MedicEquip Bhd. (Medic) is a company that retails medical equipment. Medic is also a medical equipment manufacturer and sells its products to all public hospitals in Malaysia. The following are the extracts from the consolidated financial statements of the Medic Group for the years ended 31 July: Extract of the Consolidated Statement of Financial Position as at 31 July: Extract of the Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 July 2021 : The following information relates to the consolidated financial statements of Medic Group: 1. On 1 August 2020, Medic acquired all the share capital of EyeLaz Sdn Bhd. (EyeLaz), a manufacturer of Eye Laser equipment, for RM130 million. The fair values of the identifiable assets and liabilities of EyeLaz at the date of acquisition are set out below. There were no other acquisitions by Medic during the period. The fair values in the table below have been reflected in the year-end balances of Medic's consolidated financial statements: Question 1 (Continued) This ONE (1) question is compulsory and must be attempted. Question 1 (A) EcoPro Bhd. (Eco), a company that manufactures industrial cleaning products, is listed on Bursa Malaysia. Eco's financial year end is on 31 August 2021. The following information is applicable to Eco: 1. On 1 September 2020, Eco acquired 60% of the equity shares of ChemWash Bhd. (Chem). The purchase consideration was comprised of cash amounting to RM1,350 million. At acquisition date, the fair value of the non-controlling interest in Chem was RM889 million. Eco uses the acquisition method to calculate goodwill in accordance with IFRS 3 Business Combinations. Eco uses the 'full goodwill' method for measuring the goodwill in Chem. On 1 September 2020, the fair value of the identifiable net assets of Chem was RM2,104 million and the retained earnings of Chem were RM673 million and other components of equity were RM59 million. The excess in fair value was due to a piece of non-depreciable land. On 31 August 2021, Eco acquired a further 20\% interest in Chem for a cash consideration of RM495 million. 2. On 1 September 2020, Eco acquired 80% of the equity shares of DeterLiq Bhd. (Deter) for a consideration of RM1,217 million. The consideration was comprised of cash amounting to RM1,073 million and a transfer of a piece non-depreciable land with a fair value of RM144 million. The carrying amount of the land at the acquisition date was RM126 million. At the year end, this land was still included in the non-current assets of Eco and the transfer of land to Deter was wrongly treated as sale proceeds of RM144 million which was credited to profit or loss. At the date of acquisition, the fair value of the identifiable net assets of Deter was RM1,183 million. On the same date, the retained earnings and other components of equity of Deter were RM202 million and RM54 million respectively. The excess in fair value was due to a piece of non-depreciable land. This acquisition was accounted for using the partial goodwill method in accordance with IFRS 3 Business Combinations. 3. The goodwill in Chem was tested for impairment after the additional acquisition of shares in Chem on 31 August 2021 and also in Deter at the year end. The recoverable amount of Chem was RM2,473 million and that of Deter was RM1,575 million. 4. Included in the financial assets of Eco is a ten-year 7\% loan provided to a company external to the group. Eco's business model is to collect the contractual cash flows in relation to the loan. Eco has adopted IFRS 9 Financial instruments and the loan asset is currently held at amortised cost of RM70 million. This is net of an allowance, including interest, at 31 August 2021 of twelve months' expected credit losses of RM4.5 million. At 31 August 2021, the borrower was in financial difficulties and the borrower's credit rating was downgraded, such that the loan may be considered to be in Stage 2 according to the expected credit loss model under IFRS 9 Financial instruments. Lifetime expected credit losses have been determined at RM22.3 million. This reflects the difference between the carrying amount and the revised expected receipts of three annual amounts of RM18 million each starting in one year's time Question 1 (Continued) discounted at the original effective interest rate of 6.7%. Rather than recognising the lifetime Instructions to Candidates: This paper is divided into two sections and you are required to answer THREE (3) questions as follows: Section A: This ONE (1) question is compulsory and must be attempted. (50 marks) Section B: Answer all TWO (2) questions. (50 marks) All workings that support the answers must be shown. Marks will be awarded for clarity in presentation and logical arguments. You are required to continue with a fresh page when answering new questions or parts of the question. Foreign currency translation adds additional complexity to the preparation of financial statements. The financial statements are made less transparent, because the translation itself is not visible to the users of financial statements. There is a choice of exchange rates and applicable translation principles in which the transactions in the financial statements are measured. The functional currency of a company reflects the underlying transactions, events and conditions that are relevant to the company. Required: Discuss the factors that a company should consider when determining its functional currency and explain what the reporting requirements for foreign currency transactions are. (8 marks) (C) Generally someone with power such as a director of a company will request an employee or subordinate to perform an action which is not justified by accounting standards or is not morally acceptable. This is done to present the financial statements in a more favourable light. In preparing the financial statements or advising on corporate reporting, a variety of ethical problems may arise. Required: Discuss the ethical considerations in financial reporting and the possible circumstances that may threaten the accountant's ethical considerations in performing his or her duties. (9 marks) [Total: 25 marks] expected credit losses, Eco wishes to value the loan at fair value using current market interest rates. Current market interest rate is 8%. The draft statements of financial position of the group companies as at 31 August 2021 are as follows: Required: (a) Explain to the directors of EcoPro Bhd., with appropriate workings, how goodwill should have been calculated on the acquisition of ChemWash Bhd. and DeterLiq Bhd. Explain whether any adjustments are needed to correct any errors in the financial statements of EcoPro Bhd. (15 Marks) (b) Calculate the consolidated retained earnings for inclusion in the consolidated financial statements for the year ended 31 August 2021. (5 marks) (c) Calculate the total non-controlling interest for inclusion in the consolidated financial statements for the year ended 31 August 2021. (5 marks) (d) Advise the directors of Eco Bhd. with suitable workings on how the loan in Note (4) above should have been accounted for in the consolidated financial statements for the year ended 31 August 2021. (5 marks) Plan A involves selling 50\% of its construction equipment in one year's time. Additionally, the plan is to make 40% of its construction workers redundant. BBC will carry out further analysis before deciding which of its equipment and related employees will be affected. In previous announcements to the public, BBC has suggested that it may restructure its future construction projects. Plan B involves the reorganisation of the headquarters in 18 months' time and includes the redundancy of 20% of the headquarters' workforce. The company has made announcements before the year end but there was a three month consultation period which had ended just after the year end, during which time BBC was in negotiation with employee representatives. Consequently, the individual employees had not been notified of the proposed restructuring by the year end. BBC has proposed to recognise a provision in respect of Plan A but not for Plan B. Required: (i) Discuss how BrickBuild Bhd. should have accounted for the apartments for the year ended 31 August 2021 in accordance with IFRS 15 Revenue from Contracts with Customers and IAS 23 Borrowing Costs. (7 marks) (ii) Discuss how the above restructuring events should be accounted for in the financial statements of BrickBuild Bhd. for the year ended 31 August 2021. (8 marks) [Total: 25 marks] Question 3 (A) The current developments in sustainability reporting show that there is a global trend towards more extensive and more meaningful narrative reporting. The improvements in the quality and scope of sustainability reporting are driven by regulatory demands and market demands for transparency. 'Sustainability investing' describes an approach to investment where environmental, social or governance factors, in combination with financial considerations, guide the selection and management of investments. Required: Discuss why the disclosure of sustainable information has become an important and influential consideration for investors. (8 marks) The property, plant and equipment comprises the following: Medic has constructed a laser machine which is a qualifying asset under IAS 23/MFRS123 Borrowing Costs and has paid construction costs of RM104 million. This amount has been charged to other expenses. Medic Group paid RM111 million in interest costs during the year, which were recorded as finance cost, and which included RM101 million of interest which Medic wishes to capitalise in accordance with IAS 23/MFRS123 Borrowing Costs. There was no deferred tax implication regarding this transaction. The disposal proceeds were RM163 million. The gain on disposal is included in administrative expenses. On 1 August 2020, Medic had also acquired a 30% interest in a Medical and Robotic engineering business, known as RobMed Sdn. Bhd. (RobMed), for cash. RobMed made a profit after tax of RM140 million and paid a dividend of RM110 million out of these profits in the year ended 31 July 2021. An impairment test carried out on 31 July 2021 showed that goodwill and other intangible assets were impaired by RM126.5 million and RM190 million respectively. The impairment of goodwill relates to 100% owned subsidiaries The finance costs were all paid in cash in the period. equired: Explain, showing supporting calculations, the adjustments that need to be made to calculate the correct profit before tax for inclusion in the consolidated statement of cash flows for MedicEquip Bhd. Group for the year ended 31 July 2021, prepared using the indirect method. (5 marks) Prepare the cash generated from operations for inclusion in the consolidated statement of cash flows for MedicEquip Bhd. Group for the year ended 31 July 2021, using the indirect method, in accordance with IAS 7 / MFRS107 Statements of Cash Flows. For each line of item, explain the reason for its inclusion in the cash generated from operations. (15 marks)