Accounting Questions and MFRS Standards - Answers and Analyses

Convertible Loan Stocks and Non-Current Liabilities

Question 1

Jet Bhd has 8% convertible loan stocks that have a value of RM1,000 per unit. 1,000 units were issued at RM1,000 per unit on 1 July 2017. The loan stocks are convertible to ordinary shares or redeemable in cash at RM1,000 per unit in three years from the date of issue. The directors had decided to issue the convertible loan stocks because non-convertible loan stocks would have required an interest rate of 10%. The directors intend to show the loan at RM1 million under non-current liabilities. The following discount factors are available:

Required:

a. Explain whether or not the convertible loan stocks can be classified as non-current liability.

b. Analyse the convertible loan stocks into their relevant components for initial recognition.

Question 2

Statement of Cash Flows is part of a comprehensive income statement. Elaborate the usefulness of Statement of Cash Flows.

Question 3

The following information is extracted from the accounting records of Lolipop Bhd as at 30 June 2017:

Required:

a. Determine the value of deferred tax asset or deferred tax liability. Please show the workings.

b. Advise the company on the recognition of deferred tax asset or deferred tax liability and the deferred tax income or deferred tax expense for the year ended 30 June 2017 in accordance with MFRS 112 Income Taxes.

Question 4

Trendy Bhd’s financial year ends on 30 June. On 1 July 2016, Trendy Bhd acquired RM100 million bonds at a cost of RM90,000,000, inclusive of transaction costs. The bonds pay a fixed interest of RM5 million per annum and mature on 1 July 2018. On the date of purchase, the management of Trendy Bhd intended to hold the bonds and collect the contractual cash flows arising from them upon maturity. The effective interest rate of the bonds on 1 July 2016 was 7%.

Required:

With reference to MFRS 9 Financial Instruments, explain how Trendy Bhd should recognise and measure the bonds. Show the value of the bonds as at 30 June 2017.

Question 5

Jet Li Berhad (JLB) has built an offshore wind farm with the purpose of testing the efficiency of its prototype wind turbines. JLB has applied to the authority for approval for production of its new prototype but has only received permission to test the prototype wind turbine. The wind farm development will enable JLB to test the reliability of the new wind turbines which should assist in developing more efficient and cost effective offshore wind turbines but as yet, there has not been any commercial production of the prototype wind turbines as there is still some slight doubt over the durability of the wind turbine in extreme weather conditions. The renewable energy generated during the testing phase of the wind turbines is sold to the national regulator of electricity. There is sufficient resource to complete the wind farm project but the energy income has not been included in management’s resource planning. The Board of Directors of JLB wishes to know how the expenditure on the wind farm and the income from the sale of energy should be treated in the financial statements.

Required:

As the accountant of Jet Li Berhad, advise the Board of Directors regarding the recognition of development costs and the income from the sale of energy in the financial statements in accordance to MFRS 138 Intangible Assets.

Required:

Using the information given, prepare a Statement of Cash Flows for Happy Berhad for the year ended 31 December 2017, using indirect method.

The following information is relevant:

i. The freehold property was revalued at RM80 million on 31 December 2017. The estimated remaining life of the property on 1 January 2017 was 20 years.

ii. It is the policy of the company to use the straight-line method to depreciate all property, plant and machinery based on period of ownership. The estimated life of all plant, machinery and motor vehicles is 10 years. The depreciation charge is treated as administration expense.

iii. Research and development costs were incurred for a new project on 1 January 2017.The company has incurred RM1.4 million on research activities from that date until 30 June 2017. The development costs of RM1.2 million per month were incurred from 1 July 2017 until the end of the accounting year 31December 2017.This project is expected to be successful and will generate income to the company. All development costs are capitalised and amortised at 10% per annum using straight line method and charged to cost of sales. The research and development costs incurred during the year were paid but not yet appropriately accounted for in the financial statements.

iv. The estimated tax payable for the year was RM17.1 million. This does not include a decrease of the company’s taxable temporary difference during the year of RM4.8 million. The income tax rate for 2015 is 25%.

v. The finance cost of RM400,000 represents amount paid to the holders of the redeemable preference share capital.

Required:

Prepare the following statements in a form suitable for publication and in compliance with MFRS 101(2009) Presentation of Financial Statements:

a) The Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2017.

b) The Statement of Financial Position as at 31 December 2017.