QUESTION 4 (20 MARKS) An assistant of yours has encountered the following matters during the preparation of the draft financial statements of Amanah Bhd for the year ended 30 September 2017. He has given an explanation of his treatment of them. Amanah Bhd spent RM200,000 sending its staff on training courses during the year. This already led to an improvement in the company's efficiency and resulted in cost savings. The organizer of the course has started that the benefits from the training should last for a minimum of four years. The assistant has therefore treated the cost of the training as an intangible asset and charged six months' amortization based on the average date during the year on which the training courses were completed. During the year the company started research work with a view to the eventual development of a new processor chip. By 30 September 2018 it had spent RM1.6 million on this project. Amanah Bhd has a past history of being particularly successful in bringing similar projects to a profitable conclusion. As a consequence the assistant has treated the expenditure to date on this project as an asset in the statement of financial position. Amanah Bhd has also commissioned by a customer to research and, if feasible, produce a computer system to install in motor vehicles that can automatically stop the vehicle if it is about to be involved in a collision. At 30 September 2018, Amanah Bhd had spent RM2.4 million on this project, but at this date it was uncertain as to whether the project would be successful. As a consequence the assistant has treated the RM 2.4 million in the statement of profit or loss. Amanah Bhd signed a contract for an initial three years) in August 2017 with a company called Media Today to install a satellite dish and cabling system to a newly built group of residential apartments. Media Today will provide telephone and television services to the residents of the apartment via the satellite system and pay Amanah Bhd RM50,000 per annum commencing in December 2018. Work on the installation commenced on September 2018 and the expenditure to 30 September 2018 was RM58,000. The installation is expected to be completed by 30 September 2018. Previous experience with similar contracts indicates that Amanah Bhd make a total profit of RM40,000 over the three years on this initial contract. The assistant correctly recorded the costs to 30 September 2018 of RM58,000 as a non-current asset, but then wrote this amount down to RM40,000 (the expected total profit) because he believed the asset to be impaired. The contract is not a finance lease. Ignore discounting Required: Provide your comments on the assistant treatment in the financial statements for the year ended 30 September 2017 for each of the above items (i) to (ii). Explain to him how they should be treated according to the relevant MFRS. [CLOI:PL06:C4)(20 marks) ACCT2131/Sep/Oct2018 Page 7 of 9 QUESTION 4 (20 MARKS) An assistant of yours has encountered the following matters during the preparation of the draft financial statements of Amanah Bhd for the year ended 30 September 2017. He has given an explanation of his treatment of them. Amanah Bhd spent RM200,000 sending its staff on training courses during the year. This already led to an improvement in the company's efficiency and resulted in cost savings. The organizer of the course has started that the benefits from the training should last for a minimum of four years. The assistant has therefore treated the cost of the training as an intangible asset and charged six months' amortization based on the average date during the year on which the training courses were completed. During the year the company started research work with a view to the eventual development of a new processor chip. By 30 September 2018 it had spent RM1.6 million on this project. Amanah Bhd has a past history of being particularly successful in bringing similar projects to a profitable conclusion. As a consequence the assistant has treated the expenditure to date on this project as an asset in the statement of financial position. Amanah Bhd has also commissioned by a customer to research and, if feasible, produce a computer system to install in motor vehicles that can automatically stop the vehicle if it is about to be involved in a collision. At 30 September 2018, Amanah Bhd had spent RM2.4 million on this project, but at this date it was uncertain as to whether the project would be successful. As a consequence the assistant has treated the RM 2.4 million in the statement of profit or loss. Amanah Bhd signed a contract for an initial three years) in August 2017 with a company called Media Today to install a satellite dish and cabling system to a newly built group of residential apartments. Media Today will provide telephone and television services to the residents of the apartment via the satellite system and pay Amanah Bhd RM50,000 per annum commencing in December 2018. Work on the installation commenced on September 2018 and the expenditure to 30 September 2018 was RM58,000. The installation is expected to be completed by 30 September 2018. Previous experience with similar contracts indicates that Amanah Bhd make a total profit of RM40,000 over the three years on this initial contract. The assistant correctly recorded the costs to 30 September 2018 of RM58,000 as a non-current asset, but then wrote this amount down to RM40,000 (the expected total profit) because he believed the asset to be impaired. The contract is not a finance lease. Ignore discounting Required: Provide your comments on the assistant treatment in the financial statements for the year ended 30 September 2017 for each of the above items (i) to (ii). Explain to him how they should be treated according to the relevant MFRS. [CLOI:PL06:C4)(20 marks) ACCT2131/Sep/Oct2018 Page 7 of 9