QUESTION 3

i- Illustrate how the financial assets can be derecognised as stated in the MFRS 9 Financial Instruments.

ii- Rose Bhd is a food and beverage manufacturer that operates its business at the Shah Alam Industrial Park, Selangor. During the year ended 31 December 2019, the following events occurred for Rose Bhd.

1. Rose Bhd is currently expanding its business globally into foreign markets. In July 2019, its factory operations in one of the foreign countries have seriously polluted the environment. The probable clean-up costs have been estimated at RM8,500,000. Though there is no environmental law in that foreign country, the company still claims to be a socially and environmentally responsible corporate citizen.

2. The board of directors of Rose Bhd decided to restructure its company in one year's time due to adverse economic condition. The restructuring involves closing its branches in Nilai and Senawang. Due to this, 25% of the staff will be made redundant. Rose Bhd has not come up with the decision as to which employees will be affected. However, Rose Bhd has made an announcement that it is going to restructure.

3. One of Rose's suppliers, Powder Bhd, had adverse publicity due to the issue of cleanliness of its factory. On 1 September 2019, Rose Bhd decided to terminate the contract with Powder Bhd. The contract will expire in 8 months time. According to the contract, the cost to fulfill the contract is RM160,000 per month. It is also stipulated in the contract that Powder Bhd can accept a compensation of RM1,400,000 if the contract is terminated more than 6 months before it expires.

Required:

For each of the events above, explain whether provisions should be recognised in accordance with MFRS 137 Provisions, Contingent Liabilities and Contingent Assets.

iii- On 1 January 2019, Bala, Tan and Syamil formed BTS Associates, a partnership that provides consultancy services. Bala invested RM120,000 in the partnership, Tan RM120,000 and Syamil RM280,000, respectively. All the partners have agreed the followings arrangement:

1. Bala will manage the office and work 40 hours per week in the office. Tan will work 20 hours per week in the office, and Syamil will not work.

2. Each partner withdrew 30 percent of his income distribution during 2019. If there was no income distribution to a partner, there were no withdrawals of cash

Required:

Compute the partners' capital balances at the end of 2019 under the following condition:

Net income is RM132,000 and the partnership agreement provides for:

1. a salary of RM80,000 to Bala and RM80,000 to Tan,

2. interest on beginning capital balances at the rate of 10%, and

3. any remaining income or loss is to be shared by Bala 40%, Tan 35%, and Syamil 25%.