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CHANGE IN ACCOUNTING POLICIES AND PRIOR YEAR ADJUSTMENT
(a) Change in Accounting Policies
During the year, the Company applied four new MASB standards which became effective from 1
January 2003, and accordingly modified certain accounting policies. The change in accountingpolicies which resulted in prior year adjustment relates to MASB 25: Income Taxes.
Under MASB 25, deferred tax liabilities are recognized for all taxable temporary differences.
Previously, deferred tax liabilities were provided for on account of timing differences only to the
extent that a tax liability was expected to materialize in the foreseeable future. In addition, the
Company has commenced recognition of deferred tax assets for all deductible temporary
differences, when it is probable that sufficient taxable profit will be available against which the
deductible temporary differences can be utilized. Previously, deferred tax assets were not
recognized unless there was reasonable expectation of their realization.
(b) Prior Year Adjustment
The change in accounting policies has been applied retrospectively and comparatives have been
restated. The effects of the change in accounting policies are as follow:
Group
2003 2002
(RM) (RM)
Effect on accumulated losses:
At 1 January, as previously stated 71,165,169 63,473,192
Effects of adopting MASB 25 (10,000) (10,000)
At 1 January, as restated 71,155,169 63,463,192
Comparative amount as at 31 December 2002 has been restated as follow:
Previously stated Adjustment Restated
(RM) (RM) (RM)
Deferred tax liabilities 10,000 (10,000) .
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NEW PROPOSED RESTRUDTURING SCHEME
The Debt Restructuring Scheme of the Company that was submitted to the relevant authorities
was approved by the shareholders of the Company and all relevant authorities in the financial
year ended 31 December 2000. However, the Original Scheme was further revised in the
financial year ended 31 December 2001. This revised scheme was approved by SecuritiesCommission (SC), Foreign Investment Committee (FIC) and Ministry of International Trade and
Industries (MITI) on 2 November 2001, 23 November 2001 and 27 November 2001 respectively.
On 1 July 2002, the Revised Scheme was aborted due to non-compliance of certain conditions
imposed by the SC on Tokojaya Sdn. Bhd. and Promenade Hotel Sdn. Bhd. Subsequently, the
Company submitted a New Proposed Restructuring Scheme to the SC and FIC on 12 December
2002 and 26 December 2002 respectively.
On 2 May 2003, the FIC approved the appeal and allowed DCIB to meet the 30% Bumiputera
equity interest requirement within the period of 3 years from the date of the listing of DCIBsshares.
On 12 August 2003, the SC had rejected the Appeal and approved the Revisions subject to the
following condition:
(i) The condition on the minimum NTA per share of 33% of the par value of the share as set
out by the SC via its letter dated 1 April 2003; and
(ii) The profit guaranteed to be provided by The Vendors have written to the SC, confirming
that the profit guarantee of RM 36 000 000 will be irrecoverable and shall be constituted by RM
36 000 000 nominal value of RCULS.
On 5 November 2003, the Court granted an order to the Company to convene a meeting for its
shareholders for the purposes of considering and approving the Proposed Share Exchange
pursuant to Section 176 of the Companies Act, 1965. The Company is required to hold the Court
convened meeting by 4 February 2004.
On 9 January 2004, Bursa Malaysia Securities Berhad reminded the Company via its letter dated
9 March 2004, that it is required to implement its restructuring plan within the timeframe or
extended timeframe as prescribed by the SC i.e. the said regularisation plan shall be implemented
by 31 March 2004, failing which Bursa Malaysia Securities Berhad will commence de-listingprocedure against the Company.
An Extraordinary General Meeting of the Company to consider the Proposed Restructuring
Scheme and a Court Convened Meeting to consider the Scheme of Arrangement will be held on
29 April 2004.
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The above proposals are subject to the approvals of the High Court, Bursa Malaysia Securities
Berhad, and other relevant authorities, the financial institutional borrowers of the Company and
the shareholders of the Company.
COMPARATIVE FIGURES
The presentation and classification of items in the current year financial statements have been
consistent with the previous financial year except that certain comparative amounts have been
adjusted as a result of changes in accounting policies as disclosed.
FINANCIAL INSTRUMENTS
(a) Financial Risk Management Objectives and Policies
The Groups financial risk management policy seeks to ensure the adequate financial resources
are available for the development of the Groups business whilst managing its interest rate,
foreign exchange, liquidity and credit risks. The Group operates within clearly defined guidelines
that are approved by the Board and the Groups policy is to not engage in speculative
transactions.
(b) Interest Rate Risk
The Groups primary interest rate risk relates to interest bearing debts, as the Group had no
substantial long-term interest bearing assets as at 31 December 2003.
(c) Foreign Exchange Risk
Foreign exchange exposures are mainly in relation to the purchases of goods of operating
entities, which are of a very short-term nature and not subject to substantial fluctuations.
(d) Liquidity Risk
As the Company has been designated as an affected listed issuer, the Group strives to maintain
available banking facilities to meet its working capital requirements for its operating entities.
(e) Credit Risk
Credit risk or the risk of counter parties defaulting, is controlled by the application of credit
approvals, limits and monitoring procedures. Trade receivables are monitored on an ongoing
basis by its credit control and Group management reporting procedures.
(f) Fair Values
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i. Cash and Cash Equivalent, Trade and Other Receivables/Payables and ShortTerm Borrowings
The carrying amounts of Cash and Cash Equivalents, Trade and Other
Receivables/Payables and Short Term Borrowings approximate their fair values due
to the relatively short-term maturity of these financial instruments.
ii. BorrowingsThe fair value of borrowings is estimated based on the current leading rates of the
Groups borrowing arrangements.
The carrying amount of Hire Purchase Payables approximates its fair value.
The aggregate net fair values of financial assets and financial liabilities which are not
carried at fair value on the balance sheets of the Group and of the Company as at the
end of the financial year are represented as follows:
It is not practical to estimate the fair values of the Companys related companiesbalances due principally to the lack of fixed repayment term.
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It is not practical to estimate the fair values of the revolving credit and the termloans as the Company and certain subsidiaries have defaulted in its repayment.
The future repayment of the revolving credit is dependent upon the successful
implementation of the New Proposed Restructuring Scheme.
It is not practical to estimate the fair values of the Groups non-current unquotedshares because of the lack of quoted market prices and the inability to estimate
fair value without incurring excessive costs.
SEGMENTAL INFORMATION
(a) Business Segment:
The Group is organised into two major business segments:
i. Constructionthe construction of industrial buildingii. Tradingtrading and retail of fastening products
Other business segments include investment and development consultancy services, none of
which are of a sufficient size to be reported separately.
The directors are of the opinion that all inter-segment transactions have been entered into in the
normal course of business and have been established on terms and conditions that are not
materially different from that obtainable in transactions with unrelated parties.
(b) Geographical Segment:
Segmental reporting by geographical region have not been prepared as the Groups operations
are predominantly in Malaysia.
EXAMPLE:
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In the year 1991, Malaysia Government made an announcement regarding the countries
objective is to become the well developed country by its own effort by the year 2020. By
maintaining the development of 7% per year and start to change the economy structure including
in the manufacturing sector. The key to achieve this objective is by overcoming 9 challenges as
follows:
Policies and strategies for the first phase of Vision 2020 are presented in the Second Outline
Perspective Plan (OPP2). It establishes the National Development Policy (NDP), which replaces
the National Economy Policy (NEP), and contains several policy changes to give a new
dimension to development efforts in creating a more balanced development while maintaining
the basic policy of the NEP.
Anti-poverty strategy shifted focus to the elimination of poverty, while at the same time reducingrelative poverty. To increase the meaningful participation of Bumiputera in the modern sectors of
the economy, the emphasis is made on the Bumiputera Commercial and Industrial communities.
Greater expectations placed on private sector involvement in the restructuring process. Human
resource development including moral and ethical values to achieve the development and
distribution are also emphasized.
One important aspect of the NEP is located at the premises of a rapidly growing economy.
Development is a necessary condition to provide opportunities for the poor and disadvantaged
people to keep them out of poverty and participate in mainstream economic activities. In
addition, it ensures that the distribution does not occur from the reallocation of existing wealth,but from the expansion and new sources of wealth. Implementation strategy for eradicating
poverty and restructuring society to produce significant improvements in income distribution
took place by 1990. The rate of households living below the poverty level decreased from 49.3
percent in 1970 to 16.5 percent in 1990 and declined further to 5.1 percent in 2002.
First Forming a country which consist of 1 Malaysia nation
Second Form a community which is free from advanced development, psychology and safety
aspect
Third Stimulate and develop democratic and mature society
Fourth Creating a community with high ethical and moral
Fifth Form a liberal and tolerant society
Sixth Build a community of scientifis and progressive
Seventh Erect a humane society
Eighth Ensure a balanced community economy, in which the distribution of national wealthis fair and equitable
Ninth create a successful society with an economy that is competitive, dynamic, robust and
resilient fully
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In terms of corporate equity restructuring, more than two-thirds of Malaysia's corporate equity
owned by foreigners in 1970, while the Bumiputera, indigenous people, who represent two-thirds
of the total population, have only a little more than 2 percent. NEP restructuring targets be
30:40:30, which by 1990, holding that the natives should reach 30 percent, other Malaysians 40
percent and 30 percent foreigners, in the context of an expanding economy. In 1990, the share of
Bumiputera equity increased to 20.4 percent of total corporate equity, and other Malaysians
holding increased to 46.8 percent and 25.1 percent for foreigners. Although Bumiputera had not
reached 30 percent equity by 1990, the progress made by them is large enough compared with
their position in 1970. By 2002, due to total equity value grew rapidly, the proportion of all
groups increased in absolute value. While the foreigners fell to nearly one-third, its value
increased 30 times compared with their position in 1970. Malaysia has always been poverty
reduction strategy focuses on human resource development and improvement of quality of life.
Related programs emphasize income-generating projects and not welfare, except in exceptional
cases where direct assistance is given.
Philosophy of Positive Accounting Theory
Positive theory seeks to understand accounting phenomena by observing empirical events and
use these results to make predictions about a wider set of observations and/or to predict future
event. This theory different from other two theory (descriptive theory and normative theory).
Descriptive theory focus only on describing events and normative theory, which prescribes what
should occur. Milton Friedman championed positive theory in economics. He stated:
The ultimate goal of a positive science is the development of a theory or hypothesis thatyields valid and meaningful (i.e. not touristic) predictions about phenomena not yet
observed.
Consistent with Friedmans view, Watts and Zimmerman asserted:
The objective of [positive] accounting theory is to explain and predict accounting practice...
Explanation means proving reason for observed practice. For example, positive accounting
theory seeks to explain why firms continue to use historical cost accounting and why
certain firms switch between a number of accounting techniques. Prediction of accounting
practice means that the theory predicts unobserved phenomena.
Unobserved phenomena are not necessarily future phenomena; they include phenomena that
have occurred, but on which systematic evidence has not yet been collected. We might also be
interested in predicting the reaction of firms to proposed accounting standard, together with an
explanation of why firms would lobby for and against such a standard, even though the standard
has already been released.
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Capital Market Research and The Efficient Market Hypothesis.
They are two type of capital market research are particularly important to positive accounting
theory:
i.
Those studies that attempt to determine the impact of the release of accountinginformation on share returns.
ii. Those studies that consider the effects of changes in accounting policy on share prices.Most research in these areas has been conducted within a prevailing paradigm in financial
economics. The Efficient Market Hypothesis (EMH) draws on microeconomic price theory,
which is characterised by its emphasis on the demand and supply of information in market.
The definition of an efficient market as one in which price fully reflect available information
based on assumptions that:
There are no transaction costs in trading securities Information is available cost- free to all market participants There is agreement on the implication for the current price and distributions of future
prices
The implication of these assumptions is that in a capital market that is efficient, information is
fully incorporated into share prices when it is released. It is impossible, on average, to earn
economic profits by trading on information. We are aware that these assumptions are not
satisfied in any market. Hence, to accommodate different types of information sets ad to enable
empirical testing. Fama distinguished between three information set:
Weak formmarket efficiency where a security price at any particular time fully reflectsthe information contained in its sequence of part prices.
Semi strong form asserts that a security price fully reflect all publicly availableinformation.
Strong formthat a securitys price fully reflects all information, including informationthat is not publicly available. (i.e. private information)
Of the three form, the semi strong form is the one most directly related to accounting research.
Normative accounting theorists and accounting standard-setting bodies give considerable effort
to arguing the merits of the form in which accounting statements are disclosed to investors fordecision making. Prices reflect all publicly available information (including current values of
assets and liabilities).
Market efficiency does not mean that all financial information has been correctly presented by
a firm or properly interpreted by individual decision makers. Managers make the best
management decision or that investors can predict future events with absolute precision. EMH
simply means security prices reflect the aggregate impact of all relevant information.
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Economic Condition and Accounting Environment in Malaysia
Bank Negara Malaysia, (BNM) the central bank of Malaysia reported that the annual gross
national products (GNP) were between 13% to 14% per annum during early 1990s because of
the strong economic growth during those times. The economic condition started to weaken
during 1997 and year 1998 its become worst. Malaysia was one of the countries badly hit by theAsian financial crisis.
Regards to accounting environment, there were two accounting bodies controlling the accounting
regulation since the 1970s until 1997, namely the Malaysian Institute of Accountants (MIA) and
the Malaysia Institute of Certified Public Accountants (MICPA) MICPA was previously known
as the Malaysia Association of Certified Public Accountants (MACPA). The existing accounting
standards during that time period were not mandatory for implementation by listed firms.
Accounting standards on intangible assets available at that time include the Malaysia Accounting
Standard (MAS) 6, Accounting for Goodwill, issued by the MIA. While the International
Accounting Standard (IAS) 9, Research and Development Costs, was issued by the IASB. IASBwas previously known as the International Accounting Standards Committee (IASC). MAS 6
and IAS 9 standards were both applicable for implementation until 1997 only, among the MIA
members. While MICPA members were only required to adopt and apply IAS 9 in their own
individual practice.
In year 1997, the Malaysian government set up the Malaysia Accounting Standards Board
(MASB) to take the responsibility of accounting standards in Malaysia. MASB per se is not
authorized to regulate the accounting standards. Authority comes from the Securities in
Malaysia. In 1998 and 1999, MASB rigorously worked on finalizing accounting standards
known as the MASB standards. The standards implement staring in mid of 1999. In 1998.IASBissued IAS 38 Intangible Assets, guiding accounting for intangibles in countries adopting the
IASB standards. IAS 38 was not adopted in Malaysia at the point. Malaysia only adapted
International Financial Reporting Standard (IFRS) 38. The modified version of IAS 38, to
become Financial Reporting Standard (FRS) 138 Intangible Assets, issued by MASB for
implementation in 2006.
Research and Development costs.
In order to be compatible with other international standards, in year 2004, MASB issued
Financial Reporting Standards (FRS) replacing MASBs. As mentioned above, FRS 138 becameapplicable in Malaysia from 2006. FRS 138 covers accounting of all intangibles including R&D
expenditures, goodwill and all other identifiable intangibles. FRS 138 and other accounting
standards require firms to recognize all intangible assets at cost.
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Stable Economy and Weak Accounting Regulation
During a stable economic growth period, prior studies found intangible NCA to be value
relevant, whereby intangible NCA is positively associated with firms value. During an upward
trend in the economic growth, intangible NCA would reflect potentials as good as any others
firm. For example, reporting of goodwill or R&D expenditures would reflect informationabout expected future cash flows of firms. As such, reported intangible assets would
provide clear and convincing information assisting financial statement users to make good
investment decisions. Although during this period, the accounting environment might not
be thoroughly regulated, existence of a stable economy would assist in creating confidence
among capital market participants to make more investments involving intangible assets.
Other than intangible NCA literature also found positive association between components of
intangible NCA and firms share prices. For example, Aboody and Lev (1998) found
capitalized software among US firms for the period 1987-1995 positively associated with
firms share market prices. This study also found positive association betweencapitalization of software expenditures with both operating income and net income, until
two years after capitalization activities of software expenditures. Based on Malaysian data
for the period 1992-1997, Muhd-Kamil et al. (2003) found goodwill to be positively
associated with firms market value. Based on US data for the period 1996-1998, Churyk
(2004) also found similar results. Kohlbeck (2004) found that almost all components of
intangible assets of US publicly traded banks are value relevant and reliable towards firms
valuation for the period 1994-1998, whether they were recorded or not.
Among financial analysts in Malaysia utilizing intangible assets information. Due to the effect of
lack in accounting regulation prior to MASB establishment, plus evidence from prior studies, itis expected that the sign of association between intangible NCA and firms share prices would
not be very clear before 1997. Therefore, with regards to intangible NCA information, value
relevance during a stable economy but poor accounting regulatory period that is before
1997Hypothesized the existence of association between intangible NCA information and firms
share price but with no specific sign. Hence, hypothesis 1 is stated as follows
Hypothesis 1: Reported intangible NCA is associated with firms share prices during the
period of a stable economy but weak accounting.
Economy in Recovery and Stable Accounting Environment
The value relevance of intangible NCA in the presence of a strong accounting regulatory period
should be easier to predict compared to in the absence of accounting regulation (Barth et al.,
2001a; Hung, 2001). Since accounting standards aim to assist accountants and preparers to report
and present more reliable and relevance accounting information, existence of a strong accounting
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regulatory environment is expected to reflect the existence of more reliable intangible NCA
information. Furthermore, with the extreme growth in business activities globally through the
internet, firms have to invest in intangible assets if they want to stay competitive as a going
concern (Aboody and Lev, 1998; Barron et al., 2002). Therefore, it is expected that firms going
into the Y2K era will compete each other for more intangible assets investments to survive and
being compatible (Barron et al., 2002). The presence of a strong accounting regulatory
environment during this period should be expected to provide more emphasis on the value
relevance of intangible NCA information. Therefore, it is hypothesized that:
Hypothesis 2: Reported intangible NCA is positively associated with firms share prices
during the period of a stable economy and stringent accounting regulatory environment.
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References:
www.masb.org.my/
www.audit.gov.my/.../ceramah%20eksekutif%20bil%201.pdf
www.epu.gov.my/
Accounting theory 7th
edition ]
http://eprints.ptar.uitm.edu.my/264/1/Pages_from_Vol._8_No._2-_43_to_66.pdf
http://www.masb.org.my/http://www.masb.org.my/http://www.audit.gov.my/.../ceramah%20eksekutif%20bil%201.pdfhttp://www.audit.gov.my/.../ceramah%20eksekutif%20bil%201.pdfhttp://eprints.ptar.uitm.edu.my/264/1/Pages_from_Vol._8_No._2-_43_to_66.pdfhttp://eprints.ptar.uitm.edu.my/264/1/Pages_from_Vol._8_No._2-_43_to_66.pdfhttp://www.audit.gov.my/.../ceramah%20eksekutif%20bil%201.pdfhttp://www.masb.org.my/