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Full name and IC No: Hemananthini Kalimuthu Date: 26/02/2023

: 940710-07-5390

Assignment (Asgmt) Declaration Form

Semester/Year Jan 2023

Student’s Name Hemananthini A/P Kalimuthu

Student’s ID No: 041210082

Course Code BAC306/03

Course Title Advanced Financial Accounting and Reporting

Class Code AFA1-3C

Assignment No: 1

No. of pages of this 12

Assignment (including this
page)
Tutor’s Name LEE PEI EE
Course Lead’s Name LIM PENG KEAT
T-DF Assignment Declaration Form (3/2021 / version #004)
QUESTION 1

a) The FIFO method requires that what comes in first goes out first. The logic behind
the FIFO method is to avoid obsolescence of inventory. The advantage of using FIFO
is its keeps Stock Handling to a Minimum and Enhanced Quality Control. It is
accepted because FIFO most accurate method of aligning the expected cost flow
with the actual flow of goods which offers businesses a truer picture of inventory
costs. During times of inflation, FIFO will result in a higher closing inventory value
and a lower cost of goods sold.

The specific identification method relates to inventory valuation, specifically keeping

track of each specific item in inventory and assigning costs individually instead of
grouping items together. It is useful and usable when a company is able to identify,
mark, and track each item or unit in its inventory. It is acceptable because this
process is an effective way to keep track of inventory in a business to ensure proper
costing and budgeting of products. It tracks inventory easily and reduces the
likelihood of unaccounted items.

Weighted average cost method is where weighted average will used to determine the
amount of money that goes into COGS and inventory. It is acceptable because the
cost of managing your inventory can cut into profits if you don’t take the time to
optimize the process. Instead of counting up each sellable unit and then adding up
the value of each product, the WAC formula provides a time-saving alternative to
calculate current inventory value, which helps you save money in the long run. 

The all three methods are accepted because these methods have their own
advantages in reducing cost and increase profit according to the business strategy.
b) The term depreciation refers to an accounting method used to allocate the cost of a
tangible or physical asset over its useful life. Depreciation represents how much of
an asset's value has been used. It allows companies to earn revenue from the
assets they own by paying for them over a certain period of time. Depreciation shall
be provided separately for each part of an asset with a cost that is significant in
relation to the total cost of the item. Cost of asset is matched with its useful life.
Depreciation in accounting is based on matching principle.

There are few factors to be considered while computing depreciation as it has impact
on the amount of depreciation. The factors are the cost of the asset where the higher
the depreciation amount the higher is the depreciation amount based on the
percentage value. The other factor is the estimated salvage value of the asset.
Salvage value (residual value) is the amount of money that the company expects to
recover, less the disposal costs, on the date the asset is scrapped or sold. The third
factor is the estimated useful life of the asset. Useful life refers to the window of time
that a company plans to use an asset. Useful life can be expressed in years, months,
working hours, or units produced. Lastly, obsolescence should be considered when
determining an asset’s useful life and will affect the calculation of depreciation.

Depreciation is recognised even if the fair value of the asset exceeds it carrying
amount, as long as the asset's residual value does not exceed it carrying amount.
PPE is measured as per either cost model or revaluation model. Under the
cost model, the carrying amount of PPE is measured at its costs less any
accumulated depreciation and any accumulated impairment losses. Under the
revaluation model, the carrying amount of PPE whose fair value can be
measured reliably should be measured using the revaluation model.

Under this model, the carrying value is taken at the fair value of PPE at the
date of revaluation less any subsequent accumulated depreciation and
impairment loss. The asset to be depreciated is revalued each year; the fall in the
value is the amount of depreciation to be written off the asset and charged against
the profit and loss account for the period.
QUESTION 2

Flyday - Statement of cash flows for the year ended 30 September 2022
RM RM
Cash flows from operating activities:
Profit before tax 2,400.00
Adjustments for:
Depreciation of property, plant & Equipment 1,500.00
Loss on sale of property, plant & equipment (1800 - 2300) 500.00
Finance Costs 600.00
Investment properties - rental received - 350.00
Loss in Fair Value (w4) 700.00
Decrease in Inventory 800.00
Decrease in Receivables 400.00
Decrease in Payables 300.00
Cash generated from operations 6,850.00
Interest Paid (600-100+50) - 550.00
Income tax paid (w1) - 1,950.00
Net cash from operation activities 4,350.00
Cash flows from Investing activities:
Purchase of property, plant & equipment (w2) - 5,000.00
Sale of property, Plant and Equipment 1,800.00
Purchase of Investment property - 1,400.00
Investment properties - rental received 350.00
Net cash used in investing activities - 4,250.00
Cash flows from financing activities:
Issue of equity shares 2,200.00
Equity dividends paid (w3) - 2,800.00
Net Cash used in financing activities - 600.00
Net decrease in cash and cash equivalents - 500.00
Cash and cash equivalents at beginning of period 300.00
Cash and cash equivalents at end of period - 200.00
Working 1 - Income Tax
Provision b/f - 1,850.00
Profit or loss charge - 600.00
Provision c/f 500.00
Tax paid (balance) - 1,950.00

Working 2 - Property, Plant and Equipment

Balance b/f - 25,200.00
Depreciation 1,500.00
Revaluation (downwards) 1,300.00
Disposal (at carrying amount) 2,300.00
Transfer from investment properties - 1,600.00
Balance c/f 26,700.00
Acquired during the year (Balance) - 5,000.00

Working 3 - Equity Dividends

Retained earnings b/f 8,700.00
Profit for the year 1,800.00
Retained earnings c/f - 7,700.00
Dividends paid (Balance) 2,800.00

Working 4 - The reconciliation of the Investment properties

Balance b/f 5,000.00
Acquired during year 1,400.00
Loss in Fair Value - 700.00
Transfer to Property, plant & Equipment - 1,600.00
Balance c/f 4,100.00
QUESTION 3

a) No, the net book value cannot be greater than net realizable value at the end of
reporting period. It should be written down to its net realizable value. This is done
by crediting the amount of the write down to the inventory account, and debiting
the Loss on Decline in Net Realizable Value account. This is called as
impairment.

An entity shall assess at each reporting date whether there is any indication that an
asset may be impaired. The entity should recognize expenses and liabilities as
soon as possible when there is uncertainty about the outcome, but only
recognize revenues and assets when they are assured of being received. This
means that the inventory asset will always be reported at a value representing at
least the amount that can be collected from its eventual sale.

b) The reducing balance method of depreciation results in declining depreciation

expenses with each accounting period. In other words, more depreciation is charged
at the beginning of an asset's lifetime and less is charged towards the end.

The reducing balance method of depreciation is most useful when an asset has
higher utility or productivity at the start of its useful life, as it results in depreciation
expenses that reflect the assets' productivity, functionality, and capacity to generate
revenue. For example, many types of machinery have higher functionality when
they’re new and therefore generate more revenue in the earlier years of their lives.
The reducing balance method of depreciation reflects this more accurately than other
depreciation methods.

On the other hand, straight-line depreciation results in equal depreciation expenses

and therefore cannot account for higher levels of productivity and functionality at the
beginning of an asset’s useful life. Nonetheless, the straight-line method is much
easier to calculate, and might therefore be a more suitable option for freelancers or
small business owners who manage their own finances.
c)
RM
Six months depreciation to the date of the
revaluation will be (12,000,000/20years x
6/12) 300,000.00
Six months depreciation from the date of
the revaluation to 31 March 2020 would be
(10,850,000/17.5years remaining life x
6/12) 310,000.00
Total Depreciation 610,000.00
QUESTION 4

a) A financial instrument is defined as a contract between individuals/parties that holds

a monetary value. They can either be created, traded, settled, or modified as per the
involved parties' requirement. In simple words, any asset which holds capital and can
be traded in the market is referred to as a financial instrument. Some examples of
financial instruments are cash, time deposits, accounts receivable, accounts payable,
debt and equity securities.

Physical assets and prepaid expenses are not qualifying as financial instruments.
Physical assets usually depreciate or lose value due to wear and tear, whereas
financial assets do not experience such reduction in value due to depreciation.
Prepaid expenses are not financial assets because they are associated with the
receipt of goods or services. They do not give rise to a present right to receive cash
or any other financial asset.

b) An instrument is a liability when the issuer is or can be required to deliver either cash
or another financial asset to the holder. This is the critical feature that distinguishes a
liability from equity. An instrument is classified as equity when it represents a residual
interest in the net assets of the issuer.

When raising finance the instrument issued will be a financial liability, as opposed to
being an equity instrument, where it contains an obligation to repay. Thus, the issue
of a bond creates a financial liability as the monies received will have to be repaid,
while the issue of ordinary shares will create an equity instrument. 

A financial instrument is an equity instrument only if the instrument includes no

contractual obligation to deliver cash or another financial asset to another entity and
If the instrument will or may be settled in the issuer's own equity instruments, it is
either a non-derivative that includes no contractual obligation for the issuer to deliver
a variable number of its own equity instruments or a derivative that will be settled
only by the issuer exchanging a fixed amount of cash or another financial asset for a
fixed number of its own equity instruments.
 c) Derecognition is the term used for the removal of an asset or liability from the
balance sheet. A gain or loss can be recognized from an asset’s derecognition,
though a gain on derecognition cannot be recorded as revenue. The gain or loss on
derecognition is calculated as the net disposal proceeds, minus the asset’s carrying
value.

An entity derecognizes a financial asset when the contractual rights to receive the

cash flows from the financial asset expire. When the financial asset is transferred and
the transfer meets certain conditions and when the entity enters into a qualifying
pass-through arrangement. If transferred, then the entity evaluates whether it has
retained any risks and rewards of ownership of the transferred financial asset.
.
QUESTION 5

Krishna Sdn Bhd

Statement of Comprehensive Income for the year ended 31 December 2022
RM RM

Revenue 2,312,000.00
Less : Cost of Sales (152,000+1581000-243000) - 1,490,000.00

Gross Profit 822,000.00

Other Income - Gain on disposal (W1) 38,000.00

Administrative Expense (W3) - 408,850.00
Finance costs (W4) - 10,000.00
General Reserves - 23,000.00

Ordinary Dividens - 12,000.00

Gain for the year 406,150.00

Gain on property revaluation (W5) 415,000.00

Total comprehensive income for the year 821,150.00

 Krishna Sdn Bhd
Statement of Financial Position as at 31 December 2022
Assets RM
Non-Current Assets
Land & Buildings 585,000.00
Plant & Machinery (725,000-112000) 613,000.00
1,198,000.00
Current Assets
Bank 103,000.00
Account Receivable 197,000.00
Closing Inventory 243,000.00
Prepaid Utilities 150.00
1,741,150.00
Equity & Liabilities
Equity
Ordinary Shares 300,000.00
Retained Earning 1,056,150.00
Revaluation Reserve 415,000.00
General Reserve (108,000+23,000) 131,000.00

1,771,150.00
Non Current Liabilities
Loan Notes 100,000.00

Current Liabilities
Accrued Insurance 5,000.00
Account payable 159,000.00
Accrued interest on Loan notes 5,000.00
2,040,150.00

Working 1 - Gain on Disposal

Sales proceed 220,000.00
Less : Net Book Value - 182,000.00
38,000.00

Working 2- Accumulated
Depreciation
Balance b/f 188,000.00
Add: Current year
depreciation 42,000.00
Less: Depreciation on asset
disposed (300,000-182,000) - 118,000.00
Balance c/f 112,000.00
Working 3 - Administrative
Expenses
UtilitiesExpenses
Sundry (21,000 -150) 20,850.00
(105000+5000) 110,000.00
Buildings
Depreciation plant & 5,000.00
machinery 42,000.00
Wages & Salaries 231,000.00
408,850.00

Working 4 - Finance Cost

Charge needed in income
statement (10% x 100,000) 10,000.00
Amount Paid - 5,000.00
Accrued amount 5,000.00

The accrued expenses

Loan Notes 5,000.00
Insurance 5,000.00

Prepaid Expense
Utilities 150.00