FP

Singapore CA Qualification (Foundation) Examination

10 December 2019
Advanced Financial Reporting

INSTRUCTIONS TO CANDIDATES:

1. The time allowed for this examination paper is 3 hours 15 minutes.

2. This examination paper has FOUR (4) questions and comprises TWENTY (20)
pages (including this instruction sheet and Appendix A). Each question may have
MULTIPLE parts and ALL questions are examinable.
3. This is a restricted open book examination. This means that you are allowed to
only bring the following materials into the examination hall:

 One A4-sized double-sided cheat sheet.

4. During the examination, you are allowed to use your laptop and any calculators
that comply with the SAC’s regulations. Please note that watches, mobile
phones, tablets, and all other electronic devices MUST NOT be used during the
examination.
5. This examination paper is the property of the Singapore Accountancy
Commission.

MODULE-SPECIFIC INSTRUCTIONS:

6. Assume that all dollar amounts are in Singapore dollar (S$) unless otherwise
stated.
7. Unless specified otherwise, assume that all the reporting entities in all the
questions adopt, for all the relevant years, the Singapore Financial Reporting
Standards (International) (SFRS(I)) that were issued by the Accounting
Standards Council as at 1 January 2019.
Question 1 – (a) and (b)

Heinrich Pte Ltd (Heinrich) acquired 70% of Schwann Pte Ltd (Schwann) on 1 January
20x1 and 30% of Aristotle Pte Ltd (Aristotle) on 1 January 20x2. The following are the
summarised financial statements of the respective companies:

Statement of Comprehensive Income

For the financial year ended 31 December 20x4

Heinrich Schwann Aristotle

$'000 $'000 $'000

Sales 78,210 52,610 32,290

Cost of sales (42,920) (29,800) (20,080)

Gross profit 35,290 22,810 12,210

Other income 5,330 3,250 1,870

Operating expenses (25,720) (16,350) (8,470)

Profit before tax 14,900 9,710 5,610

Tax expense (2,980) (1,940) (1,120)

Profit after tax / Total comprehensive

11,920 7,770 4,490
income

© 2019 Singapore Accountancy Commission Page 2 of 20

 Statement of Financial Position
As at 31 December 20x4

Heinrich Schwann Aristotle

$'000 $'000 $'000

Non-current assets

Property, plant and equipment 43,298 33,510 16,455

Investment in Schwann Pte Ltd (at cost) 24,550 0 0

Investment in Aristotle Pte Ltd (at cost) 6,120 0 0

73,968 33,510 16,455

Current Assets

Inventories 11,280 8,390 7,270

Trade and other receivables 5,725 5,420 2,540

Cash and cash equivalents 6,520 4,410 3,875

23,525 18,220 13,685

Total Assets 97,493 51,730 30,140

Equity

Share capital 43,600 25,400 18,500

Retained earnings 46,563 20,870 7,360

90,163 46,270 25,860

Current liabilities

Trade and other payables 4,410 3,560 3,180

Provision for current tax 2,920 1,900 1,100

7,330 5,460 4,280

Total Equity and Liabilities 97,493 51,730 30,140

© 2019 Singapore Accountancy Commission Page 3 of 20

 Statement of Changes in Equity (extract)
For the financial year ended 31 December 20x4

Heinrich Schwann Aristotle

Retained Retained Retained

earnings earnings earnings
$’000 $’000 $’000

Balance as at 1 January 20x4 38,183 15,480 4,300

Total comprehensive income 11,920 7,770 4,490

Dividend paid (3,540) (2,380) (1,430)

Balance as at 31 December 20x4 46,563 20,870 7,360

Additional information:

1. The Group, consisting of Heinrich and Schwann, adopts the proportionate share
of the fair value of the subsidiaries’ identifiable net assets in measuring any non-
controlling interest.

2. Ignore all income tax and deferred tax effects, if any, arising from business
combinations.

3. There has been no change in the share capital of all the above companies since
the respective acquisition dates.

4. Other income consists of dividend, accounting and administrative fee income and
other miscellaneous income.

5. When Heinrich acquired Schwann on 1 January 20x1:

 The amount of Schwann’s retained earnings was $8,260,000.

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  The fair value of Schwann’s freehold land exceeded its cost by $1,530,000.

 Schwann had a pending lawsuit in which the lawyer advised there was a
40% probability that the company would lose the case and would have to
pay $2,750,000. The contingent liability was settled out-of-court by Schwann
paying $2,000,000 on 30 June 20x2.

6. Since 1 January 20x3, Schwann had sold goods to Heinrich at cost plus 20%. As
at 31 December 20x3, $2,400,000 of these inventories remained in the store of
Heinrich. Heinrich subsequently sold these inventories to external customers in
January 20x4. The sales from Schwann to Heinrich amounted to $3,700,000 for
the financial year ended 31 December 20x4, and all these inventories were
subsequently sold to external customers as at 31 December 20x4. The amount
owing from Heinrich to Schwann for the intercompany sales had been fully settled
as at 31 December 20x4.

7. Since 1 April 20x4, Heinrich has provided accounting and administrative services
to Schwann for a fee of $25,000 per month. This fee was recorded by Schwann
as an operating expense. The fee charged by Heinrich to Schwann for the last
quarter of financial year remained outstanding as at 31 December 20x4.

8. When Heinrich purchased its stake in Aristotle on 1 January 20x2, the value of
Aristotle’s retained earnings was at $1,900,000.

9. During the financial year ended 31 December 20x4, Aristotle sold goods to
Heinrich for $2,500,000. The gross profit arising from the sale is $800,000. On
31 December 20x4, Heinrich’s inventories included goods invoiced by Aristotle
amounting to $1,000,000. As at 31 December 20x4, the amount owing by
Heinrich to Aristotle amounted to $750,000 and was recorded by the respective
companies in their accounts.

10. Assume that a shareholding of more than 50% gives rise to control, while a
shareholding between 20% and 50%, inclusive, gives rise to significant influence.

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Examplify Question 1 required:
Question
Number

Apply Singapore Financial Reporting Standard (International)

(SFRS(I)) 3 Business Combinations, SFRS(I) 10 Consolidated
Financial Statements and SFRS(I) 1-28 Investments in Associates
and Joint Ventures when answering the following:

1 (a) Prepare the relevant consolidation and equity accounting entries

for Heinrich Pte Ltd Group for the financial year ended 31
December 20x4. Show supporting workings where necessary.
Marks will be awarded for appropriate workings.
Present your answers in the following format:
Transaction date
DR Account Name xxx
CR Account Name xxx
(Narration for Journal Entry)

(19 marks)

2 (b) Prepare the Consolidated Statement of Financial Position for

Heinrich Pte Ltd Group for the financial year ended 31 December
20x4. Show supporting workings where necessary. Marks will be
awarded for appropriate workings.
(18 marks)
(Total: 37 marks)

© 2019 Singapore Accountancy Commission Page 6 of 20

Question 2 – (a) and (b)

BTS Pte Ltd (BTS) plans to restructure its operations by selling some of its unprofitable
business units and channel their funds to expand their operations into more profitable
segments. As a result, its Board of Directors passed a special resolution to dispose
the group of its assets - the hard-disk manufacturing unit. No major overhaul of its
assets was required, and the unit was available for immediate sale. The managing
director had been actively marketing the unit with an asking price of $17 million.

As at 31 December 20x7, the Managing Director was in active talks with two interested
buyers, although no deal had been struck yet. Given the progress of the negotiation
with the buyers, the Board of Directors was confident that the unit would be
successfully sold within a year.

The accountant of BTS concluded that assets of the unit qualified as a disposal group
held for sale, and are measured as follows as at financial year ended 31 December
20x7:

Carrying amount
$’000

Goodwill allocated 2,430

Freehold property (classified as property, plant and 5,650

equipment measured using the revaluation method)

Machinery (classified as property, plant and equipment 3,300

measured using the cost method)

Investment property (measured using the fair value 7,310

method)

Development costs 1,820

Inventories 2,400

© 2019 Singapore Accountancy Commission Page 7 of 20

It was also determined that the recoverable amount of the machinery was $700,000
lower than its carrying amount, while the recoverable amount of the development costs
and the net realisable value of inventories were half of their carrying amounts.

An independent valuer had assessed the fair value of the disposal group to be $17
million, while the costs to sell were reasonably estimated at $800,000.

© 2019 Singapore Accountancy Commission Page 8 of 20

Examplify Question 2 required:
Question
Number

3 (a) Based on the given case, identify the criteria which allows the
assets of the hard-disk manufacturing unit to be qualified as a
disposal group held for sale in accordance with Singapore
Financial Reporting Standard (International) (SFRS(I)) 5 Non-
current Assets Held for Sale and Discontinued Operations.
(7 marks)

4 (b) Compute the adjusted carrying amount of the assets of the hard-
disk manufacturing operations on 31 December 20x7 prior to the
classification as a disposal group held for sale, and any
allocation of impairment loss to each of the asset (if any)
subsequent to the classification. Show all workings and express
your answers to the nearest thousand dollars.
(11 marks)
(Total: 18 marks)

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Question 3 – Part I and Part II

Part I

Mr Thomas Poh, a member of the Institute of Singapore Chartered Accountants, joined

Smap Pte Ltd in 20x1 and is currently the Assistant Finance Manager of the company.
He reviewed the accounts for the financial year ended 31 December 20x8, and
discovered a significant increase in the staff costs as compared to the previous
financial year.

Upon further investigation, he discovered that it was an omission of bonus provision

for the sales department for the financial year ended 31 December 20x7. He was
concerned that the material error from prior period would require retrospective
adjustment and restatement of the prior period financial statements, as this could
potentially affect his appraisal and even variable bonus for the year. Nevertheless, he
consulted his superior, Mr Stephen Phang, the Finance Manager.

After some consideration, Mr Stephen proposed, “Restating the financial statements

and disclosing that there is an error from prior period means we acknowledge that
there was an error in last year’s accounts and this will result a negative impression of
our Finance team. Why don’t we reclassify the omitted amount into a few expense
accounts, so that it would not be easily noticeable and we do not have to restate the
financial statements? Otherwise, I cannot imagine the grading we would get for our
appraisal this year!”

© 2019 Singapore Accountancy Commission Page 10 of 20

Examplify Question 3 Part I required:
Question
Number

With reference to Ethics Pronouncement (EP) 100 the ISCA Code of

Professional Conduct and Ethics:

5 (a) Identify TWO fundamental principles which are being threatened

from the perspective of the Assistant Finance Manager.
(4 marks)

6 (b) Describe TWO threats that could compromise, or be perceived

to compromise, the Assistant Finance Manager’s compliance
with the fundamental principle identified in part (a) above.
(4 marks)

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Part II

On 1 January 20x6, City Inn Pte Ltd (City Inn), a company incorporated in Singapore,
acquired a 100% interest in and consequently controls Kampung Resort Sdn. Bhd.
(Kampung), a company incorporated in Malaysia on 1 April 20x2.

The presentation currency of City Inn is in Singapore Dollars (S$), whereas the
functional and presentation currency of Kampung is in Malaysian Ringgit (MYR). For
practical reasons, it is City Inn’s policy to use the average exchange rate for the
financial year to translate all profit and loss items.

As at 1 January 20x6, the net assets of Kampung were represented by share capital
of MYR 54,300,000 and retained profits of MYR 29,300,000.

The summarised financial statements of Kampung are as follows:

Statement of Financial Position

As at 31 December 20x8

MYR’000

Non-current assets 103,550

Current assets 89,210

Total assets 192,760

Share capital 54,300

Treasury shares (7,420)

Retained earnings 54,360

Total equity 101,240

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 Non-current liabilities 64,290

Current liabilities 27,230

Total liabilities 91,520

Total equity and liabilities 192,760

Statement of Comprehensive Income

For the financial year ended 31 December 20x8

MYR’000

Sales 87,650

Cost and operating expenses (54,860)

Profit before tax 32,790

Tax (7,520)

Profit after tax / Total comprehensive income 25,270

Additional information pertaining to Kampung:

1. The company conducted a share buy-back on the following dates:

No. of Price per

As at shares share
(’000) (MYR)

1 May 20x7 3,400 1.30

31 August 20x8 2,400 1.25

The repurchased shares were kept as treasury shares.

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2. The S$ equivalent of the retained earnings as at 31 December 20x7 was a credit
balance of S$10,809,000.

3. The currency translation reserve as at 31 December 20x7 had a debit balance of

S$148,000.

4. A dividend of MYR 3,500,000 was paid on 28 May 20x8.

5. The exchange rates between the MYR and the S$ were as follows:

1 January 20x6 S$1: MYR 3.026

1 May 20x7 S$1: MYR 3.103

31 December 20x7 S$1: MYR 3.034

28 May 20x8 S$1: MYR 2.959

31 August 20x8 S$1: MYR 3.009

31 December 20x8 S$1: MYR 3.036

Average for 20x8 S$1: MYR 2.958

© 2019 Singapore Accountancy Commission Page 14 of 20

Examplify Question 3 Part II required:
Question
Number

7 (a) Translate the financial statements of Kampung Resort Sdn.

Bhd. for the financial year ended 31 December 20x8 into
Singapore Dollars (S$), in accordance with Singapore
Financial Reporting Standard (International) (SFRS(I)) 1-21
The Effects of Changes in Foreign Exchange Rates. Show all
workings and express your answers to the nearest thousand
dollars, including the translation gain or loss for the financial
year. (13 marks)
(Total: 21 marks)

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Question 4 – Part I and Part II

Part I

For the financial year ended 31 December 20x8, the issued shares of Cameron Pte
Ltd (Cameron) were held by the following parties:

Achill Pte Ltd (Achill) 220,000

Deans (An individual investor) 230,000

Farro Ltd 550,000

In January 20x8, Achill entered into a joint venture with another company to set up a
distribution chain, Barra Pte Ltd (Barra). Barra held 60% of the shareholding in Easter
Pte Ltd (Easter).

The shareholdings in the respective companies carry voting rights at the general
meetings of the companies, where a shareholding of more than 50% gives rise to
control and a shareholding of 20% to 50%, inclusive, gives rise to significant influence.

During the financial year ended 31 December 20x9, the following events occurred:

 Besides annual salaries, year-end bonuses and employer Central Provident

Fund (CPF) contributions, the key management personnel of Cameron received
employee share appreciation rights paid on behalf by Farro Ltd.

 Achill sold goods to Cameron amounting to $1 million.

 Deans advanced a 3-year loan of $5 million to Cameron to cover its working

capital at an annual interest rate of 3% per annum. The loan amount was still
outstanding as at 31 December 20x9.

 During the year, Achill did not transact with Barra and Easter.

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Examplify Question 4 Part I required:
Question
Number

8 (a) For the financial year ended 31 December 20x9, explain if the
following companies and individuals are related parties of
Cameron Pte Ltd:

(i) Achill Pte Ltd

(ii) Barra Pte Ltd

(iii) Deans, the shareholder of Cameron Pte Ltd

(iv) Easter Pte Ltd

(v) Farro Ltd

(6 marks)

9 (b) State the information and relationships that Cameron Pte Ltd
needs to disclose under Singapore Financial Reporting
Standard (International) (SFRS(I)) 1-24 Related Party
Disclosures in its financial statements for the year ended 31
December 20x9. (5 marks)

© 2019 Singapore Accountancy Commission Page 17 of 20

Part II

On 1 November 20x6, Confinity Pte Ltd (Confinity), a Singapore-incorporated

company, purchased inventories for US$750,000 on 90 days credit terms. On the same
day, it entered into a forward exchange contract to purchase US$750,000 in 90 days at
the forward rate of US$1 = S$1.342 to hedge the foreign currency exposure. The
accounting system of Confinity performs revaluation of foreign currency balances using
the month-end exchange rate.

The exchange rate between USD and SGD on the following dates is as follows:

Spot exchange Forward exchange rate

rate for settlement on 31
January 20x7
(US$ : S$) (US$ : S$)
1 November 20x6 1.386 1.342

30 November 20x6 1.431 1.371

31 December 20x6 1.392 1.366

31 January 20x7 1.350 1.350

The full amount of US$750,000 was settled in full on 31 January 20x7.

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Examplify Question 4 Part II required:
Question
Number

10 (a) Briefly explain if Confinity should apply hedge accounting.

(2 marks)

11 (b) Apply Singapore Financial Reporting Standard (International)

(SFRS(I)) 1-21 The Effects of Changes in Foreign Exchange
Rates and SFRS(I) 9 Financial Instruments. Prepare the
journal entries to record the events and transactions as at 1
November 20x6, 30 November 20x6, 31 December 20x6 and
31 January 20x7. Show all workings. Ignore tax effects, time
value of money and transaction costs, if any. Assume Confinity
meets all qualifying criteria for hedge accounting if it is required
to be applied.

Present your answers in the following format:

Transaction date
DR Account Name xxx
CR Account Name xxx
(Narration for Journal Entry)

(11 marks)
(Total: 24 marks)

END OF PAPER

© 2019 Singapore Accountancy Commission Page 19 of 20

Appendix A - Common verbs used by the Examiners

Verb Description

This instruction requires you to relate your answer back to a

specific document/s or set of facts. Alternatively, you may be
Apply
required to use a specific formulae, model, or process. Apply and
With reference to are similar.
Do the number crunching and derive the correct answer. Make
Calculate /
sure that you write down your workings and crosscheck your
Compute
numbers.
Describe requires you to provide the characteristics and features
Describe of an item or situation without going into step-by-step detail of how
to perform that procedure.
Explain requires you to write at least several sentences conveying
how you have analysed the information in a way that a layperson
Explain
can easily understand the concept or grasp the technical issue at
hand.
Identify is similar to list, but requires you to also provide an
Identify explanation as to why the item/s that you have identified is/are
relevant to the facts given in the question.
In This instruction requires you to relate your answer back to a
accordance specific document. Failure to make specific mention of the
with document in your answer will result in a loss of marks.
Prepare (or present) requires you to produce your answer using a
Prepare / specific format. For instance, “Present an extract of the notes to
Present the accounts for …” or “Prepare all the relevant journal entries for
…”.
State is similar to list, but the items require your professional
judgement. For instance, "State any restrictions that apply". One
State of the easiest ways to make sure that you state comprehensively
is to think, "list and justify". You will note that state appears in
many of the verb descriptions given.
For the purposes of this examination, translate refers to the
Translate conversion of monetary values from one currency into another
currency.
This instruction requires you to relate your answer back to a
With specific document/s or set of facts. Failure to make specific
reference to mention of the document/s or facts in your answer will result in a
substantial loss of marks.

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