TITLE :
ASSESSMENTS OF ACCOUNTING INFORMATIONS
RELEVANCE AND RELIABILITY OF A LISTED COMPANY
BETWEEN 2009 AND 2010
COURSE :
BBAW2130
FINANCIAL ACCOUNTING
NAME:
FADZLUL AKMAL BIN AHMAD FISOL
MATRIC NO.:
860104025713001
NIRC: 860104-02-5713
TELEPHONE NO.:
016-806 8177
TUTOR:
FUJIAH BINTI KASSIM
012-824 5188
SEMESTER 3/JANUARY 2012
APPENDIX
1.0 INTRODUCTION
1.1 Objectives of Assignment
1.2 Introducing Dutch Lady
1.3 Products
2.0 QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION
2.1 Primary Qualitative of Accounting Information
2.1.1 Relevant
2.1.2 Reliability
2.2 Secondary Qualitative of Accounting Information
2.2.1 Comparability
2.2.2 Consistency
3.0 FINANCIAL STATEMENT ANALYSIS
3.1 Basis of Comparison
3.2 Techniques of Analysis
3.3 Calculation Formulae for Horizontal Analysis for 2 Years
3.4 Examples of Calculation
3.5 Specimen of Assignments
4.0 FINANCIAL STATEMENTS OF DUTCH LADY MILK INDUTSRIES
4.1 Balance Sheet
4.2 Income Statement
4.3 Statement of Changes in Equity
4.4 Statement of Cash Flow
5.0 NOTES TO FINANCIAL STATEMENT
5.1 Basis of Preparation
5.1.1 Statement of Compliance
5.1.2 Basis of Measurement
5.1.3 Functional and Presentation of Currency
5.1.4 Use of Estimates and Judgements
5.2 Significant Account Policies
5.2.1 Foreign Currency Transactions
5.2.2 Loans and Receivables
5.2.3 Cash Flow Hedge
5.2.4 De-recognition
5.2.5 Depreciation
5.2.6 Other Intangible Assets
5.2.7 Subsequent Expenditure
5.2.8 Amortisation
5.2.9 Inventories
5.2.10 Receivables
5.2.11 Cash and cash equivalents
1.0 INTRODUCTION
Dutch Lady Milk Industries Berhad is one of among outstanding listed
company in Malaysian Stock Exchange (Bursa Saham Malaysia). Therefore, choosing
this company would be definitive example of successful listed company over years,
which suit as specimen for this assignment.
1.1 Objectives of Assignment
The purpose of this assignment is to compare and assess the primary
qualitative characteristics of accounting information of chosen listed
company’s financial statement between year 2009 and 2010. As listed
company would disclose their financial report annually for public assessment
via its prospects, web page or stock exchange web page, it ease shareholders
or investor or anyone whom interested or planning to invest in this to give a
look at the company’s performance in terms of profit and current financial
progress.
1.2 Introducing Dutch Lady (History and Formation)
After World War II, sweetened condensed milk was imported
wholesale from its origin company in Holland (Dutch) via local importers and
wholesalers. In 1954, a trading company Friesland (Malaya) Pte. Ltd., based
in Singapore, was formed to market Holland’s sweetened condensed milk in
Malaya and Singapore. Among several brands was a certain Dutch Baby
brand.
In 1965, formed as Dutch Pacific Milk Industries (Malaya), the
company established its first factory and started to manufacture condensed
milk. Three years later, Dutch Pacific Milk Industries (Malaya) was converted
into public company and became the first milk company to be listed on Stock
Exchange of Kuala Lumpur and Singapore. Later in year 2000, the company
changed its name again to Dutch Lady Milk Industries Berhad thus listed in
Malaysian Stock Exchange (Bursa Saham Malaysia).
1.3 Products
Dutch Lady Milk Industries Berhad is well known for nutritious milk
products. Other than that, the company offers yogurt, fruit juices (under the
brand JOY), growing milk for baby and still dairy milk. For generations, the
company supply quality dairy and infant nutrition products to the nation.
Today, Dutch Lady Malaysia ranks as the leading dairy producer in Malaysia
While Dutch Lady Malaysia first established itself as a manufacturer
of sweetened condensed milk, Dutch Lady Milk Industries Berhad’s extensive
product range now spans from infant formula and growing up milk to fruit
juice and yoghurt snacks. Every product innovation in our rapidly developing
infant and child formula range is backed by extensive research both locally
and internationally.
2.0 QUALITATIVE CHARASTERISTICS OF ACCOUNTING INFORMATION
Qualitative characteristics can be best explained as characteristics that must be
present and contrast in the accounting information to make it useful. In other words,
qualitative characteristics not only about showing figure in accounting format but
measurement of profit or loss, cash flows, equity owned and shareholders as well as
dividend given annually. For example, Dutch Lady Milk Industries Berhad has shown
their accounting or financial report via web page, which is useful for internal and
external users to refer and to take a look around for business and investment purposes.
Means, the company’s financial report can be an advantage to captivate investor’s
interest. These characteristics are divided into 2 categories;
2.1 Primary Qualities of Accounting Information
Primary quality of accounting information is basis quality that must be
present in a financial report. It consists of 2 aspects;
2.1.1 Relevant
In accounting, relevant is described as something that makes a
difference in reaching a decision. It has a strength or complication that
may influence or affects the decision being made. For example, new
projects or products of a company within five years may derived from
its performance and profitability figure, thus shows a company’s
progress and these details will be shown in financial report. Thus,
whether a company’s financial account shows profit or negative profit,
it might influence the investor’s decision.
To become relevant, the information must have feedback value,
forecast value and timeliness. These means the relevancy must be able
to assist users in correcting early expectations, be able to assist users in
forecasting and it must be obtained before it becomes obsolete.
2.1.2 Reliability
Reliability means users can rely or depend on specific
information to make good decisions. Average users might not have the
time or expertise to evaluate some information. Therefore, users
simply depend on information issued by official entity or the company
itself, then that information is reliable in decision making. For
example, an investor may simply take a look of Dutch Lady’s annual
financial report via official web page to learn about Dutch Lady’s
performance.
2.2 Secondary Qualities of Accounting Information
Secondary qualities of accounting information can be supporting element of
qualitative characteristics. These elements may extend the advantage of benefits that
can be obtained through accounting information. Secondary qualities of qualitative
characteristics can be divided into 2 categories;
2.2.1 Comparability
Comparability means the information can be compared whether
among companies, industries, or the company’s performance itself for
different periods. This will enable users to identify similarities or
differences that could exist through accounting information. For
example, an investor may compare Dutch Lady’s profit between year
2010 and 2011. If profit obtained in 2010 was RM 14 millions and
profit obtained in 2011 was RM 15.8 millions, it shows the increase
profit of RM 1.8 millions. Therefore, that comparison shows increase
of profit in these 2 years.
Let say if an investor study the financial report of a rival
company to Dutch Lady. If in 2010 that company obtained RM 10
millions of profit and in 2011 it obtained RM 11 millions of profit, it
can be said Dutch Lady has performed much better in terms of profit
because the rival company unable to compete with Dutch Lady in
terms of dividend sharing. Plus, the increase of profit is still slow thus
assuming that the rival company’s performance is least interesting.
2.2.2 Consistency
Consistency means an entity or company must use the same
accounting procedures or method in every period for the purpose of
enabling comparison to be made more effectively. If a company wants
to change the accounting method, then the company must make
complete disclosure in the financial report to explain why changes are
made and the effect of the changes towards the financial report.
3.0 FINANCIAL STATEMENT ANALYSIS
The main function or purpose of financial statement analysis is to assist users
make better decisions via detailed comprehension or contrast quick look upon
financial report, whether for internal or external users of the company concerned.
Internal users of accounting information are individuals involved in the
management and operations of the organization. They include auditors, accountants,
consultants and parties involved in decision making process. In other hand, internal
users are responsible for planning strategies for company profitable progress. The
purpose of financial analysis is to provide them adequate information in order to
improve efficiency and effectiveness in producing goods or services.
External users of accounting information are not directly involved in the
operation of the organization. They comprise shareholders, creditors, non-executive
directors, investor and suppliers.
3.1 Basis of Comparison
In this assignment, basis of comparison used to compare or measure
Dutch Lady’s performance is by using intra-company or within the company
basis. By using this basis, the company will compare the figure and items in its
financial statements relating to 3 different years or more. The comparison of
current year’s financial statement with previous years will show and indicate a
company’s profit or loss, as well as trend used for future prediction.
3.2 Techniques of Analysis
Horizontal analysis is normally used for comparison within the company. It is
a technique used to assess the trend of the items in the financial statement in
terms of amount or percentage of fluctuation. In this assignment, the
comparison is made on every item in the financial statement for two years or
two accounting period. The basis of comparison consists of current year and
previous year will be set by using the financial statement of the previous year
as the base to determine an increase or decrease.
3.2.1 Calculation Formulae for Horizontal Analysis For 2 Years
Current year amount – Base year amount
Percentage of change = Base year amount X 100%
3.2.2 Examples of Calculation
Figure 1.0 : Percentage change for Long-term Investment and
Cash.
Item Year Increase (Decrease)
2010
(RM)
2009
(RM)
Amount
(RM)
Percentage
%
Long-term
Investment
95,000 177,550 (82,500) (46.5)
Cash 90,500 64,700 25,800 39.9
3.3 Specimen for Assignment
To illustrate the assessment of information relevance and reliability
over the years (2009-2010), accounting information of Dutch Lady Milk
Industries Berhad will be used. However, as accounting information extracted
directly from the company’s financial report for the year 2009 and 2010, the
financial analysis is done by re-drawing the financial report’s comparison. It is
understandable that accounting information available in the web page
(www.dutchlady.com.my) are all protected contents and cannot be modified as
it appear in PDF format.
4.0 FINANCIAL STATEMENT OF DUTCH LADY MILK INDUSTRIES
4.1 Balance Sheet
Dutch Lady Milk Industries Berhad
Comparison Balance Sheet
As at 31 December 2010 and 2009
2010 2009
(RM’000) (RM’000)
Increase (Decrease)
Amount
(RM’000)
Percentag
e (%)
ASSETS
Property, plant & equipment
Intangible Assets
69,803
3,443
82,327
4,879
(12,524)
(1,436)
(15.21%)
(29.43%)
TOTAL NON-CURRENT ASSETS
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
73,246
87,206
(13,960)
(16.00%)
72,722
75,176
689
85,657
57552
94,369
131
41,732
15,170
19,193
558
43,925
26.36%
(20.34%)
425.95%
105.25%
TOTAL CURRENT ASSETS 234,244 193,784 40,460 20.88%
TOTAL ASSETS 307,490 280,990 26,500 9.43%
EQUITY
Share Capital
Retained Profit
64,000
133,472
64,000
115,985
-
17,487
-
15.08%
TOTAL EQUITY 197,472 179,985 14,487 9.72%
LIABILITIES
Deferred tax liabilities
3,757
4,150
(393)
9.47%
TOTAL NON-CURRENT
LIABILITIES
3,757
4,150
(393)
9.47%
Trade and other payables
Provision
Current tax liabilities
99,638
348
6,275
91,905
283
4,667
7,733
65
1,608
8.41%
22.97%
34.45%
TOTAL CURRENT LIABILITIES 106,261 96,855 9,406 9.71%
TOTAL LIABILITIES 110,018 101,005 8,963 8.87%
TOTAL EQUITY AND
LIABILITIES
307,490
280,990
26,500
9.43%
4.2 Income Statement
Dutch Lady Milk Industries Berhad
Comparison Income Statement
For the Year Ended 31 December 2010 and 2009
2010 2009
( RM’000) (RM’000)
Increase (Decrease)
Amount
(RM’000)
Percentage
(%)
Revenue
Cost of sales
710,588
(447,961)
691,847
(462,510)
18,741
(14,549)
2.71%
(3.15%)
GROSS PROFIT 262,627 229,337 33,290 14.52%
Other Income
Distribution expenses
Administrative expenses
Other expenses
1,147
(106,091)
(22,657)
(45,805)
1,561
(98,697)
(19,048)
(31,122)
(414)
7,394
3,609
14,683
(26.52%)
7.49%
18.98%
47.18%
RESULT FROM OPERATING
EXPENSES
Interest Income
Finance Cost
89,221
883
-
82,031
451
(1)
7,190
432
(1)
8.76%
95.79%
(100%)
PROFIT BEFORE TAX
Income tax expenses 90,104
(26,217)
82,481
(22,801)
7,623
3,416
18.73%
18.73%
PROFIT FOR THE YEAR
OTHER COMPREHENSIVE
INCOME
63,887
-
60,400
-
3,487
-
5.77%
-
TOTAL COMPREHENSIVE
INCOME FOR THE
YEAR
63,887
60,400
3,487
5.77%
BASIC EARNINGS PER
ORDINARY SHARE (SEN)
99.80
94.40
5.40
5.72%
4.3 Statement of Changes in Equity
Dutch Lady Milk Industries Berhad
Statement of Changes in Equity
For the year ended 31 December 2010
Attributable to owners of the company
Share
Capital
RM’000
Distributable
Retained
Profits
RM’000
Total
Equity
RM’000
AT 1 JANUARY 2009
Total comprehensive income for the year
Dividends to owners of the Company
64,000
-
-
97,585
60,400
(46,400)
161,585
63,887
(46,400)
AT DECEMBER 2009 /
1 JANUARY 2010
Total comprehensive income for the year
Dividends to owner of the Company
64,000
-
-
115,985
63,887
(46,400)
179,985
63,887
(46,400)
At 31 DECEMBER 2010 64,000 133,472 197,472
4.4 Statement of Cash Flow
Dutch Lady Milk Industries Berhad
Comparison Statement of Cash Flow
For the year ended 31 December 2010 and 2009
2010
RM’000
2009
RM’000
Increase
(Decrease)
RM’000
Percentage
(%)
CASH FLOW FROM
OPERATING ACTIVITIES
Cash receipts from customers
And other receivables
Cash paid to suppliers and
employees
730,398
(607,007)
721,781
(612,482)
8,617
(5,457)
1.19%
0.895
CASH GENERATED
FROM OPERATIONS
Tax paid
123,391
(25,002)
109,299
(19,922)
14,092
5,080
1.29%
25.50%
NET CASH FROM
OPERATING ACTIVITIES
98,289
89,377
8,912
9.97%
CASH FLOWS FROM
INVESTING ACTIVITIES
Additions of property, plant
and equipment
Additions of intangible assets
Proceeds from disposal of
property, plant and equipment
Interest received
(9,089)
(136)
278
883
(29,285)
(607)
5
451
(20,196)
471
273
432
68.96%
77.59%
5,460%
95.79%
NET CASH USED IN
INVESTING ACTIVITIES
(8,064)
(29,436)
21,372
72.60%
CASH FLOW FROM
INVESTING ACTIVITIES
Interest paid
Dividends paid
-
(46,400)
(1)
(42,000)
(1)
4,400
(100%)
10.48%
NET CASH USED IN
FINANCING ACTIVITIES
Net increase in cash and cash
equivalents
Cash and cash equivalents
At 1 January
(46,400)
43,925
41,732
(42,001)
17,940
23,792
4,399
25,985
17,940
10.47%
144.84%
75.40%
CASH AND CASH
EQUIVALENTS AT
31 DECEMBER
85,657
41,732
43,925
105.25%
i)Cash and cash equivalents
Cash and cash equivalents
included in the statement of
cash flow comprise the
following statement of final
position amounts:
Cash at band and on hand
Deposits placed with a
licensed bank
2010
RM’000
46,657
39,000
2009
RM’000
23,732
18,000
Increase
(Decrease)
RM’000
22,925
21,000
Percentage
(%)
96.60%
116.67%
85,657 41,732 43,925 105.25%
5.0 NOTES TO FINANCIAL STATEMENT
Dutch Lady Milk Industries Berhad is a public limited liability company,
incorporated and centralized in Malaysia and is listed in Main Market of Bursa
Malaysia Securities Berhad. These financial statements were authorized for issue by
the Board of Directors on 24 February 2011.
5.1 Basis of Preparations
5.1.1 Statement of compliance
The financial statements of the company have been prepared in
accordance with Financial Reporting Standards (FRSs), generally accepted
accounting principles and the Companies Act, 1965 in Malaysia.
5.1.2 Basis of measurement
The financial statements have been prepared based on the
historical cost basis except as disclosed in the notes to the financial
statement.
5.1.3 Functional and presentation of currency
These financial statements are presented in Ringgit Malaysia
(RM), which is the company’s functional currency. All financial
information is presented in RM and has been rounded to the nearest
thousand, unless otherwise stated.
5.1.4 Use of estimates and judgements
The preparation of the financial statements in conformity with
FRSs requires managements to make judgements, estimates and
assumptions that affect the application of accounting policies and the
reported amount of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods
affected.
5.2 Significant Account Policies
The accounting policies set out above have been applied consistently to the
periods presented in concerned financial statements and have been applied
consistently by the company.
5.2.1 Foreign Currency Transactions
Transactions in foreign currencies are translated to the
functional currency of the company at exchange rates at the date of
transactions.
Monetary assets and liabilities dominated in foreign currencies
at reporting period are retranslated to the functional currency at the
exchange rate at that date.
Non-monetary assets and liabilities denominated in foreign
currencies are not translated at the end of the reporting date except for
any transaction that are measured at fair value.
Foreign currency differences arising on retranslation are
recognized in profit or loss.
5.2.2 Loans and receivables
Loans and receivables category comprises trade and other
receivables and cash and cash equivalent. Financial assets categorized
as loans and receivables are subsequently measured at amortised cost
using the effective interest method.
5.2.3 Cash Flow Hedge
A cash flow hedge is a hedge of the exposure to variability in
cash flows that is attributable to a particular risk associated with a
recognized asset or liability or a highly profable forecast transaction
and could affect the profit or loss.
Cash flow hedge accounting is discontinued prospectively
when the hedging instrument expires or being sold, terminated or
exercised, the hedge is no longer highly effective, the forecast
transaction is no longer expected to occur or the hedge designation is
revoked.
5.2.4 De-recognition
A financial assets or part of it is derecognized when, and only
when, the contractual rights to the cash flows from the financial asset
expire or the financial assets is transferred to another party without
retaining control or substantially all risks and rewards of the assets.
A financial liability or part of it is derecognized when, and only
when, the obligation specified in the contract is discharged or
cancelled or expires. On de-recognition of a financial liability, the
difference between the carrying amount of the financial liability
extinguished or transferred to another party and the consideration paid,
including any non-cash assets transferred or liabilities assumed, is
recognized in the profit or loss.
5.2.5 Depreciation
Depreciation is calculated over the depreciable amount, which
is the cost of an asset, or other substituted for cost, less its residual
value.
Depreciation is recognized in profit or loss on a straight-line
basis over the estimated useful lives of each part of an item of
property, plant and equipment. Property, plant and equipment under
construction are not depreciated until the assets are ready for their
intended use.
Depreciation methods, useful lives and residual values are
reviewed, and adjusted as appropriate at end of the reporting period.
5.2.6 Other Intangible Assets
Costs that are directly associated with identifiable computer
software and that will probably generate economic benefits exceeding
cost beyond one year or cost savings to the company, and are not
intergrate with any other equipment are recognized as intangible assets.
5.2.7 Subsequent Expenditure
Subsequent expenditure is capitalized only when it increases
the future economic benefits embodied in the specific assets to which it
relates. All other expenditure is recognized in profit or loss as incurred.
5.2.8 Amortisation
Other intangible assets are amortised from the date they are
available for use. Amortization is recognized in profit or loss on a
straight-line basis over estimated useful lives of intangible assets.
Amortization methods, useful lives and residual values are reviewed at
the end of each reporting period and adjusted, whenever appropriate.
5.2.9 Inventories
Inventories are measured at the lower of cost and net realizable
value. The cost of inventories is measured based on first-in-first-out
principle and includes expenditure incurred in acquiring the
inventories, production or conversion costs incurred in bringing them
to their existing location. In the case of finished goods, cost includes an
appropriate share of production overheads based on normal operating
capacity.
5.2.10 Receivables
Trade and other receivables are categorized and measured as
loans and receivables.
5.2.11 Cash and cash equivalents
Cash and cash equivalents consist of cash in hand, balances and
deposits placed with a licensed bank. They are categorized and
measured as loans and receivables.
6.0 CONCLUSION
Based on the financial statement above, all the transactions recorded in that
financial statement consisting every aspects and characteristics which necessary to be
appear in accounting information. As a financial statement that would be reported and
announced or published annually, Dutch Lady Milk Industries Berhad clearly shows
that their annual financial report was prepared based on standard procedures
accordance to specific accounting policies.
To become relevant, the information must have three characteristics, namely
feedback value, forecast value and timeliness. The company’s annual reports are
absolutely able to assist internal and external users in substantiating and correcting
early expectation matters at hand, thus injecting appropriate perspective over
concerned progress of any profit-based organization. As the company’s progress
seemed able to be forecasted, a report’s forecast value supposed to be outstanding and
timeliness value strengthened users intention to invest as financial report will be
issued annually.
To become reliable, the company’s financial report can be considered as
public-friendly report which it is published via website and in some cases, newspaper
or business magazines. The company’s financial report can be verified by anyone
whom using the same method of accounting and it is presented according the actual
result of economic activities using specific methods.
Other than that, as the company’s financial reports are issued annually, users
may view or verify all of financial statements and its results consisting profit or loss
indications, where all relevant information can be used as comparison between years
of financial report. For example, by using horizontal analysis method, comparison of
two year’s financial statement can be done via specific method of calculation.
Therefore, comparability is clearly seen.
Last but not least, Dutch Lady Milk Industries Berhad strongly presenting
consistency in their financial account report by applying the same procedures and
policies in line to enable constant comparison to be made effectively. Changes might
be made but complete disclosure will be made to explain users about the changes and
why it has to be made.
In conclusion, as an established company, and moreover, the first milk
company in Malaysia, Dutch Lady Milk Industries Berhad succeed in maintaining the
status as being stable and keep listed in Malaysian Stock Exchange for decades. Years
by years, the company has successfully gaining investor’s trust regarding their
profitable progress over any economic condition to keep going. Every annual report
shall bringing good news to their shareholders, investors and public users themselves
due to increasing profit that are to be shared.
7.0 REFERENCE
7.1 http://www.quickmba.com/accounting/fin/
7.2 http://en.wikipedia.org/wiki/Financial_accountancy
7.3 http://www.investopedia.com/terms/f/financialaccounting.asp
7.4 http://www.dutchlady.com.my
7.5 http://www.bursamalaysia.com
7.6 http://www.slideshare.net/amarhindu/comparison-of-accounting-
standards-presentation
