FINANCIAL STATEMENTS

FINANCIAL STATEMENTS (FOR PUBLICATION)

Company’s Act 1965 • Section 167- keep proper accounting records • Also to keep / maintain other books and registers • Section 169 – modifications & exceptions determined by BNM allowed with respect to financial reporting by banks & Financial Insitutions • Ninth schedule-requires disclosure of certain income statement and balance sheet items & other disclosures

Section 169 and Ninth Schedule of Company Act 1965 • List down the information to be disclosed in the Financial Statement presented to shareholders • FS part of annual report prepared for Annual General Meeting (AGM)

Annual Report • Chairman’s statement (not subject to statutory requirement) • Corporate governance statement (Mar 00’) • Audit committee (consists of directors & independent senior management) • Assistant Board Of Director (corporate accounting & auditing) • Financial Statements (includes Directors’ Report, Auditor’s report, Financial statements)

Financial Statements • Directors’ Report A statutory requirement • Auditors’ Report Appointed at AGM Examine & report the information contained in the Financial Statement

Section 174 • Auditors required to give opinion whether the accounts drawn up give a true & fair view of the company’s financial aspects

Income Statement Disclosures • Disclosures relating to revenue, income, profits or losses and credit or charges • Disclosure relating to expenses • Disclosure relating to taxation • Disclosure relating to appropriations, transfers & reserve adjustments

ACCOUNTING STANDARDS • Malaysian accounting standards that directly affect the presentation, recognition, measurement & disclosure of elements /certain line items in the Income Statement (1) FRS 101 :- Presentation of financial statements • FRS 108 :- Accounting Policies, Changes in Accounting Estimates and Errors • FRS 118 :- Revenue recognition

FRS 101 • FRS 101 – basis for the preparation of general purpose financial statement -as a minimum requirement, Income Statement must include : • Revenue • Finance costs • Share of profit & losses of associated & joint ventures • Tax expense • A single amount comprising the total of (i) Post tax profit or loss of discontinued operations (ii)Post tax gain or loss on the measurement of fair value less costs to sell or on disposal of assets or disposal group(s) constituting the discontinued operation (f) Profit or loss for the period

FRS 101 Two methods to present expenses in the income statement: • Nature of Expense method • Function of Expense / Cost of Sales method

FRS 108 -- The requirements for the selection and application of accounting policies in FRS 1012004Presentation of Financial Statements have been transferred to the Standard. -- Classification, disclosure and accounting treatment of: • accounting policies, and accounting for changes in accounting policies, • changes in accounting estimates, and • corrections of prior period errors.

FRS 118 • Measurement of revenue • Recognition of revenue • Sales of goods • Rendering of services • Interest, Royalties and Dividends

Preparation of Publish Accounts • Must comply with accounting standards • Must comply with companies Act 1965

Preparing Income Statement • Differences compared to any other businesses; • Payment made to directors • Debenture interest expenses • Income tax • Dividends • Disclosures to be considered as follows;

Preparing Income Statement • Revenue (turnover/ sales) • Cost of sales cost of goods • Other operating income Other operations that contribute a material amount • Operating expenses distribution costs, administrative exp, operating exp • Finance costs costs of using borrowed capital • Investment income include interest & dividend income

Dividend income • Gross Amount of dividend income reported in profit & loss account even though; • Received dividend net of tax Example: • Dividends received RM14400, then; • Dividend income disclosed in profit & loss a/c; • RM14400 x 100/(100-72) = RM20000 • Gross dividend = RM20000 • Tax credit = RM5,600 (GD – dividend net of tax)

Journal Entries Dr Tax charge RM5600 Cr Dividend Income RM5600 • Explanations; If tax on current year’s profit (excluding tax credit) is RM50000, the tax charge on profit & loss a/c will be $50000 + $5600= $55600 • Only $50000 payable to LHDN • But, if paying co. distributes dividends from exempt income, no need to raise tax credit on dividend income

FRS 108 • Require disclosure on: -- Write down of inventories -- Restructuring costs -- Disposal of fixed assets/LT investment -- Discontinued operations -- Litigation -- Other reversals of provisions

Taxation • Current income tax rate – 28% • In Malaysia-self assessment system (SAS) Example 1 • AA Bhd already paid tax for the year, RM50000, at the end of year calculated tax charge on taxable income- RM 54000 • If company has tax credit RM 3000, • ONLY RM1000 TAX PAYABLE • Company also has to provide for deferred taxation

Example • Taxi Bhd has a reported profit before tax, RM1.5mill • During the year, paid income tax RM500000. Also received net dividend income,RM40000 • Tax expense calculated for the year RM610000 inclusive transfer to deferred tax, RM100000. Tax rate 28% Extract of income statement Profit before tax $1500000 Income tax expense $610000 Profit after tax $890000

Gross dividend= RM40000-100/72 (28% tax rate) = $55,555 • Tax credit = RM55555-40000 = RM15555 • Since Taxi Bhd has paid RM500000 tax, TAX RECOVERABLE will be; • RM610000-500000-100000-15555= - $5555

Net Profit for the Period • Income Statement reports up to net profit for the period. • Appropriation of Profits will be reported in Statement of Changes in Equity

Appropriation of Profits • Profit available for appropriation will be: • Current year’s profit + Prior year’s un- appropriated profit & loss balance (retained profits) Example: Current year’s profit RM 50000 Un-appropriated profit b/f 20000 Available for distribution 70000

DIVIDENDS • Dividends become payable only when it is declared • Tax credits – income taxes paid by a company -under the imputation system for dividends(deducting tax on dividend at source)-available to frank the payments of dividends to avoid double taxation. • Section 108 , Income Tax Act 1967 – the balance in tax credit represents the cumulative income tax paid by the company, which has not been utilized for the payment of net dividends. • Company Act 1965 (Ninth schedule) & FRS 101- disclose whether tax credit available under Section 108 is sufficient to frank in full the distributable reserve

Dividends • In compliance with FRS 110, dividends declared after year end, will be shown in equity – not accrued as a current liability. • Transfer to reserves • Only a portion will be transfer to general or specific purpose reserve

Balance Sheet • Balance Sheet similar to other businesses except; • SHAREHOLDERS’ EQUITY SECTION • Shareholders’ equity consist of, Share capital + Reserves (Contributed by s/holders) (Growth in the s/h equity)

FRS 102, Inventories • Requires an enterprise to disclose the Costs or operating costs applicable to revenue recognition as an expense during the period • Net Realizable Value • Inventory valued at lower of cost and NRV • If NRV lower than cost- inventory will be written down to NRV-charged to expense

FRS 138, Intangible Assets R & D costs • Research –plan investigation to gain new scientific or technical knowledge -- Accounting treatment : Recognized as an expense in the period incurred • Development – the application of research findings or knowledge -- Accounting treatment :Recognized as an expense in the period incurred unless:

FINANCIAL STATEMENTS