MFRS 117 Disclosure Compliance

This report analyzes the disclosure requirements of MFRS 117 for lessees in financial statements, focusing on two Malaysian companies: Acoustech Bhd and Alcom Bhd. It examines their compliance with the standard, highlighting similarities and differences in their disclosure practices. The report provides insights into the accounting treatment of lease agreements and the importance of transparent financial reporting.

INTERMEDIATE
FINANCIAL ACCOUNTING
II

Table of Contents
INTRODUCTION...........................................................................................................................1
Introduction of selected companies.............................................................................................1
Description on the disclosure requirements of MFRS117 by lessees in the financial statements
.....................................................................................................................................................2
Description on MFRS117 disclosure compliance of the two selected companies......................4
Description on the
disclosure requirements of
MFRS117 by lessees in the
financial statements....................................................................................................................6
Summary.....................................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Intermediate financial accounting is one of the key branch off accounting that covers the
conceptual framework for financial reporting, accounting information and the implementation of
present value of concepts in accounting. This report is prepared on the basis of two Malaysian
companies as Acoustech deals in manufactured audio speakers, property development and real
estate investment and ALCOM group which is incorporated with business and property
development industries (Taylor, 2014). Description on Disclosure requirement of MFRS 117 by
lessees in the financial statements and disclosure of compliance with two companies are defined
in this report. Similarities and the difference between two companies are also considered in this
report.
Introduction of selected companies
ALCOM group Berhad (AGB)
Alcom is an organisation listed on the main market of Bursa Malaysia securities Berhad.
It has a market capitalisation of RM 100 million. Alcom group's core business is the aluminium
manufacturing and property development industries. It is listed on the main market of Busra
Malaysia as alcom group Berhad.
ALCOM is a innovator in the field, with its unparalleled assembling limit, ground
breaking mechanical ability and forefront innovative work activities. It's no big surprise why
ALCOM is the main provider to a portion of the world's most confided in brands, prevailing
upon worldwide industry pioneers including Daikin, Carrier and York. ALCOM is the biggest
producer of moved aluminium items in Malaysia and a main provider in the Asia Pacific district
with a solid worldwide nearness. ANSC has practical experience in the creation of covered
aluminum blade stock. It started as a Joint-Venture organization of NIPPON LIGHT METAL
CO., LTD (NLM), the main completely incorporated aluminum organization in Japan, and
Aluminum COMPANY OF MALAYSIA BERHAD (ALCOM), the greatest aluminum
organization in Malaysia.
Acoustech BHD
Acoustech Bhd was established in Malaysia as a private constrained organization on 18
October 1999. It works as a venture holding organization with backups and related organizations
engaged with the manufactured sound speaker items, property improvement and land speculation
1

related business. Acoustech Bhd accomplished a corporate development when it turned into an
open recorded Company in then Kuala Lumpur Stock Exchange (now known as Bursa Saham)
on 27 Nov 2001. From that point forward, the matter of Acoustech Bhd has extended from the
make concoction paints and electrical hardware to its flow business of assembling quality
speaker units for the OEM showcase with the last item circulated under different Multi National
Brands all through the world.
Acoustech Berhad's main value is conveying quality in the entirety of products and
advancement. It reliably keep up stringent quality control for all our item quality and enterprise
to grow new and creative products pair with the changing customer hardware showcase. In 2015,
company differentiated into the property improvement and development part in Johor Bahru
having distinguished the modern area in this district as a promising business to support against
the risk and vulnerability which always influences organisation's manufacturing units.
Written or implied contract by which an owner (the lessor) of a specific asset (such as a
parcel of land, building, equipment, or machinery) grants a second party (the lessee) the right to
its exclusive possession and use for a specific period and under specified conditions, in return for
specified periodic rental or lease payments. A long-term written lease (also called a deed) creates
a leasehold interest which in itself can be traded or mortgaged, and is shown as a capital asset in
a firm's books (Ahmed, 2010).
Description on the disclosure requirements of MFRS117 by lessees in the financial statements
There is a separate assumption found under IFRS 16 to require divulgence of the most
pertinent data as opposed to just setting out a prescriptive rundown of revelations. MFRS 117
additionally contains a general necessity for an element to give data to empower clients to
comprehend the effect that renting exchanges have on its financial position and execution. The
exposure prerequisites endorsed in the standard may not meet this target without anyone else. In
this manner, deciding the fitting level of exposure involves judgement and might be mind
boggling for substances with huge or abnormal leases (Abdullah, Ismail and Isa, 2015).
What's more, the exposure necessities ought to be seen in light of the IASB's Disclosure
Initiative task. It means to lessen pointless revelation and enhance the general nature of
budgetary proclamations by featuring the most important data to clients and not uncovering data
that is unimportant or immaterial. An element with not very many, direct and moderately low
esteem leases may consider sure of the exposures required by IFRS 16 to be unimportant.
2

MFRS 117
IAS 17 Leases recommends the accounting approaches and disclosures requirements
required for lease agreements, both for Lessee and lessor. Leases are required to be titled either
back leases (which exchange significantly every one of the dangers and prizes of possession, and
offer ascent to resource and obligation acknowledgement by the resident and a receivable by the
lessor) and working leases (which result in cost recognition the renter, with the advantage
staying perceived by the lessor). IAS 17 was reissued in December 2003 and applies to yearly
periods starting on or after 1 January 2005. IAS 17 will be supplanted by IFRS 16 Leases starting
at 1 January 2019. a general depiction of the renter's critical renting consider following
assumptions as;
(I) the premise on which unexpected lease instalments are decided;
(ii) the presence and terms of re-establishment or buy choices and
heightening provisions;
(iii) limitations forced by rent game plans, for example, those
concerning profits, extra obligation, and further renting
Disclosure requirement for Lessees in the financial statements
Finance leases: It is required to consider carrying amount of assets in the books of
accounts. Equalisation between the total payment of minimum lease and their present values are
required for true and fair reconciliation. There are following points are considered to analyse the
minimum requirement of lease payments in balance sheer and the present values subject to three
perspectives as the succeeding year, years 2 through 5 combined and beyond five years. The
contingent rent recognised with expenses and the total future value minimum sales are required
to considered under non cancellable subleases. General disclosure of significant leasing
agreements consider the contingent rent and provisions, the restrictions levied on dividends,
borrowings and further leasing agreements and purchase options (Urowitz, Ibañez and Gladman,
2016).
Operating leases: It is require to present the operating lease agreements according to
IAS 17.35 that contains following procedures and policies such as;
Amounts of minimum of lease and the agreements which will be considered under non
cancellable operating lease for
 Next year
3

 Years 2 through 5 combined
 beyond five years
 Total succeeding minimum sublease under non-cancellable subleases. Lease and
sublease payments recognised in income for the period. The contingent rent reckoned as
expenses in income for the period.
 General description of significant leasing agreements containing the contingent rent
provisions renewal and purchase options and limitations implied on dividend, borrowing
and further leasing agreements.
Description on MFRS117 disclosure compliance of the two selected companies
Alcom Bhd
Consistence with Applicable Financial Reporting Standards The Board is resolved to
exhibit a fair, exact and significant appraisal of the Group's budgetary position and prospects in
people in general divulgence of its money related outcomes. These outcomes are displayed
through the quarterly budgetary outcomes, examined monetary articulations and Annual Reports.
The Board, helped by the Audit Committee, administers the money related revealing of the
Group. The Audit Board of trustees audits the Group's yearly and quarterly money related
explanations and propriety of the Gathering's accounting approaches and changes to these
strategies, as and when they come into power, to guarantee that the Group's money related
detailing agrees to all appropriate accounting norms and administrative prerequisites (Annual
report of alcom, 2017).
Disclosure of compliance: There is a separate presentation of MFRS 16 leases presented
in the annual report of Alcom Bhd. As per the disclosure Management is in the process of
assessing the impact of the above standards and amendment on the financial statements of the
Group and the Company in the financial period / year of initial application. Property, plant and
hardware are at first expressed at expense and are therefore expressed at cost less collected
devaluation and debilitation misfortunes. The expense of a thing of property, plant and gear at
first perceived incorporates its price tag and any cost that is straightforwardly owing to bringing
the advantage for the area and condition important for it to be equipped for working in the way
planned by administration. Resulting costs are incorporated into the benefit's conveying sum or
perceived as a different resource, as suitable, just when it is likely that future financial
4

advantages related with the benefit will stream to the Group and the Company and the expense of
the thing can be estimated dependably.
The conveying measure of the supplanted part is de-perceived. Every single other fix and
support are perceived as costs in the benefit or misfortune amid the budgetary period in which
they are brought about. Increases or misfortunes on transfers are dictated by contrasting net
transfer continues and conveying sum furthermore, are incorporated into the benefit or
misfortune. Leasehold arrive is amortized over rent residency of 99 years. Other property, plant
and hardware are deteriorated on the straight-line strategy to apportion the expense to their
remaining qualities over their assessed helpful lives at the accompanying normal yearly rates:
Structures 3%
Plant and hardware 4% - 20%
Hardware and vehicles 10% - 33%
Operating lease: Leases of benefits where a huge part of the dangers and prizes of
proprietorship are held by the lessor are delegated working leases. Instalments made under
working leases (net of any motivating forces gotten from the lessor) are charged to the benefit or
misfortune on the straight-line premise over the lease time frame. Introductory direct expenses
caused by the Group in arranging and masterminding working leases are perceived in the benefit
or misfortune when acquired. Rental income will be reckoned on the basis of straight-line basis.
It is considered as an impelling interest technique (Hossain, 2013). A free valuer was occupied
with September 2016 to esteem the Group's leasehold land and structures. The valuation report
demonstrated that the market estimation of the Group's leasehold land and structures was RM120
million which was altogether higher than the conveying estimation of the Group's property, plant
and hardware as at 31 March 2017.
Acoustech BHD
Development of the incorporated labourers quarters comprising of 120 inn units in 5
residence squares arranged in Permas is advancing admirably with a normal half consummation
rate as at end of April 2018. Development income from this portion contributed RM3.9 million
in income to the Group as at end 2017 and anticipated that would accomplish 97%
consummation by end of 2018 with a likeness RM22.3 million to be produced in turnover for the
Group. Lease payments, coming about because of the rent of the inns to Harum Eco Resources
5

Sdn. Bhd. anticipated that would start in first quarter of 2019, will bring an expected repeating
yearly wage of RM3.6 million (Annual report of Acoustech Berhad, 2017).
Disclosure of compliance: Management committee of board is responsible for
scrutinizing details regarding compliance with accounting standards and accuracy.
Operating lease: The operating lease commitments helps in analysing the non
cancellable lease agreements for rental revenues. The agreements with the certain changes based
upon prevailing market rates are considered with respect of group and the organisation's average
minimum lease and the reporting (Jin, Kanagaretnam and Lobo, 2011). Overall group lease less
than one year was recorded as RM27200 and non any lease amount recorded for more than one
year but less than five year for the year 2017. For company the lease amount was recorded same
RM27200.
Description on the
disclosure requirements of
MFRS117 by lessees in the
financial statements
There are some similarities found in terms of disclosure of lease agreements and
financing terms. The Company guarantee all data, for example, corporate declarations, brochures
to investors and money related outcomes are dispersed to the overall population in an auspicious
and exact way (Bahri‐Laleh and et. al., 2010). Both the company's quarterly duration upon
budgetary outcomes are discharged inside two months from the finish of each quarter. Annual
Report of both the organisations, which is the key correspondence channel between the Company
and its investors, is distributed inside four months after the money related year end. The Annual
Report gives a smart investigation of the Group's execution, activities and prospect influencing
investors' intrigue.
Operating lease is one of the common aspect found in both the organisation. Both the
organisation follow IFRS 16 lease and treat the leasing transactions according to MFRS 117. the
lease agreements and transactions was recorded essential for completing the changes. Treatment
of operating lease in alcom was considered positive and classified as operating lease. The
payments and the operating procedure for profit and loss was counted through straight line basis
over the last lease period. Whereas, the accounting treatment for the lease was reckoned
6

profitable for subsiding years. Measurable aspects was also found similar in both the
organisations.
Summary
It is analysed that accounting of lease agreements and transactions in organisations are
treated on the basis of IFRS rules and MFRS 117. there are two organisations are taken to
understand the disclosure policies and the adjustments for commencements and detailing of lease
agreements. The key point in the above description was measured that Acoustech bhd is an
organisation that deals in various sections that helps in creating values and changing the structure
of business for better development and investor analysis. The scope of wider challenges and
variations was recorded essential for capability and sustainability of financial statements.
Alcom has presented separate description upon the financial reporting and management
for specific code of conduct. However, the Code of Conduct, the Audit Committee is
additionally dedicated in guaranteeing that there is budgetary trustworthiness where there is full
and exact monetary revelation in consistence with appropriate accounting strategies, laws and
directions (Cornaggia, Franzen, and Simin, 2011).
CONCLUSION
The above report summarises the understanding on the disclosure requirements of
published financial statements. There is a disclosure procedure of two organisations subject to
lease agreements are discussed that reflect the accurate proper procedure of disclosure
requirements. It is concluded that treatment of operating lease and finance lease as per MFRS
117 helps in incorporating the accounting records for better management of financial position of
organisation. With the help of disclosure requirements users will be able to correlate the
disclosure and compliance policies for companies.
7

REFERENCES
Books and Journals:
Abdullah, A., Ismail, K. N. I. K. and Isa, N.M., 2015. Risk Management Committee and
Disclosure of Hedging Activities Information among Malaysian Listed
Companies. Advanced Science Letters. 21(6). pp.1871-1874.
Ahmed, A., 2010. Global financial crisis: an Islamic finance perspective. International Journal
of Islamic and Middle Eastern Finance and Management. 3(4). pp.306-320.
Bahri‐Laleh, N. and et. al., 2010. Effect of halocarbon promoters on polyethylene properties
using MgCl2 (ethoxide type)/TiCl4/AlEt3/H2 catalyst system. Journal of Applied
Polymer Science. 117(3). pp.1780-1786.
Cornaggia, K.R., Franzen, L. and Simin, T.T., 2011. Manipulating the balance sheet?
Implications of off-balance-sheet lease financing. SSRN Electronic Journal.
Hossain, M. M., 2013. Leasing: An Alternative Financing Mechanism for SMEs. ABC Journal
Of Advanced Research. 2(1). pp.66-82.
Jin, J. Y., Kanagaretnam, K. and Lobo, G. J., 2011. Ability of accounting and audit quality
variables to predict bank failure during the financial crisis. Journal of Banking &
Finance, 35(11), pp.2811-2819.
Taylor, K. M., 2014. Sleeping on the Job-A Critical Analysis of the FAA's Cargo Carve-out
under FAR 117 and the Simple Solution That No One Is Talking about. J. Air L. &
Com.. 79. p.401.
Urowitz, M. B., Ibañez, D. and Gladman, D. D., 2016. Modified Framingham Risk factor score
for systemic lupus erythematosus. The Journal of rheumatology, pp.jrheum-150983.
Online
Annual report of alcom, 2017. [online]. Available through:
<http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?
id=180993&name=EA_DS_ATTACHMENTS>.
Annual report of Acoustech Berhad, 2017. [online]. Available
through:<https://cdn1.i3investor.com/my/files/st88k/7120_ACOSTEC/annual/2017-12-
31/7120_ACOSTEC_AnnualReport_2017-12-31_ACOUSTECH_AR2017_BURSA_-
1564143755.pdf>.
8