FAR 570 FINANCIAL ACCOUNTING AND REPORTING 4

WRITTEN REPORT
PRESENTATION: SEGMENTAL REPORTING (10%)

DKLS Industries Bhd

Name :
Student ID :
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Lecturer :
Date of Submission :

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 ACKNOWLDEGEMENT

Assalamualaikum w.b.t. First and foremost, I would like to thank Allah the Almighty for
giving me the strength and ability to complete this segmenting report successfully and in time. I
would like to extend my deepest appreciation to my lecturer, for all her precious comments,
guidance, ideas, advice, and also encouragement throughout development of this article review.
With her guidance, I was able to finish this assignment successfully.

This task is assigned to me as one of the requirements for the subject Financial
Accounting & Reporting 4 (FAR570) and therefore I would also like to express my appreciation
to Universiti Teknologi Mara (UiTM) P for including this assignment as a requirement for this
subject as I have gained a lot of knowledge through it. I would also like to thank my colleagues
for helping me by providing guidance and ideas for me to complete this assignment. Not to
forget the support and advices they gave to me throughout this period.

Special thanks to my parents and my siblings that has provided me moral support and
strength to complete this assignment. To them I extend my obligation and gratitude, for their
continuous support, patience, prayers, and benevolence during the period of finishing this
assignment. I would also like to thank everyone who contributed towards the completion of this
assignment. Your kindness, support, opinion, and advice are much appreciated. Thank you all
very much

I hope that the information provided in this assignment will be beneficial for everyone.
Thank you.

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 TABLE OF CONTENT

NO CONTENTS PAGE

1 COVER PAGE 1

2 ACKNOWLEDGEMENT 2

3 TABLE OF CONTENT 3

4 INTRODUCTION 4-5

5 CONTENT 6-11

6 CONCLUSION 12

7 REFERENCES 13

8 APPENDICES 14-22

INTRODUCTION

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 Segment reporting is the reporting of the operating segments of a company in the
disclosures accompanying its financial statements. Segment reporting is required for publicly-
held entities, and is not required for privately held ones. Segment reporting is intended to give
information to investors and creditors regarding the financial results and position of the most
important operating units of a company, which can be used as the basis for decisions related to
the company. MFRS 8 Operating Segments is enacted to help the users of financial statements
to assess better the nature and financial effects of business activities and understand better the
economic environment. Under Generally Accepted Accounting Principles (GAAP), an operating
segment engages in business activities from which it may earn revenue and incur expenses,
has discrete financial information available, and whose results are regularly reviewed by the
entity's chief operating decision maker (CODM) for performance assessment and resource
allocation decisions.

For this individual project of segment reporting, I, as the new Accounts Executive of the
company is required to prepare a segment report for the company for the first time. I choose the
company DKLS Industries Bhd for this segmental reporting.

The reason I chose DKLS Industries Bhd for this project is because although DKLS
Industries Bhd is involved in engineering and construction business sector and its activities
encompass construction, quarrying, property development, property investment, logistics and
supply chain, DKLS Industries Bhd is committed to disclosing the progress of their sustainability
profile and setting the highest standards in the economic, social and environmental domain in
the pursuit of their business goals and objectives that evolve around people, profit and planet.
They aspire to lead by example, assuming the role as lifestyle influencer in sustainable living,
advocating mindset change, catalysing behavioural change within its network of employees,
customers and communities as the Group acknowledged driving sustainability as a
transgenerational mission. They aspire to raise their understanding of sustainability issues so
that they may continue to grow and perform better as a corporate citizen. This is a good
incentive to promote preserving and taking care of mother nature.

DKLS Industries Bhd is a public listed company in Bursa Malaysia that is involved in in
engineering and construction business sector. The company has 6 business segments. The 5
main business segments comprise of investment holding, construction of building and general
contractors, quarry, property development and utilities. Other operations of the Group mainly

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comprise trading of construction materials and logging and sale of merchantable timbers, none
of which constitutes a separate reportable segment. However, construction business segment
provides maximum revenue for the company.

For this business operating segment, the operating segments will be analysed using
quantitative 10% threshold test to classify the business segments into reportable segments and
non-reportable segments. The 10% threshold test can be calculated using any of the 3 methods
which is using revenue, profit (loss) or assets. If the operating segment meets the 10%
threshold test, it is classified as a reportable segment. Information for operating segments that
do not meet the 10% threshold requirements are not classified as reportable segments is to be
combined and disclosed under ‘All Other Segments’ category.

Next, all the reportable segments will be tested against the 75% total revenue
requirement by using total external revenue of the entity. The combined external revenue of
identified operating segments must equal or exceed 75% of total external revenue of entity.
Otherwise, the entity has to identify more reportable operating segments even if the segment fail
the 10% threshold test.

CONTENT

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a. Company background

DKLS Industries Bhd is one of Malaysia's leading conglomerate and is listed on the
Main Board of Bursa Malaysia since 2001 (initial public listing in KLSE second board in
1996). DKLS Industries Bhd is majorly an investment holding company. The Company is
engaged in the provision of management services. The Company's segments include
investment holding, construction of building and general contractors, manufacturing of
quarrying and property development. Its subsidiaries include DKLS Construction Sdn
Bhd, which is a building and general contractor, and is engaged in the sale of materials;
DKLS Quarry & Premix Sdn Bhd, which is a quarry master and is engaged in the sale of
related products; DKLS Precast System Sdn Bhd, DKLS Development Sdn Bhd and
DKLS Premierhome Sdn Bhd, which are engaged in the construction and development
of properties; DKLS Marketing Sdn Bhd, which is engaged in trading of construction
materials, hardware, kitchen and sanitary wares; DKLS Lakeview Sdn Bhd and DKLS
Equity Sdn Bhd, which are engaged in investment holding, and DKLS Homebuilders Sdn
Bhd, which is engaged in felling, removal, extraction and sale of merchantable timbers.

b. Management approach
Segment reporting is a component of an entity that engages in business activities
from which it may earn revenues and incur expenses, whose operating results are
reviewed by the chief operating decision maker (CODM) to make decision about
resource allocation & performance assessment for which discrete(separate) financial
information is
available.
i. Factors to consider to have a segment reporting
a) Nature of the product or services
DKLS Industries Bhd’s nature is on both of the product and
services. The company major business segments are construction,
quarry, property development, investment holding and utilities
segments

b) Nature of the production processes

 Construction Segment – DKLS Industries Bhd has over the
years spearheaded numerous projects of national significance

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 spanning from highways, bridges, airport runways, water
treatment facilities and hydro power plant, jetties, institutional
as well as commercial buildings and residential development
for both public and private sectors. The construction business
segment provides maximum revenue for the company.
 Quarry Segment – DKLS Quarry & Premix Sdn. Bhd. is
involved in manufacturing for supply and sale for quarry,
ready-mix (asphaltic concrete) and premix products in the
Northern Region of Peninsular Malaysia.
 Property Development Segment – DKLS pursued aggressively
privatisation projects as well as joint ventures with land
owners. The division bolstered up its performance through
series residential development projects.
 Investment Holding Segment – DKLS uses its property, Tower
8 Bangsar South for rental
 Utilities Segment – DKLS operates, manages and distributes
treated water to all the domestic accounts as well as
commercial and industrial premises in the Kaysone
Phomvihane District of Savannakhet Province, Lao PDR.

c) Type or class of customer for the products or services

The types of customers for the products and services provided
varies from customers to customers. For quarry and property
development segment, the target customer depends on the
satisfaction of the product produced to the customers. For
construction, investment holding and utilities segments, the target
customer depends on satisfaction of the services provide to the
customers.

d) Methods used to distribute the products or provide the services

The methods used by the company to distribute the products and
services from customer to customer as is depends on the type of
products and services rendered. The quarry plants purchased are
used to operate the company’s quarry for the quarry segment.

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 Different types of plants, machinery and motor vehicles are used for
projects for the construction and property development segment. For
investing holding segment, the company used their property building,
Tower 8 to be rented out. For utilities segment, the company
operates, manages and distributes treated water to all the domestic
accounts as well as commercial and industrial premises in the
Kaysone Phomvihane District of Savannakhet Province, Lao PDR.

ii. Type of segment

Operating segment may be a business or geographical segment.
As for DKLS Industries Bhd, the business segments comprise of
construction, quarry, property development, investment holding and
utilities segments. For geographical segment comprises of Malaysia
Lao People’s Democratic Republic. Other operations of the Group mainly
comprise trading of construction materials and logging and sale of
merchantable timbers, none of which constitutes a separate reportable
segment.

iii. Identify the Chief of Decision Making (CODM) and its responsibility
The Chief of Decision Making (CODM) is a person whose function
is to assess the performance of the various segments and decide on
allocation of resources to the segments. That person can be the Chief
Executive Officer (CEO), Chief Operating Officer (COO), Chief Financial
Officer (CFO) or others. Referring to DKLS Industries Bhd’s Annual
Report, its concluded that Mr Ding Poi Bor, the Managing Director is the
CODM of the company. This is seen clearly as the scope of
responsibilities of the Managing Director includes overall responsibilities
over the operating units, organisational effectiveness and implementation
of Board’s policies and decisions.
The CODM of DKLS Industries Bhd should identify the nature of
business as both production and services. The CODM should identify the
existence of managers responsible for the business activities. Therefore,
for each operating segment, the will be a top management to manage

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 each segment of business activities. The information gained by the
CODM will be reported to the Board of Directors (BOD)
c. Segmental report
10% Threshold Test
The company is required to disclose information about a segment separately if it meets:
REVENUE (EXTERNAL & INTERNAL) ≥ 10% OF COMBINED REVENUE OF ALL
OPERATING SEGMENTS

OPERATING SEGMENTS
Investment Construction Quarry Property Utilities Others Total
RM RM RM Development RM RM RM
RM

External 15,202,078 99,478,917 66,826,925 24,217,338 10,930,103 876,816 217,532,177

Revenue

Inter- 12,525,346 13,015,819 4,675,007 - 1,102 872,116 31,089,390

Segment
Revenue

Total 27,727,424 112,494,736 71,501,932 24,217,338 10,931,205 1,748,932 248,621,567

Revenue

10% Test 27,727,424/2 112,494,736/ 71,501,932/ 24,217,338/ 10,931,205/ 1,748,932/

Revenue 48,621,567 248,621,567 248,621,56 248,621,567 248,621,56 248,621,56
x 100% x 100% 7 x 100% 7 7
x 100% x 100% x 100%
11% 45% 10%
29% 4% 1%
Conclusion Reportable Reportable Reportable Reportable Not Not
Reportable Reportable

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75% Threshold Test
Combined external revenue of identified operating segments must be ≥ 75% of total external
revenue of entity. The combined external revenue of the chosen operating segments is more
than 75% which indicates that there is no need to identify more operating segments which fail
the 10% test to be included as the reportable segments.

= RM 15,202,078 + RM 99,478,917 + RM 66,826,925 + RM 24,217,338 X 100%

RM 217 532 177
= 95% (≥ 75%)
The amount is more that 75%. Therefore, the chosen reportable segments earlier will
remain as the reportable segments and there is no need to identify additional reportable
segments.

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 Segment Report
Reportable Operating Segments Other Reportable
Operating Segments
Investment Construction Quarry Property Utilities Others Total
RM RM RM Development RM RM RM
RM
External 15,202,078 99,478,917 66,826,925 24,217,338 10,930,103 876,816 217,532,177
Revenue
Inter- 12,525,346 13,015,819 4,675,007 - 1,102 872,116 31,089,390
Segment
Revenue
Total 27,727,424 112,494,736 71,501,932 24,217,338 10,931,205 1,748,932 248,621,567
Revenue
Operating 8,506,626 1,860,605 5,980,339 7,545,158 3,630,008 154,964 15,677,700
Profit
(Interest (5,587,125)
Expense)
Share of 258,082
Profit from
Associates
Profit 10,348,657
Before Tax
Segment 136,098,375 122,453,802 77,764,346 130,119,785 62,294,786 3,643,595 (3,886,642)
Assets
Equity - - - 258,085 - - 258,085
Method of
Associates
Unallocated 37,457,291
assets
Total 570,090,065
Assets

CONCLUSION

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 Segmental reporting is used by companies to help assess better the nature and financial
effects of business activities as well as understand better the economic environment in which
the entity operates. The company shall disclose information to enable users of financial
statement to evaluate the financial reports from the view of the managers. There are several
advantages and disadvantages of segment reporting to DKLS Industries Bhd. The advantages
and disadvantages depend on how the information is used.

The advantages include separation of profitable segments. The key advantage of

segment reporting is transparency. As for DKLS Industries Bhd, it operates in business and
geographical segment. Therefore, segmental report can distinguish segments that gives more
profit and which drains on the bottom line. The evaluation could prompt a change in strategic
direction for the managers to make future decisions. Secondly, segmental reporting respects
decentralized businesses. Segment reporting respects that many businesses that have multiple
sectors are decentralized. A financial analyst does not praise or criticise a company itself but
remarks on the leadership of the sector company as the financial analyst only looks at the
sector and the sector heads. Next, improved context. Segment reporting allows stakeholders to
get a better sense of the fluctuations that might affect overall profits. Segment reporting can
help DKLS Industries Bhd by showing where those earnings are coming from and can help
stakeholders to determine if the earnings are sustainable. It can also help investors to
understand better the business and its potential cash flow.

However, there are certain disadvantages that needs to be highlighted. The limitation
includes that it emphasis on the present. Segment reporting can place too much of a focus on
short-term numbers. For example, if DKLS Industries Bhd creates a segment that runs a
significant deficit before the right people and infrastructure are in place, the losses incurred will
be outweighed by the company's overall performance which will give a negative impression on
the financial statements. Next, data manipulation. The segmental reporting’s information can be
manipulated as it may be reported through the view that managements wants the users to see.
Therefore, the users of financial statement will get false idea of the performance of the
company. The losses could be grouped with an unrelated profitable business unit to paint a
better picture of performance to deceive the BOD for example.

REFERENCES

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1. DKLS Industries Berhad, 2018, DKLS Industries Berhad Annual Report 2018, Ipoh,
Perak.
https://www.bursamalaysia.com/trade/trading_resources/listing_directory/company-
profile?stock_code=7528
2. Malaysian Accounting Standard Board (MASB), 2011, Malaysian Financial Reporting
Standard (MFRS), MFRS 8 Operating Segments,
Malaysia .http://www.masb.org.my/pdf_file/BV2018_MFRS%208.pdf
3. Jalila Johari, 2017, Post-implementation of MFRS 8 “Operating Segment” among listed
firms in Malaysia, Department of Accounting and Finance, Faculty of Economic and
Management, University Putra Malaysia
https://www.shs-
conferences.org/articles/shsconf/pdf/2017/02/shsconf_four2017_07008.pdf
4. Samuel Jebaraj Benjamin, Saravanan Muthaiyah, M. Srikamaladevi Marathamuthu,
Uthiyakumar Murugaiah, 2010, A Study Of Segment Reporting Practices: A Malaysian
Perspective
https://www.semanticscholar.org/paper/A-Study-Of-Segment-Reporting-Practices%3A-
A-Malaysian-Benjamin-Muthaiyah/df6e48c1e1a65e0a396f021d2f6cd22123480d18
5. Farah Abd Mutalib, Hartini Jaafar, 2019, Segment Reporting Practices and
Determinants: Evidence from Malaysian Public Listed Companies, International Journal
of Academic Research in Accounting, Finance and Management Sciences
http://hrmars.com/hrmars_papers/segment-reporting-practices-and-determinants-
evidence-from-malaysian-public-listed-companies.pdf

APPENDICES

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