MY QUESTION

Samudera Bhd is a well known company in retailing has been in business for a long time. The company also involve actively in investment and agricultural activities. Provided below is the company's trial balance for the year ended 31 December 2019.

Debit Credit

RM RM

Investment properties 3,800,000

Freehold Land and Building 27,000,000

Plant and machinery at cost 1,800,000

Motor vehicle 1,500,000

Biological assets as at 1 January 2019 1,550,000

Investment 950,000

Patent at carrying value as at 720,000

1 January 2019

Licencing Agreement at carrying value 400,000

1 January 2019

Accumulated depreciation as at 1 January 2019:

Building............................................................................................................................ 1,200,000

Plant and machinery ................................................................................................ 540,000

Motor vehicle............................................................................................................... 360,000

Rent revenue.................................................................................................................... 158,000

Sales.................................................................................................................................... 18,750,000

Cost of sales....................................................................11,580,000

Inventory at cost........................................................... 1,283,000

Administrative expenses........................................... 2,500,000

Distribution expenses..................................................... 800,000

Finance cost........................................................................ 490,000

Investment income........................................................................................................... 460,000

Interest on long term loan.............................................. 200,000

Tax paid.................................................................................... 910,000

Trade receivables........................................................... 3,950,000

Trade payables................................................................................................................. 2,160,000

Ordinary share capital of RM1.00 each............................................................... 25,000,000

9% Preference share .................................................................................................... 15,000,000

Retained profits as at 1 January 2019....................................................................... 5,615,000

Asset revaluation reserve ........................................................................................... 2,000,000

Interim dividend:

Ordinary shares.......................................................... 840,000

Preference share........................................................ 675,000

Cash at bank................................................................ 12,500,000

10% Long Term Loan from the United Kingdom................................................ 2,205,000

73,448,000 73,448,000

Additional information:

1.On 31 December 2019, during a routine check it was found that the inventories were understated by RM50,000 due to error in the computation.

2.Samudera Bhd depreciates its non-current assets as follows:

Building : 50 years, straight line method on yearly basis

Plant and machinery : 5%, straight line method on yearly basis

Motor vehicle : 8% , reducing balance method on yearly basis

Depreciation on motor vehicle is part of distribution expenses.

3.On 1 January 2016,Samudera Bhd purchased a piece of land and factory building at amount of RM25,000,000. The cost of the factory building was RM20,000,000. The landisrevalued every two years and the balance in the asset revaluation reserve is related to its previous revaluation. On 31 December 2019, the fair value of the land and building were determined to be RM9,500,000 and RM22,000,000 respectively. Samudera Bhd adopt the revaluation model to measure its property, plant and equipment.

4.On 1 January 2019, one of the company's machine that was acquired at RM300,000 which has been depreciated for 5 years was disposed for RM195,000 (cash). The disposal has not been accounted for by Samudera Bhd.

5.On 1 January 2019, the company incurred RM35,000 to overhaul the plant that will significantly improve the production capacity and the useful life. This cost has been included in administrative expenses.

6.Samudera Bhd acquired a motor vehicle for marketing activities on 1 Mac 2019 at a cost of RM250,000. The management decided not to provide depreciation as the vehicle was rarely used by the marketing manager. None of the transactions of this motor vehicle were recorded in the books for 2019.

7.Biological assets represent livestock as follows:

Existing livestock on 1 January 2019

Age Quantity Fair value less point of sale cost /unit (RM)

One- year old 1000 RM520

Two- year old 490 RM2,000

New born old 200 RM250

On 1 June 2019, Samudera Bhd imported 1,200 6-months old livestock at a cost of RM480,000 (cash). This transaction has not been accounted for.

The fair value less point of sale costs per animalwere as follows:

Date Age Fair value less point of sale cost /unit (RM)

31 December 2019 One -yearold RM1,040

31 December 2019 Two-year old RM2,800

31 December 2019 Three-year old RM3,000

31 December 2019 6 months old RM620

31 December 2019 New born old RM500

During the financial year 2019, there was no sale of livestock.

8.On 1 January 2017, Samudera Bhd acquired a patent at a cost of RM900,000 from Kedeer Bhd. The patent has an economic life of 10 years. However, on 31 December 2019the recoverable amount was found to be RM550,000.No adjustment has been made in the books.

9.The licencing agreement has a remaining estimated useful life of 4 years. No adjustment has been made in the year 2019.

10.The following provisions have to be made:

i.Audit fessRM500,000

ii.Directors remunerationsRM980,000

iii.Rental revenue RM200,000

iv.Accrued interest UK Long- term loan

v.Final dividend on preference shares

11.The investment properties consist of land and building. On 1 January 2019, the value of land is RM1,800,000. On 30 June 2019, part of the building valued at RM750,000 was occupied by Samudera Bhd for business purpose. The fair value of this building on this date was RM930,000. On 31 December 2019the fair value of the investment properties; land and building were RM1,900,000 and RM1,600,000 respectively. The company adopts fair value model in measuring its investment properties. The remaining useful life of this building is 4 years.

12.On 1 August 2019, 2,000,000 new issue of ordinary shares at parwas made in order to finance a new investment project in year 2020. All the shares have been successfullysubscribed in full by 31 December 2019 but this transaction has not been accounted for in the books of account. These new shareholdings were not entitled for any dividend in the current year.

13.In June 2019, Samudera Bhd was confronted by a customer with a legal suit for injury suffered from using one of the company's products. The company's lawyer believes that the customer was at fault as she failed to follow the product's usage instructions. It is highly certain that Samudera Bhd will win the case as the company had never accounted such case previously.

14.In November 2019, the local residents made a complaint of an uncomfortable smell caused by the agricultural activities ofSamudera Bhd. Based on the past practice, the company has been taking responsibilities to clean up any contamination caused by its activities that could harm the environment. It is estimated that the cost of clean up will be RM20,000.

15.The tax expense for the year is estimated to be RM830,000.

Required:

PART A

The following requirements relates to the additional information above:

i.Based on additional information (1), which accounting standard is applicable and explain the appropriate accounting treatment.

ii.Based on additional information (3), prepare the relevant journal entries to account for the adjustments for the year ended 31 December 2019. (Narrations not required)

iii.Based on additional information (4), prepare journal entries to account for the disposal of machine for the year ended 31 December 2019. (Narrations not required)

iv.Explain accounting treatment for additional information (5) and provide the relevant journal entries to support your answer.

v.Based on additional information (11), state the relevant accounting standard(s) is (are) applicable and explain the appropriate accounting treatment of this transaction. Provide the relevant journal entries to support your answer

vi.Explain accounting treatment for additional information (13) .

vii.Explain accounting treatment for additional information (14)

PART B

Prepare the following financial statements for Samudera Bhd in a form suitable for publication and in compliance with the Companies Act 2016 and the Malaysian Financial Reporting Standards (MFRS):

i.Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2019.

ii.Statement of Changes in Equity for the year ended 31 December 2019

iii.Statement of Financial Position as at 31 December 2019

iv.Notes to the account for property, plant and equipment

PART C

Based on your answer in Part B above, compute the following ratios:

i.Profitability ratio - Gross Profit Margin and Net Profit Margin

ii. Liquidity ratio-Current Ratio and Quick Ratio