Sample Disclosure – Change In Accounting Policy Due To Early Adoption Of FRS 4 Insurance Contracts (23 November 2010)

Early Adoption of FRSs and Amendments to FRSs

During the financial year, the Group early adopted FRS 4 Insurance Contracts in accordance with the transitional provisions require simultaneous adoption of Financial Guarantee Contracts (Amendments to IAS 39 and IFRS 4) issued by the International Accounting Standards Board (“IASB”) in August 2005. This pronouncement permits the accounting policy choice of scoping financial guarantee contracts in accordance with FRS 139 Financial Instruments: Recognition and Measurement, or as insurance contracts in accordance with FRS 4.

The disclosure requirements in FRS 4 need not apply to comparative information that relates to annual periods beginning before 1 January 2010.

Consequently, the Group designates corporate guarantees given to banks for credit facilities granted to subsidiaries as insurance contracts as defined in FRS 4. The Group recognises these insurance contracts as recognised insurance liabilities when there is a present obligation, legal or constructive, as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

At every reporting date, the Group shall assess whether its recognised insurance liabilities are adequate, using current estimates of future cash flows under its insurance contracts. If this assessment shows that the carrying amount of the insurance liabilities is inadequate, the entire deficiency shall be recognised in income statement.

Recognised insurance liabilities shall only be removed from the balance sheet when and only when, it is extinguished via a discharge, cancellation or expiration.

The early adoption of FRS 4 does not result in any adjustment to recognised items of assets, liabilities, income and expense of the Group in both, the current year and prior years. Financial guarantees of the Company are disclosed in Note XX to the financial statements.

Sample Disclosure – Change In Accounting Policy, Measurement Of Stage Of Completion Of Contract Work (8 December 2009)

CHANGE IN ACCOUNTING POLICY – MEASUREMENT OF STAGE OF COMPLETION FOR CONTRACT WORK

Prior to 1 July 2008, where the outcome of a construction contract can be reliably estimated, contract revenue and contract costs are recognised as revenue and expenses respectively by using the stage of completion method. The stage of completion is measured by reference to the proportion of contract costs incurred for work performed to date to the estimated total contract costs.

However, the Company has changed the basis of measurement from proportion of contract costs incurred for work performed to date to the estimated total contract costs to survey of work performed. The reason for the change is that the directors are of the opinion that value of work certified or surveyed as a percentage of the total contract value better reflect the contract work performed by the Company. The change in accounting policy is applied retrospectively and there was no effect on the balance sheet items of the Company as at 30 June 2009 and the income statement of the Company for the financial year then ended.

Sample Disclosure – Change In Accounting Policy Adoption Of FRS 140 Investment Property (30 October 2009)

Change In Accounting Policy As A Result Of Adoption Of FRS 140: Investment Property

The adoption of this new FRS has resulted in a change in accounting policy for investment properties. Investment properties of the Company are now stated at fair value, representing the open-market value determined by external professional firm of valuers engaged by the Company. Gains or losses arising from changes in the fair values of investment properties are recognised in the income statement in the period in which they arise.

Prior to 1 January 2006, investment properties of the Company were stated at valuation amounts as a result of revaluation exercises carried out by the Company. The revaluation exercises were carried out at least once every five years and any revaluation increase arising from the revaluations is credited to equity revaluation reserve account, except when the increase is recognised in the income statement to the extent that it reverses a revaluation decrease of the same investment properties previously recognised in income statement. Any revaluation decrease arising from the revaluation is recognised in income statement, except when the decrease is debited to the equity revaluation reserve account to the extent of any credit balance existing in the revaluation reserve account in respect of that investment property.  The balance of equity revaluation reserve amount is transferred directly to retained earnings when the property is retired or disposed of.

The investment properties of the Company were last revalued in Year 2005. In accordance with the transitional provisions of FRS 140, this change in accounting policy is applied prospectively and the comparatives as at 31 December 2005 are not restated. Instead, the changes have been accounted for as an adjustment to the current year opening balances as at 1 January 2006:

 

RM

 

 

Decrease in revaluation reserve account

5,000,000

Increase in retained earnings

5,000,000

 

Sample Disclosure – Change In Accounting Policy Of Inventories Valuation Method (29 October 2009)

Change in Accounting Policy – Valuation Method of Inventories

Prior to 1 January 2009, the cost of inventories was determined on the weighted average basis.

The directors consider that the change to the first-in, first-out method gives a fairer presentation of the results and the financial position of the Company. This change in accounting policy has been accounted for retrospectively and the relevant effect of this change is shown below:

Effects on retained earnings:

2009

2008

At 1 January:-

RM

RM

As previously stated

150,000

95,000

Effects of change in accounting policy

(15,000)

(10,000)

As restated

135,000

85,000

Effects on net profit for the year:
Net profit before change in accounting policy

100,000

20,000

Effects of change in accounting policy

(10,000)

(5,000)

Net profit for the year

90,000

15,000

Comparative amount for inventories of the Company has been restated as follows:

Inventories amount as at 31 December 2008

RM

As previously stated

50,000

Effects of change in accounting policy

(15,000)

As restated

35,000

Sample Disclosure – Segmental Information Change In Accounting Policy And Note (13 October 2009)

SEGMENTAL INFORMATION

a)       Change in accounting policy

 

Prior to 30 April 2008, the Group presented its segmental information only by geographical segment as the Group’s activities were predominantly in the sector of property development and manufacturing of environmental friendly industrial disposal bins. The directors decided that changes to its group activities of venturing into trading of consumer healthcare products and discontinued of manufacturing segment warrant a change in presentation of its segmental information to give a fairer presentation of the results and the financial position of the Group.

 

This change in accounting policy did not give rise to any adjustments to the opening balances of retained profits of the prior and current year and comparative figures and presentation of previous year’s segmental information have not been restated as the Group’s activities in prior year were predominantly in predominantly in the sector of property development and manufacturing of environmental friendly industrial disposal bins.

 

b)       Reporting segment

 

The primary and only segment reporting format for the current financial year is determined to be business segments as the Group’s risk and return in its business activities engaged are predominantly determined by differences in its products and services. No segment is presented in respect of the Group geographically segment, as the Group operated principally now in Malaysia.

 

The directors are of the opinion that all inter-segment transactions entered into are in the normal courses of business and have been established on terms and conditions that are not materially different from those obtainable in transactions with third parties.

Sample Disclosure Of Notes To Financial Statements On Change In Accounting Policy On Segmental Information

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Change In Accounting Policy Segmental Information 13 October 2009

Sample Disclosure – Change In Accounting Policy On Non-amortisation Of Plantation Development Expenditure (24 August 2009)

Non-amortisation of Plantation Development Expenditure

With effect from 1 April 2008, planting expenditure incurred on newly developed land capitalised under plantation development expenditure is not amortised. Replanting expenditure of similar crops on former developed areas is chargeable to the income statement in the financial year it is incurred. In the opinion of the directors, the change in accounting policy provides reliable and more relevant information. This change in accounting policy has been accounted for retrospectively. Previously, amortisation was provided on plantation development expenditure of matured areas. The following table provides the extent of the change in accounting policy on the income statement and balance sheet had the previous policy been applied in the current year:

Effect on income statement for the year ended 31 March 2009  
 

RM

Increase in cost of sales

500,000

Decrease in profit before tax

500,000

Decrease in tax expense

125,000

Decrease in profit for the year

375,000

   
Effect on balance sheet as at 31 March 2009  
 

RM

Decrease in plantation development expenditure

500,000

Decrease in deferred tax liability

125,000

Decrease in retained earnings

375,000