can demonstrate that, at 1 December 2019, the production process met the criteria for recognition as an intangible asset. The recoverable amount of the know-how embodied in the process is estimated to be RM50,000.

Required

How should the expenditure be treated?

(b) An intangible asset is measured by a company at fair value. The asset was revalued by

$400 in 20X3, and there is a revaluation surplus of $400 in the statement of financial position. At the end of 20X4, the asset is valued again, and a downward valuation of $500 is required.

Required:

State the accounting treatment for the downward revaluation.

Question 2

(a) Ocean Sdn Bhd enters into a five-year lease of a building which has a remaining useful life of ten years. The lease payments are RM50,000 per annum, payable at the beginning of each year. Ocean Sdn Bhd incurs initial direct costs of RM20,000 and receives lease incentives of RM5,000. There is no transfer of the asset at the end of the lease and no purchase option. The interest rate implicit in the lease is not immediately determinable but the Ocean Sdn Bhd’s incremental borrowing rate is 5%.

At the commencement date Ocean Sdn Bhd pays the initial RM50,000, incurs the direct costs and receives the lease incentives.

Required:

(i). Calculate the present value of the lease Liability. (5 marks)

(ii). Show the Initial Recognition of asset and liability. (8 marks)

(iii). Present the liability measured at end of year one. (6 Marks)

(b) Explain what “off balance sheet financing” is and how IAS 17 Lease addresses this issue.

(c) Discuss the Operating lease and finance lease according IFRS 16. (3 Marks)

Question 3

(a) Discuss the following scenarios in accordance with IFRS 3 business combination to determine significant influence or control.

(i) M&S Sdn Bhd holds 45% of the voting rights of Tanjung Sdn Bhd. The remaining voting rights are held by many other shareholders, none individually holding more than 1% of the voting rights.

(ii) M&S Sdn Bhd holds 45% of the voting rights of Tanjung Sdn Bhd. Two other investors each hold 26% of the voting rights of Tanjung Sdn Bhd. Three other shareholders own 1% each.

(2 Marks)

(iii)  M&S Sdn Bhd holds 45% of the voting rights of Tanjung Sdn Bhd. Eleven other shareholders each hold 5% of the voting rights of Tanjung Sdn Bhd.

(2 Marks)

(b) Discuss suspension and cessation of capitalization on borrowing cost in accordance with IAS 23: paras. 20–21 and IAS 23: paras. 22–25 respectively.

(4 Marks)

(c) IAS 16, Property, plant and equipment requires that an asset to be measured at cost on its original recognition in the financial statements. Saw Ltd used its own employees, seeking assistance from contractors when required, to construct a new warehouse for its own usage.

Required:

State and explain whether the costs below should be capitalized or expensed off.

(i) Clearance of the site prior to commencement of work.

(ii) Professional surveyor fees incurred for managing the construction work.

(2 marks)

(2 marks)

(iii) Saw Ltd’s employees’ wages incurred for working on the construction.