QUESTION 1

On 1 October 20X3 Xplorer commenced drilling for oil from an undersea oilfield. The extraction of oil causes damage to the seabed which has a restorative cost (ignore discounting) of RM10,000 per million barrels of oil extracted. Xplorer extracted 250 million barrels in the year ended 30 September 20X4.

Xplorer is also required to dismantle the drilling equipment at the end of its five year licence. This has an estimated cost of RM30 million on 30 September 20X8. Xplorer's cost of capital is 8% per annum and RM1 has a present value of 68 cents in five years' time.

What is the total provision (extraction plus dismantling) which Xplorer would report in its statement of financial position as at 30 September 20X4 in respect of its oil operations?

QUESTION 2

Hopewell sells a line of goods under a six-month warranty. Any defect arising during that period is repaired free of charge. Hopewell has calculated that if all the goods sold in the last six months of the year required repairs the cost would be RM2 million. If all of these goods had more serious faults and had to be replaced the cost would be RM6 million.

The normal pattern is that 80% of goods sold will be fault-free, 15% will require repairs and 5% will have to be replaced.

What is the amount of the provision required?

QUESTION 3

On 1 October 20X0 Monna entered into a construction contract that was expected to take 27 months and therefore be completed on 31 December 20X2. Details of the contract are:

Agreed contract price RM12,500

Estimated total cost of contract (excluding plant) RM5,500

Plant for use on the contract was purchased on 1 January 20X1 (three months into the contract as it was not required at the start) at a cost of RM8 million. The plant has a four-year life and after two years, when the contract is complete, it will be transferred to another contract at its carrying amount. Annual depreciation is calculated using the straight-line method (assuming a nil residual value) and charged to the contract on a monthly basis at 1/12 of the annual charge.

The correctly reported profit or loss results for the contract for the year ended 31 March 20X1 were:

RM'000

Revenue recognized 3,500

Contract expenses recognized (2,660)

Profit recognized 840

Details of the progress of the contract at 31 March 20X2 are:

RM'000

Contract costs incurred to date (excluding depreciation) 4,800

Agreed value of work completed and billed to date 8,125

Total cash received to date (payments on account) 7,725

The percentage of completion is calculated as the agreed value of work completed as a percentage of the agreed contract price.

Required:

a. Prepare extracts of the statement of comprehensive income for the year ended 31 March 20x2.

b. Prepare extracts of the statement of financial position as at 31 March 20x2. (Show all necessary workings)

(Total 20 Marks)