UNIVERSITI TEKNOLOGI MARA

GROUP PROJECT (15%)

COURSE : FINANCIAL ACCOUNTING AND REPORTING 2

COURSE CODE : FAR412

SEMESTER : JUNE 2026

INSTRUCTIONS TO STUDENTS

1. This project contains FIVE (5) questions.

2. Answer all questions.

3. This project should be completed in groups of FOUR (4) students. In the event that the
total number of students in a class is not divisible by four, one group may be permitted to
have either fewer or more members.

4. All group members are expected to contribute actively to the project.

5. Evidence of group discussions and meetings (e.g., WhatsApp chats, emails, online or
face-to-face meetings) must be included in the project report.

6. Any issue regarding unequal contribution should be reported to the lecturer. Appropriate
action may be taken based on the evidence provided.

7. Each group should not copy another’s group answers. The submitted assignment will
automatically undergo a similarity check. If plagarism is detected, marks would be
deducted based on discretion of the examiner.

8. All answer may be hand-written or type-written and each group must submit in pdf format
based on predetermined platform by the examiner.

9. Each group is required to submit the project on WEEK 14.

10. Each group is advised to keep a copy of your submitted assignment for future reference.
Where necessary, show your workings clearly.

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CASE STUDY
Indera Maju Berhad (IMB) is a Malaysian company involved in manufacturing and property
investment activities. The company prepares its financial statements for the year ended 31
December 2025 in accordance with Malaysian Financial Reporting Standards. Due to
declining profits and pressure from creditors, the directors are eager to report favourable
financial results. Consequently, management has proposed several accounting treatments
that have raised concerns among the accounting staff regarding faithful representation and
the exercise of professional judgement.
On 1 January 2025, IMB purchased a four-storey building for RM16,000,000. The ground
floor is occupied by the company as its head office, whereas the remaining three floors are
leased to tenants under operating leases to generate rental income. On 1 April 2025, the
company acquired a vacant piece of land for RM6,000,000 and intends to hold the land for
long-term capital appreciation. IMB also owns a warehouse that had previously been used to
store inventories. Beginning 1 July 2025, the warehouse was leased to third parties under
operating leases. On the date of transfer, the carrying amount and fair value of the
warehouse were RM4,500,000 and RM5,200,000 respectively.
During the year, IMB purchased a software licence for RM800,000. Installation costs and
testing costs amounted to RM60,000 and RM40,000 respectively. The company also
incurred RM150,000 on research activities relating to a new inventory management system.
After technical feasibility had been established, RM350,000 was spent on programmers’
salaries and RM50,000 on testing the software. Staff training expenses and advertising costs
amounted to RM40,000 and RM30,000 respectively.
IMB sells electronic products with a one-year warranty. During 2025, the company sold
25,000 units. Based on past experience, management estimated that 5% of the units sold
would require minor repairs costing RM400 each and 3% would require major repairs costing
RM1,500 each.
During the year, a customer filed a lawsuit against IMB claiming RM5,000,000 for damages
arising from defective products. The company’s legal advisers concluded that the probability
of losing the case was remote. In addition, IMB submitted an insurance claim amounting to
RM2,000,000 for losses suffered from a fire incident. Although the insurance company
acknowledged receipt of the claim, no confirmation regarding compensation had been
received as at 31 December 2025.
On 1 January 2025, IMB acquired a specialised machine costing RM3,000,000.
Management estimated a useful life of ten years and a residual value of RM200,000.
Towards the end of the year, engineers advised that rapid technological developments might
significantly shorten the useful life of the machine. Nevertheless, the managing director
instructed the accounting department to continue using the original estimates to avoid an
increase in depreciation expense.
As the financial year drew to a close, the managing Director became increasingly concerned
about the declining profitability of IMB and the possibility of breaching loan covenants
imposed by lenders. During a meeting with the accounting department, he instructed the
chief accountant to adopt accounting treatments that would improve the company’s reported
financial performance. In particular, he requested that the warehouse leased to external
parties continue to be classified as property, plant and equipment instead of investment
property because he wished to avoid fluctuations arising from fair value changes. He also
insisted that all software-related expenditures, including research costs, staff training costs

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and advertising expenses, should be capitalised as intangible assets to reduce the amount
of expenses recognised in profit or loss.
Furthermore, although historical records and past experience indicated that warranty claims
were expected to amount to approximately RM1,625,000, the managing director proposed
recognising only RM300,000 as a warranty provision because he believed that recognising
the full amount would significantly reduce the profit reported for the year. He also suggested
recognising the expected insurance compensation of RM2,000,000 as an asset even though
the insurance company had not confirmed whether compensation would be paid.
The chief accountant was uncomfortable with these instructions because he believed that
they were intended to achieve a desired profit figure rather than faithfully represent the
company’s financial position and performance. He was aware that the conceptual framework
emphasises faithful representation, neutrality and prudence, and that accounting information
should reflect the economic substance of transactions rather than management’s preferred
outcomes. Nevertheless, he was concerned that rejecting the managing director’s
instructions might adversely affect his performance evaluation and future promotion
prospects within the company.
The chief accountant therefore faced an ethical dilemma in balancing his professional
responsibilities with the pressure exerted by senior management. He recognised that
inappropriate accounting treatments could mislead users of the financial statements and
undermine the credibility and integrity of the company’s financial reporting.

QUESTION 1 (25 marks)

a) Discuss the appropriate classification of the following properties and identify the relevant
MFRS applicable to each item:
i. Four-storey building.
(5 marks)
ii. Vacant land held for long-term capital appreciation.
(3 marks)
iii. Warehouse leased to third parties beginning 1 July 2025.
(5 marks)

b) Determine the amount that should be recognised as investment property upon the
transfer of the warehouse on 1 July 2025. Discuss the accounting treatment that should
be applied to recognise the warehouse as investment property following the change in
use on 1 July 2025.
(7 marks)

c) Explain whether the managing director’s instruction to retain the warehouse as property,
plant and equipment is consistent with faithful representation.
(5 marks)

QUESTION 2 (25 marks)

a) Determine the amount of software-related expenditure that should be recognised as an
intangible asset.
(11 marks)

b) Determine the amount that should be recognised as an expense in profit or loss.

(4 marks)

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c) Discuss whether the managing director’s proposal to capitalise all software-related
expenditures is appropriate.
(5 marks)

d) Discuss the significance of uncertainty, prudence and professional judgement in

determining whether internally generated development costs qualify for recognition as
intangible assets.
(5 marks)

QUESTION 3 (20 marks)

a) Determine the amount of warranty provision that should be recognised as at 31
December 2025.
(8 marks)
b) Discuss the accounting treatment for:
i. The lawsuit filed by the customer.
ii. The insurance claim submitted by the company.
Support your answer with reference to the relevant MFRS.
(8 marks)

c) Explain whether the managing director’s proposal to recognise a provision of

RM300,000 is consistent with the principle of faithful representation.
(4 marks)

QUESTION 4 (15 marks)

a) Determine the annual depreciation charge for the specialised machine for the year
ended 31 December 2025.
(4 marks)

b) Explain how uncertainty and assumptions affect the measurement of the machine.
(5 marks)

c) Discuss the importance of prudence and professional judgement when estimates are
subject to uncertainty.
(6 marks)

QUESTION 5 (15 marks)

a) Discuss the ethical issues faced by the chief accountant and explain how professional
values and the qualitative characteristics of useful financial information should guide his
response to the managing director’s instructions.
(8 marks)

b) Discuss why integrity is fundamental to the accounting profession and how the absence
of integrity could affect IMB and its stakeholders.
(7 marks)

END OF QUESTION PAPER