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Prepare consolidated financial statements for a group of companies subsequent to acquistion date 

Part 1

The Financial Statements of a Company is  prepared by following the guidelines of the relevant Accounting Standards of the respective countries. Every Accounting Standards require Companies to disclose certain details pertaining to that Accounting Standard. These disclosures ensure that the important information are shared with the shareholders, investors, lenders, and so on. Such disclosures help avoid fraudulent practices entered into by people having corrupt intentions. These disclosures ensure that the annual accounts present the true and fair view of the company. Moreover, complying with these disclosure requirements ensures that the reputation of the company is not tarnished as their non-disclosure would invite unnecessary litigations on the company for not complying with the requirements and lead to loss of reputation and so on.  The report focuses on two different companies incorporated in Malaysia and following the Malaysian Financial Reporting Standards  (MFRS) in preparing the financial statements. The two companies are Bonia Corporation Berhad and IJM Corporation Berhad. Both the companies are financially sound and stable. The two companies follow MFRS while preparing the annual accounts of the company. The report focuses on compliance of the disclosure requirements of the two companies in respect of MFRS 12. MFRS 12 "Disclosure of Interest in Other Entities" deals with the disclosures that are required to be made when the companies have invested in companies without making it a subsidiary, that is to say, the Company becomes an Associate. An Associate Company is a company in which another company own significant portion of Voting Rights or shares. The significant portion ranges from 20% to 50%. These ranges vary with the requirements of the laws in different countries. In these cases, the company which acquired the shares do not consolidate the financial statement of the associate company. The owner companies show the investment as an Asset in their respective Balance Sheets. When a Company has made some investments in the Associate Companies, it is required to disclose all the relevant information with regard to interest in such Companies. The disclosures must be incorporated in the financial statements or notes to accounts of the owner company. Such owner companies are required to make certain disclosures. These are discussed in the later part of the report.

The two public listed companies chosen for analyzing the compliance of Malaysian Financial Reporting Standard 12 (MFRS 12) are given below in a Tabular form.

Particulars

Company 1

Company 2

Name

Bonia Corporation Berhad

IJM Corporation Berhad

Main Activities

Selling Leather and Non-leather made products via its own website (online mode) and through its 63 stores in 10 different countries (offline mode).

Property Development, Construction, Infrastructure Concessions, Quarrying, Manufacturing and Plantations are the Main Business Activities of IJM Corporation Berhad.

Products or Services

Bonia Corporation Berhad sells Accessories, Bags and Shoes for both men and women.

It provides the following services- Development of Property, Civil Engineering Services, Building Constructions Services, Quarry Operation Services, Ready Mixed Concrete Services, Scaffolding, Toll Services, Port Services, Power-Plant Facilities and Water Treatment and so on.  

Financial Highlights

Particulars

Amount

Revenue

(RM’000)

2016

665438

2015

695329

2014

691608

2013

632318

2012

579812

Profit Before Tax (PBT)

(RM’000)

2016

45939

2015

72706

2014

85540

2013

71859

2012

66882

Profit After Tax (PAT)

(RM’000)

2016

29998

2015

50796

2014

60590

2013

47568

2012

45557

Shareholders’ Equity

(RM’000)

2016

406234

2015

387516

2014

346486

2013

302383

2012

269398

Net Basic EPS

SEN

2016

3.08

2015

5.62

2014

6.84

2013

5.13

2012

5.07

Gross Dividend

(%)

2016

5.00

2015

5.00

2014

5.00

2013

5.00

2012

5.00

Particulars

Amount

Revenue

(RM’000)

2017

6917739

2016

5782852

2015

6063692

2014

6724607

2013

5356747

Profit Before Tax (PBT)

(RM’000)

2017

1010010

2016

1155797

2015

1019357

2014

1416314

2013

835848

Profit After Tax (PAT)

(RM’000)

2017

653773

2016

793587

2015

480944

2014

829599

2013

420892

Shareholders’ Equity

(RM’000)

2017

9497274

2016

9028359

2015

8429640

2014

6738808

2013

5607239

Net Basic EPS

SEN

2017

18.16

2016

22.22

2015

32.63

2014

59.06

2013

30.46

Gross Dividend

(%)

2017

7.50

2016

10.00

2015

15.00

2014

25.00

2013

13.00

The primary purpose or the objective of MFRS 12 is to necessitate entities in disclosing the information that would facilitate the users of the financial statements assess the following:

  1. Nature of  risks and  risks associated with the interest of the owner company in the other company, that is to say the associate company, and
  2. Effects of interests of such associate company on the financial performance of the owner company as well as the effects on cash flows and financial position.

According to MFRS 12, entities should disclose the following-

  1. For every associate which is significant and material to the entity reporting it, should disclose-
  2. Name of the Associate Company,
  3. Nature of Relationship with such Associate,
  4. The Principal place from where such Associate conducts its business. However, if such place is not in the same country, then it should also disclose the details about the place or the country where it is incorporated.
  5. The Owner Company or the Reporting Entity should disclose the percentage of the ownership structure in such Associate Company, if the percentage of shares held is different from the percentage of the voting rights.
  6. Investment in such Associate Company  is to be measured at the fair value or as per the equity method.
  7. A summary of the financial information of such Associate as per the requirements specified in paragraph B12 and paragraph B13.
  8. If the value of the Investments in the Associate Company is measured using equity method, then the fair value of such investment in the Associate Company is to be disclosed. However, this would only be valid when the quoted market prices of the investments are available.
  9. The entities having associates that are immaterial individually shall disclose separately, the aggregate amounts of the shares in those associates. The disclosures would include-
  10. Profit or Loss from Continuing Operations,
  11. Post-Tax Profit or Loss from discontinued operations,
  12. Other Comprehensive Income, and
  13. Total Comprehensive income.

According to MFRS 12, an entity should disclose the following-

  1. The entity should disclose its commitments relating to such associates separately from its other commitments, and
  2. The entity should also disclose the Contingent Liabilities relating to the interest in such associate separately from its other Contingent Liabilities.

According to MFRS 12, Bonia Corporation Berhad must disclose the risks that are related to the investments the company has made in such Associate Companies. It should also disclose all the relevant details about its interest in such associates like the Name of such Associate along with the nature of the relation with that associate, its country of incorporation and so on. Bonia Corporation Berhad has disclosed the following things.

Part 2

Bonia Corporation Berhad has interest in the following Associates ("Bonia Corporation Berhad Investor Relations", 2017). The details are given as follows-

Name of the Associate

Country of Incorporation

Percentage of Interest in the Associate

Principal Activities

Makabumi Sdn. Bhd. (MBSB)

Malaysia

40%

Dormant

Paris RCG Sdn. Bhd. (PRCG)

Malaysia

30%

Managing food and Beverages Business

The Summarized Financial Information of the Associates for the year 2015 and 2016 is given below-

PRCG

MBSB

 

Particulars

2015

2016

2015

2016

Assets

Current Assets

1191.00

1883.00

1.00

2.00

Non-Current Assets

1725.00

1556.00

0.00

0.00

Total Assets

2916.00

3439.00

1.00

2.00

Liabilities

Current Liabilities

1058.00

596.00

205.00

208.00

Non-Current Liabilities

0.00

0.00

0.00

0.00

Total Liabilities

1058.00

596.00

205.00

208.00

Results

Revenue

7587.00

8423.00

0.00

0.00

Profit/(loss) for the Financial Year

470.00

984.00

(2.00)

(2.00)

Bonia Corporation Berhad has also disclosed a Statement showing the Reconciliation of Net Assets to the Carrying Amount of the Investments in such Associates. The Reconciliation Statement is given below-

 

PRCG

MBSB

Particulars

2015 (RM’000)

2016 (RM’000)

2015 (RM’000)

2016 (RM’000)

Share of net assets/ (liabilities) of the Group

558

853

(82)

(82)

Loan to an Associate

0.00

0.00

0.00

0.00

Goodwill

0.00

0.00

0.00

0.00

Gain on dilution of Interest

(461)

(461)

0.00

0.00

Unrecognized Share of Other Reserves

0.00

0.00

0.00

0.00

Unrecognized Share of Losses of Associates

0.00

0.00

82

82

(461)

(461)

82

82

Less: Share by Non-Controlling Interest

0.00

0.00

0.00

0.00

97

392

0.00

0.00

Less: Impairment Losses

0.00

0.00

0.00

0.00

Carrying Amount in the Statement of Financial Position

97

392

0.00

0.00

Share of Results of the Group

Share of Profit/ (Loss) of  the Group

97

295

0.00

0.00

Share of other Comprehensive Income of the Group

0.00

0.00

0.00

0.00

Share of total Comprehensive income/ (loss) of the Group

97

0.00

0.00

0.00

Other Information

Dividend Received

0.00

0.00

0.00

0.00

Bonia Corporation Berhad also disclosed the Cash Flow Statement of the Group Company and highlighted the effects of its investments in the Associate Company. In the Cash Flow Statement, Bonia Corporation Berhad disclosed the following-

Impairment Loss in Interest in Associates for the year 2015 is RM 352000.

Reversal of Impairment Loss in Interest in Associates for the year 2015 is 0.00, whereas it is RM 4045000 for the year 2016 ("Company Announcements | Bursa Malaysia Market", 2017).

The analysis shows that the value of the investment of Bonia Corporation Berhad in the Associate Company suffered impairment; this can be seen from the difference in the value of such investments in the books of Accounts and its market value. However, this loss was later reversed when the market value increased in the year 2016. The value of investment in Makabumi Sdn. Bhd seems to be stagnant as their principal activities are no longer active and carry a dormant status. They do not generate any revenue for Bonia Corporation. This seems to be a dead investment for the company.

The total interest in Associates of Bonia Corporation Berhad as given in the Balance Sheet for the year 2015 is RM 97000 and RM 392000 for the year 2016. The details are as follows-

Interest in Associates

2015

(RM’000)

2016

(RM’000)

Unquoted Equity Shares at cost

4894

4894

Share of Profit (Post Acquisition)

Net of the Dividends Received

(211)

84

Loan to Associate

4855

4855

Total

9583

9833

Less: Impairment Loss

(9441)

(9441)

Balance

97

392

Thus, after analyzing the Annual Report of Bonia Corporation Berhad, it can be said that Bonia Corporation Berhad has disclosed all the information as required by MFRS 12. By disclosing all the details Bonia Corporation Berhad has avoided all the penal provisions that would have been attracted had they not fulfilled the requirements of the standard. The disclosure would also help the investors make better decisions regarding their investments. Such disclosure also helps the Investor understand the pattern of investment of the Company and the returns earned by the company on such investments. The owner company received the share of pre-acquisition profits in 2015 and the same has been reduced from the value of the investment in the particular year. The Owner Company has extended a loan of RM 4855000 in the year 2015 and the same has not yet been repaid. The value of investment in Associate Company increased from RM 97000 to RM 392000. However, this increase is because of the profits and increase in the market value of the Paris RCG Sdn. Bhd., because the other associate company has become a dormant company without any business activity. The Annual Report also contained a Directors Responsibility Statement (DRS). The Directors Responsibility Statement highlights the responsibility of the Directors with regard to complying with the requirements of the Malaysian Companies Act, 1965, MFRS and IFRS. The BDO (Chartered Accountants) and Law Kian Huat (Chartered Accountant) have audited the financial statements of Bonia Corporation. The Auditors have given an unqualified report, which means that the financial statements are depicting the actual picture of the current financial condition of the Company. The Unqualified Report also shows that Bonia Corporation Berhad has followed and complied with the requirements of MFRS and IFRS and of the Malaysian Companies Act, 1965.

Part 3

According to MFRS 12, IJM Corporation Berhad should disclose the risks that are related to the investments the company has made in such Associate Companies. It should also disclose all the relevant details about its interest in such associates like the Name of such Associate along with the nature of the relation with that associate, its country of incorporation and so on. IJM Corporation Berhad has disclosed the following things.

IJM Corporation Berhad has interest in the following Associates ("Annual Reports | IJM Corporation Berhad", 2017). The details are given as follows-

Name of Entity

Place of Business/ Country of Incorporation

Percentage of Ownership in 2015 (%)

Percentage of Ownership in 2016 (%)

Measurement Method

Scomi Group Berhad

Malaysia

8

25

Equity

Hexacon Construction Pte Limited

Singapore

46

46

Equity

Kumpulan Europlus Berhad

Malaysia

26

26

Equity

IJM Corporation Berhad disclosed the following summarized Balance Sheet in its Annual Report for the year 2016.

Scomi Group Berhad

Hexacon Construction Pte Limited

Kumpulan Europlus Berhad

 

Particulars

2016 (RM)

2015

(RM)

2016

(RM)

2015

(RM)

2016

(RM)

2015

(RM)

Current

Cash & Cash Equivalent

157337

215253

356544

321961

1301431

11357

Other Current Assets

1500972

1490727

218696

225471

286306

549584

Total Current Assets

1658309

1705980

575240

547240

1587737

560941

Financial Liabilities (excluding trade and other payables)

(704022)

(725270)

0.00

0.00

(6625)

(6416)

Other Current Liabilities (including trade and other payables)

(566974)

(571699)

(261343)

(342519)

(478457)

(82207)

Total Current Liabilities

(1270996)

(1296969)

(261343)

(342519)

(485082)

(88623)

Non-Current

Assets

981980

1031193

161284

202297

830394

234762

Financial Liabilities

(161743)

(267644)

0.00

0.00

(1117560)

0.00

Other Liabilities

(25394)

(17029)

(83931)

(81640)

(121977)

(244)

Total Non-Current Liabilities

(187137)

(284673)

(83931)

(81640)

(1239537)

(244)

Non-Controlling Interests

(576417)

(533294)

0.00

0.00

(42967)

(42036)

Net-Assets (excluding non-controlling interests)

605739

622237

391250

325570

650545

664800

Market Value (Group’s Share)

88917

29182

0.00

0.00

243762

282782

The Value of the Associates of IJM Corporation Berhad as per the latest Annual Report for the year 2015 is RM 266142000 and RM 368529000 for the year 2016. The share of other Comprehensive income or losses of Associates are RM -1039000 for the year 2015 and RM 3790000 for the year 2016. The Investing Activity of Cash Flow Statement of the Associates shows an outflow of RM 123936000 in the year 2015 and RM 2387000 in the year 2016. The Company received dividend from its Associates amounting to RM 8565000 in the year 2015 and RM 6344000 in the year 2016 ("Company Announcements | Bursa Malaysia Market", 2017). IJM Corporation Berhad received Repayments amounting to RM 357000 in 2015 and RM 6149000 in 2016. It advanced RM 189000 in 2015 and RM 2000 in 2016. IJM Corporation has further invested in Scomi Group Berhad in the year 2016. With this investment, their share in Scomi Group Berhad increased to 26%. The investments in Associates made by IJM Corporation are providing good returns. The associates are earning sufficient profits and are paying dividend from such profits. The market values of such interests have also increased. IJM Corporation Berhad also disclosed its summarized Segment Financial Information for the year 2016. The details are given below-

Particulars

Construction (RM’000)

Property Development (RM’ 000)

Manufacturing and Quarrying (RM’000)

Plantation (RM’000)

Infrastructure (RM’000)

Investments and other (RM’000)

Segment Assets

178237

8506

2198

0.00

664118

16574

Segmental Reporting

Operating Revenue

(274451)

(87229)

(4429)

0.00

(240223)

(9078)

Results of Associates

Share of Profit/Loss of Associates

4572

(2072)

399

0.00

(17228)

(5076)

Thus, after analyzing the Annual Report of IJM Corporation Berhad, it can be said that IJM Corporation Berhad has disclosed all the information as required by MFRS 12. The disclosure would also help the investors make better decisions regarding their investments. By disclosing all the details, IJM Corporation Berhad has achieved the trust of its Stakeholders, Lenders, Investors, and Creditors and so on. Such disclosure also helps the Investor understand the investment patterns of the Company and the returns received on such investments of the company. IJM Corporation Berhad has diligently complied the requirements of MFRS 12. This can be said because the company has disclosed all the details of its investment in the associates and disclosed the financial information in the form of segment reporting. Every Annual Report of IJM Corporation Berhad is accompanied with a statement from the Directors of the Company. This Statement is called the Director’s Responsibility Statement (DRS). This Statement highlights the responsibilities concerning the preparation and presentation of the Annual Financial Accounts of the Company. It also states that it is the responsibility of the Director’s for ensuring that they comply with all the requirements of the relevant laws and accounting standards applied as per Malaysian Laws. Pricewaterhouse Coopers (Chartered Accountants) and Loh Lay Choon (Chartered Accountant) have audited the financial statements of IJM Corporation Berhad. The Auditors have given an unqualified report, which means that the financial statements are showing true and fair view of the company’s activities. The Unqualified Report also shows that IJM Corporation Berhad has followed and complied with all the requirements of MFRS and IFRS and of the Malaysian Companies Act, 1965.

Conclusion 

The primary focus and objective of any disclosure framework is improving the efficiency and effectiveness of the disclosures given in the financial statements and in notes to accounts of the company by clearly conveying the important information to the users of the financial statements. For achieving this objective, a framework needs to be developed that will promote the consistent decisions of the disclosure requirements taken by the Authorities and the complied by the reporting entities. These disclosures would make the companies keep transparency in their financial transactions that would increase the interest of the investors in such company. When the companies do not keep their financial transactions transparent or when their financial statements are manipulated, the investors do not trust such companies for the fear that their investments may be lost or they may not be optimally utilised. The companies may invest in plenty of places, investing in the shares or voting rights being one of them. These companies may buy the entire shares or more than half of the shares thereby becoming a holding company or else they may invest in less than 50% shares thereby making it an Associate Company. In Malaysia, the financial statements are prepared by following MFRS, IFRS and the Malaysian Companies Act, 1965.

Malaysian Financial Reporting Standard 12, states that the companies must disclose the relevant information of their interest in their Associates. After analysis both the companies namely, Bonia Corporation Berhad and IJM Corporation Berhad, it can be said that both these companies have been investment in different companies making such company its Associate Company. Both the companies have disclosed all the information as required by MFRS 12 thereby complying with the provisions of MFRS 12. However, the only thing the two companies  have not disclosed is the risk associated with their interests in their respective associates. The Market Value of the investments have increased for both the owner companies. IJM Corporation has made some fresh investments in the associate company in the year 2016. By complying with the requirements of the Accounting Standards both the owner companies have protected their reputations that would have affected the share values due to the actions that the authorities would have taken for such non-compliance.

Annual Reports | IJM Corporation Berhad. (2017). Ijm.com. Retrieved 5 July 2017, from https://www.ijm.com/web/investor/annualReports.aspx

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