a) i. Ownership is often concurrent with control, but it is not essential characteristic of

an asset. The framework definition of assets requires future economic benefits to

be controlled by an entity before they can be regarded as an asset.

Required:

Discuss the economic benefits must be controlled by the entity in order to

qualify as an asset (Relate your discussion with accounting principles)

(6 marks)

(CLO2:PLO5:C5)

ii. Ikhsana Sdn Bhd spent RM600 000 on television advertising of its new range of

sportwear during the year. Market research indicates that the advertising has

definitely boosted sales. The company recognized RM600,000 as an asset.

Required:

Criticize the Ikhsana Sdn Bhds accounting treatment for RM600,000. (Relate

your answer with recognition criteria)

(7 marks)

(CLO2:PLO5:C5)

b) KOK Bhd an electrical goods manufacturer, entered into the following transactions

during the year 2016.

Required:

Show how the following situation should have been recorded by KOK Bhd under

Malaysian accounting regulations that year, and comment whether there are any

differences in that reporting from what would be recorded by the company.______________________________________________________________________________

ACCT3601/June2021

Page 4 of 5

i.

Philap Lamp filed a lawsuit against KOK Bhd for RM1 000 000 for patent

infringement in April 2016. The companies expected that it would take

approximately 18 months before the lawsuit was settled. KOK Bhd recorded

this as a liability.

ii.

An employee suffered eye damage when a piece of glass exploded as she

worked on the production line. She sued KOK Bhd for damages and was

awarded RM40 000. KOK Bhd planned to appeal. KOK Bhd showed this

under notes to the account.

(7 marks)

(CLO2:PLO5:C5)

c) Auditing for assets and liabilities may creates difficulties to auditors because of

recognition and measurement criteria. Explain what auditors should do to develop an

effective audit approach for assets and liabilities.

(5 marks)