Reference no: EM133182858
Question - WS Bhd, its principal activity is property construction, acquired 80% interest in the equity capital of YY Bhd on 2 February 2019 for RM450,000,000. On 2 February 2019, YY Bhd's share capital was RM200,000,000 with the share price of RM1.50 per unit, the retained earnings were RM150,000,000 and revaluation reserves were RM50,000,000 on 2 February 2019. The group policy is to apply the proportionate share of the net identifiable assets method to measure the non-controlling interest. The financial statements of both companies for the year ended 31 December 2021 was as follows:
Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2021
|
WS Bhd RM'000
|
YY Bhd RM'000
|
|
Revenue
|
850,000
|
340,000
|
|
Cost of sales
|
530,000
|
200,000
|
|
Gross profit
|
320,000
|
140,000
|
|
Other income
|
260,000
|
180,000
|
|
Less:
|
|
|
|
Administration expenses
|
221,000
|
93,000
|
|
Staff cost
|
101,000
|
50,000
|
|
Selling and distribution expenses
|
65,000
|
58,000
|
|
Finance cost
|
10,000
|
4,000
|
|
Profit before tax
|
183,000
|
115,000
|
|
Less: Tax expenses
|
45,000
|
28,000
|
|
Profit for the year
|
138,000
|
87,000
|
Statements of Changes in Equity (Partial) For the year ended 31 December 2021
|
|
WS Bhd RM'000
|
YY Bhd RM'000
|
|
Retained earnings brought forward
|
310,000
|
180,000
|
|
+ Profit for the period
|
138,000
|
87,000
|
|
- Dividend
|
(50,000)
|
(36,000)
|
|
Retained earnings carried forward
|
398,000
|
231,000
|
Statement of Financial Position As at 31 December 2021
|
WS Bhd RM'000
|
YY Bhd RM'000
|
|
Non-current assets
|
|
|
|
Property, plant and equipment
|
280,000
|
458,000
|
|
Land held for property development
|
550,000
|
-
|
|
Investment in YY Bhd
|
450,000
|
-
|
|
Investment in GG Bhd
|
30,000
|
-
|
|
Other investments
|
50,000
|
30,000
|
|
Total non-current assets
|
1,360,000
|
488,000
|
|
Current assets
|
|
|
|
Property development costs
|
280,000
|
-
|
|
Inventories
|
200,000
|
184,000
|
|
Receivables
|
290,000
|
213,000
|
|
Cash and bank balances
|
160,000
|
176,000
|
|
Total current assets
|
930,000
|
573,000
|
|
Total assets
|
2,290,000
|
1,061,000
|
|
Equity
|
|
|
|
Share capital (RM1 per unit)
|
500,000
|
200,000
|
|
Retained earnings
|
398,000
|
231,000
|
|
Revaluation reserves
|
262,000
|
75,000
|
|
Total equity
|
1,160,000
|
506,000
|
|
Non-current liabilities
|
|
|
|
Deferred tax liabilities
|
50,000
|
40,000
|
|
Long term Islamic debts
|
240,000
|
-
|
|
Long term borrowings
|
160,000
|
300,000
|
|
Total non-current liabilities
|
450,000
|
340,000
|
|
Current liabilities
|
|
|
|
Payables
|
480,000
|
185,000
|
|
Short term Islamic debts
|
110,000
|
-
|
|
Short term borrowings
|
90,000
|
30,000
|
|
Total current liabilities
|
680,000
|
215,000
|
|
Total liabilities
|
1,130,000
|
555,000
|
|
Total equity and liabilities
|
2,290,000
|
1,061,000
|
Additional information:
1. The company's income tax rate for the year was 24%. The tax effects on unrealized profit for intragroup transactions need to be accounted for.
2. The group policy is to depreciate the property, plant and equipment using the straight-line method and on full-year depreciation basis.
3. During the year, there is an impairment of goodwill amounting to RM25,000,000 (gross amount). The impairment loss is to journalize to administration expenses.
4. The companies declared and paid dividend during the year. The dividend received is to journalize to other income account.
5. During the prior year, WS Bhd sold goods to YY Bhd for RM16,000,000 with inventories balance of RM6,000,000 respectively. The profit margin was 20% on cost.
6. YY Bhd sold inventories to WS Bhd amounting to RM20,000,000 during the current year. From this amount, RM12,000,000 still remained in the ending inventories of WS Bhd at the year-end. The profit margin was 20% on cost.
7. On 28 February 2021, YY Bhd sold machinery to WS Bhd for RM25,000,000. YY Bhd originally bought the machinery at the value of RM50,000,000. The machinery was depreciated for four years and the remaining useful life is six years. The gain on disposal of machinery is to journalize to other income account and loss on disposal of machinery including depreciation is to journalize to administration expenses.
8. WS Bhd had acquired 25% interest in the equity capital of GG Bhd on 1 January 2021 amounting to RM30,000,000. WS Bhd used the cost method to record the transactions of GG Bhd. GG Bhd profit before tax 2021 is RM16,000,000. WS Bhd has provided an interest-free short-term borrowing to GG Bhd amounting to RM3,000,000 on 20 November 2021.
9. On 24 December 2021, GG Bhd declared and paid dividend of RM2,000,000. The dividend received is to journalize to other income account.
Required - Discuss the ethical issue in intercompany transactions.