1. MTy Bhd operates a fast food restaurant in Changlun, Kedah since year 2015. The classes of property, plant and equipment in MTy Bhd accounts are building, machinery, furniture and fittings and office equipment. In year 2015, MTy Bhd purchased machinery for the operation of the business at cost of RM3,250,000 with useful life of 10 year and residual value of RM100,000. The company retained earnings as follows:

	2017	2016
	RM	RM
Retained Earnings	2,827,421	2,134,356

The newly appointed auditor of the company Encik Salim identified that no depreciation was provided for the machinery in year 2015 nonetheless the asset was in used to generate revenue. Encik Salim has reported the errors incurred in year 2015 where the depreciation for machinery was computed for only 2 years since year 2016 instead of three years to the Chief Executive Officer (CEO) of the MTy Bhd. Thus, for year 2017 Encik Salim has advised the necessary accounting treatment required for the missing depreciation amount to MTy Bhd. Assume the tax rate is 25%.

REQUIRED:

1. Define errors in accordance with MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors.

2. State THREE (3) disclosure for correction of errors in accordance with MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors.

3. Demonstrate the accounting treatment for the missing depreciation amount and the impact to retained earnings in year 2017.

2. MTy Bhd has two issues identified by auditors relevant to events after the reporting period for the year ended 31 December 2017 as follows:

1. During the audit, the auditor has discovered a material fraud committed by the company’s Accounts Officer. Investigations revealed that a total of RM250,000 of the trade receivables as shown in the statement of financial position at 31 December 2017 was paid and the money has been embezzled by the Accounts Officer. The auditor revealed that RM105,000 was embezzled in the year to 31 December 2016 and the balance in the current year. MTy Bhd has not covered insurance for the loss, thus, the amount of RM250,000 is not recoverable.

2. MTy Bhd is being sued by an employee who lost a hand in an accident while at work on 1 June 2017. The company is contesting the claim as the employee was not following the safety procedures. Accordingly, the financial statements include a note of a contingent liability of RM103,000 for personal injury damages. On 10 January, a decided case involving another company where a similar injury was sustained, a settlement figure of RM300,000 was awarded by the court. Although the injury was similar, the circumstances of the accident in the decided case are different from those of MTy Bhd’s case.

REQUIRED:

Explain how the TWO (2) issues above should be dealt in accordance with MFRS 110 Events After the Reporting Period. Prepare required journal entries if necessary.

Answer rating: 100% (QA)

Question 1A a Noncounterbalancing error prior period error b Since there is an error MFRS 108 Accounting Policies Changes in Accounting Estimates and ... View the full answer