ACC217 Advanced Financial Accounting 2021
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ACC217
Advanced Financial Accounting
2021
Question 1 (25 Marks)
a) Tourmaline Bhd purchased debentures for its fair value of RM2,100,000 in 1 January 2020. The debentures are due to mature on 31 December 2024. The principal amount of the debentures is RM2,625,000. The fixed interest of the debentures is 5.32% that is paid annually whereas, the effective rate of interest is 8%.
Required:
i. Calculate the amount of interest received in 2020 and 2021.
ii. Determine the amortised cost at the end of2020,2021 and 2023.
[4 marks]
[6 marks]
b) On 1 January 2021, Zircon Bhd issued 5% loan notes with a nominal value of RM560,000. Zircon Bhd issued the loan notes at a 4% discount and the company incurred the issued costs amounting to RM4,760. The loan notes will be repayable at a premium of 9% after four years. The effective interest rate is 10%.
Required:
i. Calculate the finance costs for 2021 and 2022.
ii. Determine the amount of 5% loan note as at 31 December 2021 and 2022.
[4 marks]
[4 marks]
c) On 1 January 2021, Peridot Bhd issued 10,000 5% convertible bonds at their par value of RM50 each. The bonds will be redeemed on 1 January 2026. Each bond is convertible to equity shares at the option of the holder at any time during the five-year period. Interest on the bond will be paid annually in arrears. The prevailing market interest rate for similar debt without conversion options at the date of issue was 6%.
The discount factor for 6% at year 5 is 0.747.
The cumulative discount factor for years 1-5 at 6% is 4.212.
Required
At what value should the equity element of the hybrid financial instrument be recognised in the financial statements of Peridot Bhd at the date of issue?
[7 marks]
Question 2 (25 Marks)
a) Firoza Bhd plc is in the process of expanding its business operations in other states in Malaysia. The Chief Finance Officer (CFO) and the board of directors are discussing the selection of the appropriate means to finance the expansion exercise. After some deliberation, the top management has finalised two options which as (1) issue bonds and with the proceeds purchase the needed assets, or (2) lease the assets based on the agreed lease term.
Required:
i. State 4 (FOUR) possible advantages of leasing the assets instead of owning them?
[6 marks]
ii. How will the statement of financial position be different if Firoza Bhd leases the assets rather than purchasing them? [5 marks]
b) On 1 January 2020, Sphene Bhd leased machinery from Andesine Bhd. The lease term was for 8 years, with equal annual rental payments of RM7,950 at the beginning of each year. In addition, the lease provides an option to purchase the machinery at the end of the lease term for RM3,000. Sphene Bhd is reasonably certain it will purchase the machinery as the company believes the fair value of the machinery will be at least RM9,000. The machinery has a useful life of 10 years and a fair value of RM54,000. Sphene Bhd's incremental borrowing rate is 8%.
Required:
i. Identify the type of lease and justify your answer. [4 marks]
ii. How long should Sphene Bhd depreciate lease machinery from Andesine Bhd? Justify
your answer.
iii. Prepare the necessary journal entries in Sphene Bhd’s books in 2020.
[4 marks]
[6 marks]
Question 3 (25 Marks)
Given below is the statement of financial position of Despair Bhd as at 31 December 2020. RM’000
Ordinary shares ofRM1 each
Share premium
Accumulated loss
8% Debentures
Loans from directors
Trade payables
Non-current assets
Furniture and fixtures (NBV) Motor vehicles (NBV)
Research and development
Current assets
Inventories
Trade receivables
Prepayments
250,000
25,000
(95,000)
50,000
8,000
25,000
263,000 |
95,000 60,000 45,000
35,000 15,000 13,000 |
263,000 |
The company has experienced some financial difficulty and decided to reconstruct is affairs.
The company passed a special resolution and the approval of the court was obtained for the following scheme ofreconstruction:
1. Each ordinary share is to be reduced by 75 sen each. The existing ordinary shareholders agreed to subscribe for a new issue on the basis of 1 to 1 at a price of 30 sen per share.
2. RM4,000,000 of directors’ loan is to be cancelled. The balance is to be settled by the
issue of 16,000,000 ordinary shares of25 sen each.
3. Intangible assets and the accumulated loss are to written off.
4. The remaining assets were professionally valued and should be recorded in the accounts
as follows:
Furniture and fixtures Motor vehicles Inventories
RM’000
80,000
52,500
25,000
5. Cost ofreconstruction amounted to RM1.2 million.
6. Any capital reserve arising on the reconstruction scheme is used to issue bonus shares.
You are required to prepare
a) Capital reduction account [8 marks]
b) Statement of financial position of Despair Bhd immediately after the reconstruction. [17marks]
Question 4 (25 Marks)
a) Present the differences between internal and external reconstruction. Provide examples to support your answer. [10 marks]
b) Why it is important to determine the control in business combination?
[5 marks]
c) Titanite Bhd acquire nine million shares in Sapphire Bhd at RM3 per share on 1 January
2021. At that date the summary ofthe statement of financial position of Sapphire Bhd was
as follows:
Non-current assets
Property, plant and equipment Current assets
Inventories
Receivables
Cash
Ordinary share capital at RM2 per share Retained profit
Non-current liabilities
Current liabilities
RM
29,000,000
6,000,000
4,000,000
2,000,000
41,000,000 |
24,000,000 12,000,000 3,000,000 2,000,000 |
41,000,000 |
The following information is relevant:
• The net replacement cost of property, plant and equipment was RM30,000,000.
• The inventory had a net selling price of RM7,500,000.
Required:
Calculate the goodwill/bargain purchase for Titanite Bhd. [10 marks]
2022-05-13