Question 1

HerbLab Bhd is a public listed company, established in 2000. The company was incorporated in Malaysia, involved in manufacturing and distributing health care products. As at 31 December 2021, the company has 10,000,000 units of ordinary shares and 5,000,000 units of 3% non-cumulative non-redeemable preference shares.

The following balances are for the year ended 31 December 2021.

	Debit RM'000	Credit RM'000
Cost of sales	10,300
Administration expenses	5,400
Selling and distribution expenses	1,100
Land	11,600
Buildings (at revaluation)	30,000
Equipment	22,500
Fixtures and fittings	1,450
Investment properties	3,500
Intangible assets	750
Investments	2,600
Tax paid	250
Accounts receivable	2,800
Inventories	450
Bank	1,100
Interim dividend	700
Revenue		22,500
Accumulated depreciation as at 1 January 2021:
Buildings		5,000
Equipment		9,000
Fixtures and fittings		950
Ordinary shares valued at RM1 per share		36,000
3% Non-cumulative non-redeemable preference shares		5,000
Retained profits		9,560
Revaluation reserve (land)		1,300
5% Convertible debentures		2,700
Defined benefit liability as at 1 January 2021		850
Deferred tax		140
Accounts payable		1,500
	94,500	94,500

The following notes are related to the balances given above:

1. On 1 July 2021, HerbLab Bhd acquired an equipment valued at RM300,000 and was able to be delivered and received on the same day as booking have been done earlier. The seller has agreed to accept payment in shares which were to be issued in December 2021.

It is estimated that the share price will be RM2.00 in the September 2021 and RM2.10 in December 2021. The price of HerbLabs shares on 1 July 2021 was RM1.50. This transaction has not yet been recorded.

The depreciation policy of HerbLab Bhd is as follows:

Building 2% straight line basis

Equipment - 10% straight line basis

Fixtures and fittings - 10% on book value.

Depreciation is to be provided on yearly basis.

For taxation purposes, the equipment is entitled to a 10% initial allowance and a 5% annual allowance.

2. The company adopted fair value model for its investment properties. The fair value as at 31 December 2020 was RM9,000,000.

3. The investment held by HerbLab Bhd comprises of 1,000,000 ordinary shares in HLane Bhd which is measured at fair value through profit or loss. The shares were acquired by the company during the year. As at 31 December 2021, the fair value of one unit of HLane Bhds ordinary shares was RM3.50. This value has yet to be reported in the companys financial statements.

4. The company operates a funded defined benefit retirement plan for its employees. The defined benefit liability as at 1 January 2021 was made up of the following:

	RM
Present value of obligations	2,850,000
Fair value of plan asset	2,000,000

The following transactions occurred during the year ended 31 December 2021, relates to the retirement plan.

	RM
Current service cost	230,000
Contribution paid	300,000
Benefit paid	105,000
Average service life of employees	15 years

The company used a rate of 8% that reflected the yield of corporate bonds issued by the bank for discounting purposes and as its expected rate of return from the plan asset. The fair value of the obligation and plan asset as at 31 December 2021 were estimated to be RM3,150,000 and RM2,250,000 respectively.

5. The 5% convertible debentures were issued on 1 July 2021 and are convertible into ordinary shares on the basis of 100 shares per RM50 debentures. None of the convertible debentures were converted as at 31 December 2021. The debenture interest would be payable on 30 June 2022.

6. The interim dividend paid for the year included one year dividend for 3% non-cumulative non-redeemable preference shares. The company declared an ordinary dividend of 2% on 20 December 2021 which would be paid on 15 January 2022.

7. The current tax expense was estimated to be RM875,000. The taxable temporary differences and deductible temporary differences for asset and liabilities in the statement of financial position as at 31 December 2021 were RM2,500,000 and RM1,750,000 respectively. The temporary differences did not account for the purchase of new equipment during the year.

8. The income tax rate for 2021 is 24%.

Required:

Prepare the following financial statements in a form suitable for publication:

1. Statement of profit or loss and other comprehensive income for the year 31 December 2021. Disclosure on the basic earnings per share and diluted earnings per share (if any) should be provided.

2. Statement of changes in equity for the year ended 31 December 2021.

3. Statement of financial position as at 31 December 2021.

Show all necessary workings.

(Total: 80 marks)