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LG Steel Bhd. (LG Steel) It is a company active in downstream steel product manufacturing and trading. As part of its expansion plan, LG Steel acquired 90% of the ordinary shares of AT Steel Sdn.

BBFA3044 Advance Accounting Practice Assignment Questions Analysis of Financial Statements and IFRS Compliance

Section A (50 marks)

Answer ALL TWO (2) compulsory questions.

Question 1

LG Steel Bhd. (LG Steel) It is a company active in downstream steel product manufacturing and trading. As part of its expansion plan, LG Steel acquired 90% of the ordinary shares of AT Steel Sdn. Bhd. (AT Steel) on 1 January 2024. Subsequently, on 1 July 2024, AT Steel purchased 60% of the ordinary shares of RG Steel Sdn. Bhd. (RG Steel).

The statements of financial position of LG Steel, AT Steel and RG Steel as at 31 December 2024 are as follows:

   LG Steel AT Steel  RG Steel
            RM’000 RM’000  RM’000
 ASSETS     
 Non-current assets                
 Property, plant and equipment        230,810    56,530    107,970
 Investments in : AT Steel        158,000– â€“
                         : RG Steel                           –   112,800            –
         388,810   169,330     107,970
 Current assets                 
 Inventories          11,800      8,850         6,490
 Trade receivables          17,700      7,080         5,880
 Cash and bank          12,390    10,620       11,820

41,890            26,550               24,190

Total assets                                                     430,700        195,880                  132,160

 EQUITY AND LIABILITIES     
 Equity                
 Ordinary shares        295,000   118,000      59,000
 Revaluation reserves          29,500    23,600      18,280
 Retained earnings          51,330    21,240      25,970
 Non-current liabilities                 
 Loan notes          11,800      5,900         2,950
 Current liabilities                 
 Trade payables          34,810    23,010       23,600
 Accruals            2,950      1,770         590
 Tax payable            5,310      2,360         1,770

43,070              27,140                25,960

Total equity and liabilities              430,700         195,880                        132,160

Question 1 (Continued)

The following information is relevant to the preparation of the group financial statements:

On 1 January 2024, the revaluation reserves and retained earnings of AT Steel were RM20 million and RM18 million, respectively. The fair values of the net assets of AT Steel were equal to their carrying amounts, with the exception of a machine. On 1 January 2024, the fair value of the machine was RM25 million, and its carrying value was RM17 million. The machine has a remaining useful life of 5 years. AT Steel has not incorporated the fair value change into its financial statements yet.

On 1 July 2024, RG Steel had revaluation reserves and retained earnings of RM15 million and RM23 million, respectively. The fair values of the net assets of RG Steel at the date of acquisition were equal to their carrying amounts except for the land in note 3.

LG Steel Group has a policy of revaluing its land to fair value. On 1 July 2024, RG Steel’s land had a fair value of RM10 million higher than its carrying amount. This had increased by a further RM2 million as at 31 December 2024. RG Steel did not adjust its books to reflect the latest fair value change.

LG Steel Group’s policy is to value non-controlling interest at a proportionate share of the fair value of the subsidiary’s net assets.

During the post-acquisition period, LG Steel sold goods to AT Steel for RM12 million, on which LG Steel made a profit of 20% on cost. 35% of these goods remained unsold by AT Steel as at 31 December 2024.

LG Steel’s trade receivable balance with AT Steel at 31 December 2024 was RM3.5 million, while AT Steel’s trade payable balance with LG Steel showed RM2.5 million. RM1 million was paid by AT Steel on 29 December 2024, but LG Steel received the remittance only on 2 January 2025.

During the year ended 31 December 2024, LG Steel’s revenues included an amount of RM30 million for cash sales made on behalf of its supplier, EY Steel Sdn. Bhd. (EY Steel). LG Steel is acting as an agent of EY Steel and is entitled to a commission of 8% of the selling price of these goods. On 31 December 2024, LG Steel had remitted to EY Steel RM20 million and recorded this amount in its cost of sales.

Required:

Prepare the consolidated statement of financial position of LG Steel Bhd. Group as at 31 December 2024 in accordance with International Financial Reporting Standards. [Total: 30 marks]

Question 2

(A) Irex Bhd. (Irex) is a Malaysia-based company engaged in manufacturing machinery for food processing companies. On 1 December 2023, Irex entered into a contract with JFood Sdn. Bhd. (JFood) for the production of a machine. It took one year to produce the machine. As of 30 November 2024, JFood had inspected and accepted the machine. However, JFood has requested that the machine to be stored at Irex’s warehouse. JFood has legal title to the machine, and the machine can be identified as belonging to JFood. Irex stores the machine in a separate section of its warehouse, and the machine is ready for immediate shipment at JFood’s request. Irex cannot use the machine or direct it to another customer.

Required:

Assess whether Irex Bhd. should recognise the revenue in respect of the above machine for the year ended 30 November 2024 in accordance with IFRS 15/ MFRS 15 Revenue from Contracts with  Customers. (10 marks)

(B) Royal Bhd. (Royal) is primarily involved in the sale of health-oriented and wellness consumer products. On 1 January 2024, Royal acquired an item of office equipment costing RM2 million.  Royal depreciates its office equipment at 20% per annum using the straight-line method. Capital allowance of the office equipment for tax purposes is 25% per annum. Revenue generated by the office equipment is taxable. The current tax rate is 24%.

Required:

Assess, with relevant calculations, whether a deferred tax liability should be recognised in respect of the above office equipment for the year ended 31 December 2024 in accordance with IAS 12 / MFRS 112 Income Taxes. (10 marks) [Total: 20 marks]

Section B (50 marks)

Answer ALL TWO (2) compulsory questions.

Question 3

(A) Harta Bhd. (Harta) is a trading, marketing, warehousing, distribution, and service organisation in

Malaysia. It has four operating segments, namely Trading, Warehousing, Distribution and Services.

The financial information for the operating segments for the year ended 31 October 2024 is as follows:

 TradingWarehousingDistributionServices
 RM’000RM’000RM’000RM’000
Revenue from external customers140,000160,00011,2306,420
Inter-segment revenues–5,000–830
Non-current assets700,000430,0005,6003,800
Inventories20,80016,500500300
Non-current liabilities105,600150,8002,5005,800
Current liabilities80,20070,200900700
Cost of sales56,40066,7007,1005,000
Operating expenses22,80033,2002,3001,200
     
Quick ratio2.1:12.8:11.3:11.6:1

Required:

Prepare a segment report of Harta Bhd. for the year ended 31 October 2024, assuming that only the Trading and Warehousing segments are identified as reportable segments in accordance with IFRS 8 / MFRS 8 Operating Segments. (14 marks)

(B) NR Plantation Bhd. (NR Plantation) is engaged in the cultivation of rambutan tree plantations. The rambutan trees are mainly planted for their fruits. They can produce rambutan fruits up to 30 years.  The rambutan trees will be felled when they rambutan trees no longer bear fruits. The wood of the felled rambutan trees can be sold as scrap. For the year ended 30 September 2024, NR Plantation had harvested rambutan fruits from the rambutan trees. The directors of NR Plantation are seeking your advice on the accounting treatments for the rambutan trees and rambutan fruits.

Required:

Assess, with reasons, whether the rambutan trees and rambutan fruits of NR Plantation Bhd. are within the scope of IAS 41 / MFRS 141 Agriculture. (11 marks) [Total: 25 marks]

Question 4

TEV Bhd. Group (TEV Group) is engaged in manufacturing and selling precision components, tools and other related products. It is an export-oriented organisation. Most of TEV Group’s sales and receivables are denominated in US Dollars. However, the sharp appreciation of the Malaysian Ringgit against the US Dollars in the past few months is expected to dent TEV Group’s financial performance. Therefore, TEV Group’s board of directors is concerned with the performance of TEV Group for the year ended 31 October 2024 as compared to the previous year.

TEV Group’s summarised financial statements for the year ended 31 October 2024 are shown below:

Consolidated statement of financial position as at 31 October 2024:

  RM’000
 ASSETS 
 Non-current assets  
 Property, plant and equipment       102,160
 Investments       15,600
       117,760
 Current assets   
 Inventories        25,600
 Trade receivables        24,960
 Cash and bank         6,400

56,960

Total assets                                                                         174,720

   
 EQUITY AND LIABILITIES  
 Equity   
 Ordinary shares        52,800
 Retained earnings        48,000
         100,800
 Non-current liabilities   
 Bank loans        17,600
   
 Current liabilities   
 Trade payables        42,240
 Tax payable        14,080

56,320

Total equity and liabilities                                                    174,720

Consolidated statement of profit or loss for the year ended 31 October 2024

Additional information:

The administrative expenses shown in the consolidated statement of profit or loss above included foreign exchange losses of RM3 million for the year ended 31 October 2024.

Below are the relevant financial ratios of TEV Group for the year ended 31 October 2023:

Required:

Prepare a report for the board of directors of TEV Bhd. Group is analysing its financial performance and financial position for the years ended 31 October 2024 and 31 October 2023. [Total: 25 marks]

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