COMPREHENSIVE CASE 1

BKAR1013 Financial Accounting and Reporting I

Conceptual Framework, Recording Process & Presentation of Financial Statements
A172
Submission date:
Please submit the case during the class on 22 March 2017 (Thursday)

For presentation : Selected group(s) is/are required to present the answers

for all questions

For report submission : Answer ALL questions (All groups are required to answer
and submit the report)

Mahsuri Bhd, previously known as Mahsuri Sdn Bhd commenced its operations as a textile
store in Sintok, Kedah on 1 January 2013. Mahsuri Bhd manufactures tailored garment to
government and private institutions and also to retail buyers. After two years in operation, the
business has thrived and the owner has changed the status of the company to public listed
companies in order to get more capital to expand the business. As the business has become
more complex, many substantial changes have been made and proposed as well as many issues
have been raised, such as the recognition and measurement of financial items in financial
statement preparation. For that, Mahsuri Bhd has appointed an experience chartered
accountant, Mr. Ihsan to lead the accounting department that consists of a few staff, namely
Mr. Hasnan, Mr. Zubir, Mdm Tania and Ms. Maira who previously were held responsible for
handling company’s account. They have little experience in preparing financial statements in
accordance with conceptual framework and MFRS standards as required by MASB.

In order to make his staffs familiar with the need for a conceptual framework and related MFRS
standards, Mr. Ihsan has arranged a weekly meeting with them to explain the importance of the
framework and standards. This meeting officially started on 1 January 2015, in conjunction
with the first day of annual accounting term for Mahsuri Bhd. By organizing this meeting, Mr.
Ihsan believes his staffs will gradually understand and managed to prepare company’s financial
statements properly at the end of the year 2015. In the early meeting, Mr. Hasnan, one of the
senior staffs from accounting department has some questions regarding the theoretical
framework. He was told that these theoretical frameworks have little value in the practical
sense (i.e. in the real world). Mr. Hasnan feels that some of his anxiety about the accounting
theory and accountings semantics could be alleviated by identifying the basic concepts and
definitions accepted by the profession and considering them in light of his current work.

In the meetings as well, Mr. Ihsan and his staff discuss various aspects of the Conceptual
Framework. Mr. Ihsan asserts that the Conceptual Framework examines the characteristics of
accounting information that make it useful for decision-making. He also points out that there
is main constraint inherent in the measurement and reporting process may necessitate trade-
offs or sacrifices among the characteristics of useful information. The meeting sessions so far
seem fruitful. Staffs are satisfied with the explanations given by Mr. Ihsan.

In July 2014, Mahsuri Bhd acquired a business in publishing industry- Terbit Sdn Bhd. The
accountant in that subsidiary company has presented a report on the examination of the
financial statement to the board of directors of Mahsuri Bhd. In the meeting, one of the new

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directors expresses surprise that the income statement assumes that an equal proportion of the
revenue is earned with the publication of every issue of the company’s magazine. She feels that
the revenue should be recognised when the customers made the payments. Customers are
required to make full payment for the year in January. The magazine will be delivered to the
customer at the end of each month. She says that she does not understand why most of the
revenue cannot be recognised at the payment date.

In the latest weekly meeting, Ms. Maira expresses her concern regarding the stolen money from
company’s night safe amount RM2,500. Ms. Maira, as the staff responsible for handling the
cash safe, atones to the negligence by reimbursing her own money to replace the amount loss.
She would like to know the right way to account this event.

Mdm. Tania highlighted the recent issue of Mahsuri Bhd when one customer sued the company
for negligence. However, based on professional opinion, it is likely that Mahsuri Bhd will win
the case since the customer has no strong justification to blame the company for his own
careless not to read the terms and conditions carefully before sign the agreement. She does not
know how to record the events.

After a few sessions of meetings, Mr. Ihsan then tries to test his staffs understanding by asking
them to prepare a statement of profit or loss and other comprehensive income (combined
statement format) for anonymous company, X Bhd for the year ended 31 December 2014,
based on the information on hand. They are required to follow a format from a recent statement
of profit or loss and other comprehensive income of any Malaysian listed company. Mr. Ihsan
provided them with the following information:

**X Bhd
Trial balance
31 December 2014
Debit Credit
RM RM
Purchase discounts 10,000
Cash 189,700
Accounts receivable 105,000
Rent revenue 18,000
Retained earnings 160,000
Salaries and wages payable 18,000
Sales revenue 1,100,000
Notes receivable 110,000
Accounts payable 49,000
Accumulated depreciation-equipment 28,000
Sales discounts 14,500
Sales returns and allowances 17,500
Notes payable 60,000
Selling expenses 232,000
Administrative expenses 99,000
Share capital-ordinary 300,000
Income tax expense 53,900
Cash dividends 45,000

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 Allowances for doubtful accounts 5,000
Supplies 14,000
Freight-in 20,000
Land 70,000
Equipment 140,000
Bonds payable 100,000
Gain on sale of land 20,000
Accumulated depreciation-buildings 18,600
Inventory 89,000
Buildings 98,000
Revaluation of land and buildings 21,000
Purchases 610,000
Total 1,907,600 1,907,600

Additional Information:

i. Depreciation of building and equipment for the year are RM10,000 and RM9,000
respectively which are not yet considered in the current administration expense.

ii. Accrued revenue earned but not recorded are RM12, 000.

iii. The balance of salaries and wages payable total RM18,000 is for the remaining 3 days in
the month of December as the pay date for the company is on 27th every month.

iv. Interest of 10% is accrued on note payable at 31 December.

v. A physical count of inventory on 31 December 2014 resulted in an inventory amount of

RM64,000.

** The financial data provided in the above trial balance is not related to Mahsuri Bhd. Mr.
Ihsan purposely provided this data in order to test his staffs understanding to apply what they
have learned for the past few sessions regarding IFRS and conceptual framework.

END OF CASE

CASE INSTRUCTIONS:

(1) If you were Mr. Ihsan, help Mr. Hasnan to explain the purpose of a conceptual framework.

(2) Identify the benefits arise from a conceptual framework.

(3) Describe briefly the following characteristics of useful accounting information. State whether
each of the characteristics is fundamental quality or ingredient to fundamental quality.
(a) Relevance

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 (b) Faithful representation
(c) Understandability
(d) Comparability
(e) Neutrality

(4) Identify the main constraint that limits the company to provide information with the qualitative
characteristic that makes it useful.

(5) You are required to help Ms. Maira by:

(i) Identifying the problem facing by Ms. Maira for the stolen money.
(ii) Analysing the problem by referring to the Conceptual Framework for Financial
Reporting
(iii)Helping her to make a decision related to accounting for the stolen money.

(6) You are required to help Mdm Tania by:

(i) Identifyng the problem facing by Mdm Tania related to the lawsuit made by the
customer.
(ii) Analysing the problem by referring to the Conceptual Framework for Financial
Reporting
(iii)Helping her to make a decision related to accounting for the lawsuit.

(7) Assume that you are a part of the team. Journalise the adjusting entries and prepare a
statement of profit or loss and other comprehensive income (combined statement format) for X
Bhd for the year ended 31 December 2014. You are suggested to follow a format from a recent
statement of profit or loss and other comprehensive income of any Malaysian listed company.