CAEA 1214: Financial Accounting and

Reporting II
Group Project: Compliance to
Financial Reporting Standards
Submission Date: 27th May 2015
No.

Name

Matric Number

1
2
3
4
5
6
7
8
9
10

GAN WEI TENG

CEA 140041
CEA 140042
CEA 140049
CEA 140063
CEA 140065
CEA 140070
CEA 140075
CEA 140109
CEA 140111
CEA 140118

11
12

GOH SONG JOO

KEE SHEAU CHIANN
LEON GUO JUN
LEONG ZI QI
LIM KEL XIN
LIM YONG HUANG
ONG CHIU CHEE
ONG TZE SHAN
RAJ SHANKAR A/L
V.ARUMUGAM
SITI NUR AIDA
TAN PEI JI

CEA 140127
CEA 140134

Signature

Requirement 1
Analyze two annual reports, one from Green Packet Berhad and another one from Kortra
Industries Berhad in order to identify:
i) Whether the companies comply with the requirements of MFRS 136 and MFRS 138
Both companies comply with the requirement of MFRS 136 para 60
GREEN PACKET BERHAD
Items
Recognising and

Disclosure
An impairment loss is recognized in profit or loss

Evidence
MFRS 136:

measuring an

immediately unless the asset is carried at its

Para 60

impairment loss

revalued amount. Any impairment loss of a

Report : page89

revalued asset is treated as a revaluation surplus for

the same asset.

KORTRA INDUSTRIES BERHAD

Items
Recognising and

Disclosure
An impairment loss is recognized in profit or loss

Evidence
MFRS 136:

measuring an

immediately.

Para 60

impairment loss

* In the financial report there is no explanation

Report : page54

about the account amount for revalued asset

Besides, Green Packet Berhad comply with the requirement of MFRS 138 para 21
GREEN PACKET BERHAD
Items
Recognisition of

Disclosure
An intangible asset will be recognized if, and only

Evidence
MFRS 138:

Intangible Assets

if it is probable that the future economic benefits

Para 21

that are attributable to the asset will flow to the

Report : page5

entity and that the cost of the asset can be measured

reliably. Also, the useful lives of intangible assets
are assessed to be either finite or indefinite.

KORTRA INDUSTRIES BERHAD

Items
Recognisition of
Intangible Assets

Disclosure
* There is no notes to the financial statements

Evidence
-

regarding this so we couldnt determine whether

Kortra comply with the MFRS 138 or not.

ii) Any significant differences and similarities in the accounting treatment and disclosure
between these two companies (if any)
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GREEN PACKET BERHAD

The annual report discloses that the

Similarities

KORTRA INDUSTRIES BERHAD

The annual report shows that the

company recognizes research

company recognizes research

expenditure as an expense when it is

expenditure as an expense when it is

incurred. Meanwhile, the

incurred. Besides, the development

development expenditure is
recognized as an expense except
that costs incurred on development

Research &

expenditure is recognized as an

Development

expense except that costs incurred on

Expenditure

development projects are capitalized

projects are capitalized as non-

as non-current assets to the extent that

current assets to the extent that such

such expenditure is expected to

expenditure is expected to generate

generate future economic benefits.

future economic benefits.

MFRS 138 para126&127

Evidence

Report : page 88

MFRS 138 para126&127

Report : page 70

SIMILARITIES:

GREEN PACKET BERHAD

The goodwill is tested annually

Difference

KORTRA INDUSTRIES BERHAD

The amendments to MFRS 136

and at other times when such

remove the requirement to disclosure

indicators exist. This requires

the recoverable amount when a cash4

management to estimate the

generating unit contains goodwill or

expected future cash flows of the

intangible assets with indefinite useful

cash-generating unit to which

Cash-

lives but there has been no impairment.

goodwill is allocated. For the

Generating

Therefore, there will be no financial

purpose of impairment testing,

Unit

impact on the financial statements of

goodwill acquired in a business

the Kotra Industries Berhad upon its

combination shall be allocated to

initial application but many impact its

each of the acquirers cash-

future disclosures. This shows that the

generating units.

company doesnt follow the MFRS

MFRS 136 para90

Evidence

Report : page 77
DIFFERENCES:

136 (para90).
MFRS para90
Report : page 49

Requirement 2:
Discuss the practical issues faced by companies in the implementation of
MFRS 136
Impairment testing is time intensive and includes:
1. Market Capitalization

One of the factors that indicate impairment loss is that the carrying amount of the net
assets of the entity exceeds its market price (market capitalization). Market capitalization
is a powerful indicator because it shows a lower figure than the book value of net assets;
it inescapably suggests the market considers that the business is overvalued. However the
practical issue was:
i.

The market may have taken account of factors other than the return that the entity

ii.
iii.

may have a high level of debt that the market doubts it will able to service fully
Financial crisis may have led to a general collapse in market prices
Market capitalization below book equity will not necessarily lea tot an equivalent
impairment loss.
Therefore, entities need to be able to understand the factor if shortfall because most

entities cannot avoid examining their CGUs in these circumstances and may have to test
goodwill for impairment unless there was sufficient headroom in a previous impairment
calculation. Some of the assets may not be sensitive to market capitalization as an
indicator. If the recoverable amount exceeds market capitalization, entities need to make
sufficient disclosure in notes to inform shareholders.

2. Valuation issue
MFRS required the recoverable amount of an asset or CGU to be measured at the
higher of its fair value and value in use. If carrying amount is higher than either those
value, then impairment loss was detected. Measuring the recoverable amount of an asset
of CGU gives rise to many valuation issues, which the standard only provides little
guidance. It would not be appropriate to include assumptions about cash flows or
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benefits from the asset or CGU that would not be available to or considered by a typical
market participant in arriving at the amount for which such a participant would be willing
to purchase the asset or CGU. There may be circumstances in which it is not possible to
obtain reliable evidence regarding the assumptions and techniques that market
participants would use, so it would be difficult to conclude that fair value less cost to sell
could be estimated with sufficient reliability for impairment testing purposes.
For the future cash flows or value in use, the standard requires value in use be
measures at the net present value of the future cash flows the entity expects to derive
from the asset or CGU in its current condition over its remaining useful life. This means
that ignoring many management plans for enhancing the performance of the asset or
CGU. It is not always easy to distinguish restructurings or improvements that cannot
be taken into account, from efficiency improvements (which may be taken into account)
and capital maintenance that must reflected. Capital maintenance must be reflected in
cash flows unless the CGU is in inevitable decline. If any CGU is to continue
indefinitely, then it must invest enough to maintain its capital base and this must be
reflected in the cash flows. Entities may also take account of efficiency improvements.
To this extent, the cash flows for impairment testing may be different to those in
managements forecasts. Besides that, it also was facing a problem that determining the
appropriate discount rate to apply. When a specific rate for an asset is not directly
available from the market, the entitys incremental borrowing rate or other market rates
can be used as a starting point. The selection of the rate is obviously a crucial part of the
impairment testing process and in practice; it will probably not be possible to obtain a

theoretically perfect rate. Therefore, the objective must be to obtain a rate which is
sensible and justifiable.

3. Testing for impairment at the end of each interim reporting period

Every asset have to be tested for impairment at the end of reporting period, if
there are indicators of impairment, changes in circumstances between the date of the
impairment test and the nest reporting period end may give rise to impairment indicators.
If so, more than one impairment test may be required in an annual period. Many entities
that goodwill at an interim period in the year. In unstable times with the high uncertainty,
goodwill may have to be tested for impairment at year end and at a subsequent interim
reporting date as well, if indicators of impairment arise after the annual test has been
performed. If an entity has to test for impairment at the end of the reporting date as well
as at the scheduled annual date, it does not necessarily mean that the whole budget
process needs to be re-done, which would be a very time consuming process for most
entities. If updated bottom-up forecasts are not yet available, top-down adjustments may
be sufficient to assess how much headroom has been affected by changes in the period
since the latest (goodwill) impairment review.
4. Changing the annual impairment testing date
An entity may wish to change its annual impairment testing date, perhaps to align
with the budget cycle or to reduce the testing burden in another period. A change of date
is acceptable in reasonable circumstances subject to the entity demonstrating that this has
not resulted in avoiding an impairment loss. For example, an entity with a 31 December
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year-end might wish to change its testing date from 30mJune to 31 December. In the
current annual period it could conduct tests at both dates, then test only at 31 December
in the following annual period . We do not regard moving to a new testing date to be a
change in accounting policy. However, entities should consider disclosing the change
and the reasons for it to prevent the confusion of shareholders.

APPENDIX

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