(D) ANALYZE COMPANY COST STRUCTURE This report shows that purchase method of accounting and amortized cost

is appropriate for Telco companies as a service sector. The result indicated a positive relationship between applying the purchase method of accounting and amortized cost in the Digi Berhad Companys financial performance, and its available in companies operations, but there are obstacles prevent telecom companies to apply the method in their operation to control cost and optimize expenses, which requires more studies. The increase of competition level in Malaysia telecom marketplace will affect the ability of the telecom companies to generate a major incremental revenues, which will affect profitability, so the Digi Berhad needs to find ways to optimize the cost, and to eliminate the non-value added activities. In this competitive environment, the purchased method

accounting should accomplish cost efficiency without proper information to the management for taking the rational decisions and to continue quality improvement in the various organizations operations. The amortization period and the amortization method are reviewed at least during each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated prospectively as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in profit and loss. The cost structure in Digi Berhad companies can be divided into direct cost and indirect cost (overheads). The direct cost includes all cost items that are incurred to provide services (calls, massages, data, revenue and other services) such as following:

i.

Revenue sharing: Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of the revenue can be measured reliably.

ii.

Telecommunications : Revenue relating to provision of telecommunications and related services are recognised net of rebates and discounts upon the transfer of risks and rewards when goods are delivered and services are performed. Revenue from prepaid services that have been sold to customers but where services have not been rendered at the reporting date is deferred.

iii.

Interest income: recognised on a time-proportion basis that reflects the effective yield on the asset. In addition to direct cost, there is indirect cost that includes various items like:

network depreciation, license amortization, utilities, sites rents, 3G spectrum, and computer software and, network labor cost. i. 3G spectrum: Expenditure for the acquisition of the 3G spectrum are capitalised under intangible assets. The amount is amortised using the straight-line method over the shorter of the assets estimated useful life or remaining spectrum period up to 1 April 2018. ii. Computer software: Costs incurred to acquire computer software, which are not an integral part of the related hardware, are capitalised as intangible assets and amortised on a straight-line basis over the estimated useful life of three years. iii. License fee: License fees are capitalised and amortised over the period of the

licenses. The license fees had been fully-amortised in the financial year ended 31 December 2009 iv. Trade and other receivables and other financial assets carried at amortised cost: Group considers factors such as the probability of insolvency or significant

financial difficulties of the debtor and default or significant delay in payments. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis based on similar risk characteristics As we see, there is a major need to use this methodology to allocate the indirect cost to the provided services. The main cost driver that is used to allocate the indirect cost to the provided services is the minutes. How the cost structure Digi Berhad relate the direct cost and indirect cost in the company? Based on all of that, the Digi Berhad need to maintain sustainability, financial stability and profitability, what we discussed previously, it is clear that the use of the amortized cost and acquisition cost leads to improvement in financial performance. According to Gurufocus, revenue income that Digi receives from its normal business activities, usually from the sale of goods and service to customers and its often referred the top line due to its position on the income statement. And the result shows in The Malaysian Insider which is 3.4 % increase in revenue for its second quarter of 2013 to 1.65 billion. It is an effective tool for service organizations to trace costs to service produced and to analyze activities and their value to the customer. The success of reducing indirect costs and operating expenses will enhance the competitive edge for each operator, which will lead to enhance the operator profitability. Consequently, the use of this method has direct related to the improvement of financial performance: the success of reducing indirect costs, through producing cause-relationship between the indirect cost and the services provided to customers which will help to eliminate the unnecessary activities that have no value added to customers. Therefore, in order to achieve their ultimate goal this is to understand the impact that applying the method on improving the financial performance in companies.

The study states that activity based cost information is more helpful in identifying the loss making products which will ultimately improve the profitability, amortized cost can be used for better cost prediction and will assist other telecommunications companies to learn how to become more effective and efficient in controlling and reducing their costs, thus developing a competitive strength. In addition, more accurate product profitability analyses will be determine.

APPENDIX (5)

Revenue that contribute to direct cost of the company Page 98, Annual Report 2011 Digi Berhad

(6)

Statements of Comprehensive Income shows the some indirect costs elements that in Page 78 in the Annual Report Digi Berhad

Article
1. Digis Q2 net profit at RM 380 million, up 15.5% on mobile internet growth http://www.themalaysianinsider.com/business/article/digis-q2-net-profit-at-rm380-millionup-15.5-on-mobile-internet-growth Retrieved 18/12/2013, 12:13PM 2. http://www.gurufocus.com/term/Revenue/DIGBF/Revenue/Digi.com%2BBhd Retrieved 18/12/2013