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A. Alma, a supplier of rice to school and office canteens within the Kuching and Samarahan area, made the following purchases and supplies during the

A.

Alma, a supplier of rice to school and office canteens within the Kuching and Samarahan area, made the following purchases and supplies during the year ended 31 December 2019.

Month of Purchase

Number of bags purchased

Cost per bag

January

800

RM8.50

April

600

RM9.50

June

700

RM10

October

550

RM9

November

1,000

RM8

Each bag of rice is sold at RM11 per bag. Due to a glut in the overall supply of rice, since October 2019, the cost price per bag has dropped. On 31 December 2019, if Alma were to make a new purchase, it would cost her only RM6 per bag. In order not to lose her customers, Alma would have to reduce her selling price.

At reporting date, 31 December 2019, 100 bags of rice were left unsold. Alma adopts the First In-First Out (FIFO) method of managing its inventory.

Required:

For each of the following situation, and in accordance with the measurement basis of MFRS 102 Inventories, determine the amount of inventory to be shown in the statement of financial position on 31 December 2019. Where appropriate, show journal entries for the inventory write-down.

  1. Alma would have to reduce her selling price from RM11 to an estimated RM7 per bag.
  2. Alma would have to reduce her selling price from RM11 to an estimated RM9 per bag.

(10 marks)

B.

Best Bake makes a variety of cakes, for its local and overseas market. The entity has a financial year end of 30 June. During the year ended 30 June 2020, Best Bake had the following transactions:

  1. Best Bake owns 3 delivery vans which were acquired 2 years ago. The retail price of each van was RM82,000. Best Bake acquired them at RM80,000 each.

  1. It also owns a list of regular customers within and outside Sarawak. Included in the list are 10 customers, bought over from Sedap Bakery for RM100,000. Sedap Bakery was a competitor, but the owner has decided to migrate and closed down the business. Best Bake estimated the value of its total listed customers (including the 10 bought over) at RM750,000.

  1. On 29 June 2020, in view of a forthcoming festival in July 2020, Best Bake paid in advance half of Julys salaries to its workers to the sum of RM10,000. This amount was included in the salary expense account.

Required:

  1. Explain, with justifications, how each of the above items should be identified and classified. Show journal entries to initially recognize and measure each item (Narrations not required).

(15 marks)

  1. During the year, Best Bake made total sales of RM970,000, of which RM600,000 were sales on credit. In the context of the Conceptual Framework, explain under what category of the financial statement elements is:
  1. the total sales amount, and
  2. the sales on credit.

(5 marks)

(Total: 30 marks)

QUESTION 2

A.

Given below are independent situations. Assume that the financial year for each business entity ends on 30 June.

  1. A manufacturing entity, Company X, was sued by a neighbouring factory for illegal dumping of wastes on its property, which was also detrimental to the environment. The legal suit for damages estimated at RM450,000 took place on 6 April 2020. Company Xs legal advisers are of the opinion that the facts of the case are, however, disputable and that Company X may or may not be found liable. The court hearing is scheduled for 17 August 2020.

  1. Company Y raised additional funds needed to expand its business by issuing an 8% RM1 million bonds. The bonds will mature and are redeemable at the end of 5 years. Cost of issue paid was RM60,000.

  1. Company Z sold sewing machines, for which a 1-year warranty is given to its customers. The probability of major defects is 10% and for minor defects is 90% of sewing machines sold. Based on the sales made during the year ended 30 June 2020, the estimated repair costs are RM100,000 for major defects and RM80,000 for minor defects.

Required:

For each independent situation given above, decide if the situation gives rise to a liability, a provision or a contingent liability. Indicate how it is to be presented or disclosed.

(Your discussion should be in accordance with MFRS 137 Provisions, Contingent Liabilities and Contingent Assets and MFRS 101 Presentation of Financial Statements. Show workings where relevant)

(15 marks)

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