Advanced Financial Accounting Report: JV, MFRS 12 Compliance

This report on Advanced Financial Accounting delves into the complexities of joint ventures, using AirAsia as a case study to illustrate real-world applications. It explores the motivations behind companies forming joint ventures, such as resource combination, expertise sharing, and cost savings, while highlighting the benefits including shared resources, flexibility, and risk mitigation. The report also examines the risks associated with joint ventures, including integration challenges, scope issues, decision-making conflicts, and potential disagreements. Furthermore, the report covers the disclosure of compliance with MFRS 12 by Axiata Group and Digi. The analysis provides a comprehensive understanding of the financial and strategic implications of joint ventures within the accounting framework, emphasizing the importance of careful planning and risk management in such collaborations.

Advanced Financial
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
PROJECT 1......................................................................................................................................1
Overview of the company............................................................................................................1
Purpose of the companies to have interest in Joint Ventures.......................................................1
Benefits of Joint Venture Companies..........................................................................................2
Risks of Joint Venture Companies...............................................................................................3
Summary......................................................................................................................................4
PROJECT 2......................................................................................................................................4
Introduction of the companies.....................................................................................................4
Disclosure of compliance with MFRS 12 by Axiata Group........................................................5
Disclosure of compliance of MFRS 12 by Digi...........................................................................6
Summary......................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
In Advanced Financial Accounting there is a disclosure of different types of financial
information (Abdel-Maksoud, Cheffi and Ghoudi, 2016). The use of this type of information is
quite crucial for the organizations to ensure that they are able to perform the analysis and
interpretation in without problems and issues. With the use of relevant data, facts and
information the organizations can ensure that they are able to bring relative financial stability.
Therefore it is required from the Accounts Department of the organizations that they are able to
derive the correct conclusions and recommendations which will enable them to take appropriate
decisions in the future. Thus it is a diverse field which contains relevant information about
diverse topics.
MAIN BODY
PROJECT 1
Overview of the company
AirAsia is a low-cost airline which is headquartered in Kuala Lumpur, Malaysia. It is a
company which provides its services at low costs to the people. It ensures that it is able to
provide the right services to the customers so that they are able to take the benefit of flying at a
low cost to the different destinations. It has a Joint Venture Tata Sons through which AirAsia
India is operated. Thus the group has a substantial interest in Joint Ventures. It has combined
with Tata Sons so that it can operate AirAsia India thereby expanding its level of operations.
Purpose of the companies to have interest in Joint Ventures
A Joint Venture refers to an arrangement under which two or more entities can combine
for their business activities (Bigham and et.al., 2019). Thus in this way they can ensure that they
are able to combine their resources so that they can achieve the goals and objectives without
problems and issues. The purpose of the companies due to which they have a specific interest in
the Joint Ventures is as follows-
 Combination of resources- The reasons due to which businesses show interest in Joint
Ventures is that they can combine their resources in a better manner (What Is a Joint
Venture, 2020). Thus it is a requirement for AirAisa that if it plans to enter into a Joint
Venture with another company is that it should be able combine its resources in an
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effective manner. As AirAsia Berhad has a Joint Venture with Tata Sons through which
AirAsia India is operated it helps in combining their resources and thus meeting their
financial goals effectively and efficiently. The purpose due to which AirAsia Berhad has
entered into a Joint Venture here is that it can identify the resources which it has and the
resources present with the other company so that they can be combined so that the needs
and requirements related with business can be easily fulfilled. Also combined resources
are very useful in smoothly operating the operations of the business.
 Combination of expertise- Joint Ventures are quite helpful for the organizations to
ensure that expertise and skills of the workers in both of the companies are combined. If
AirAisa plans a Joint Venture with another organization then in this way it can lead
towards combining of expertise in which will be helpful in achievement of goals and
objectives. AirAsia Berhad has ensured that by forming a Joint Venture with Tata Sons
through which AirAsia India is operated a combination of expertise is formed through
which the company is able to achieve its goals and objectives. The purpose of AirAsia
Berhad here was to ensure that the managerial skills and competencies of both the
companies can be combined which can result in ensuring that the strategic edge can be
obtained over the competitors in the market as the Joint Venture which has been formed
can get ahead of other businesses.
 To save money- When the companies form a Joint Venture then this can lead towards
saving of money (Eames, Luttman and Parker, 2018). Thus if AirAsia forms a Joint
Venture with the any other airline then this can lead towards saving of money for the
organization in the various areas. Thus in this way it can be quite helpful for the
companies. AirAsia Berhad makes sure that it has saved a lot on its expenditure by
forming a Joint Venture with AirAsia India so that it is able to make strategic decisions.
AirAsia Berhad has ensured that it can save a lot of financial resources by entering into
Joint Venture as the extra expenditure which it would incur otherwise was saved. Thus in
this way this purpose was solved.
Benefits of Joint Venture Companies
There are different types of benefits for Joint Venture Companies. These benefits are
explained as follows-
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Shared resources and responsibilities- In Joint Venture Companies, there is a sharing
of resources as well as responsibilities between the organizations (What are the primary
advantages of forming a Joint Venture, 2019). Thus in this way it can be quite helpful for the
managers of the companies as in this way they can target higher-level of profits. Also this can
help a firm in targeting the enhancement of market share. If AirAsia is able to form a Joint
Venture with a company then this will allow it to share the resources and capabilities in a better
manner. Thus AirAsia Berhad has benefited a lot by forming a Joint Venture with Tata Sons
through which it operates AirAsia India so that the resources and capabilities are shared which is
quite helpful in the achievement of goals and objectives. By sharing resources and
responsibilities the managers of both the organizations are able to focus better on the task which
is in front of them and thus this is quite helpful for them. This helps further in the identification
of opportunities for growth in the future and thus using them to help the firm progress further.
Flexibility for Participating Companies- When a Joint Venture is formed between the
companies, it can lead towards a relative level of flexibility for participating companies (Eker
and Aytaç, 2017). They may be exempted from certain rules and regulations which would have
been applicable on them otherwise. Thus by entering into a Joint Venture AirAisa will be able to
ensure relative flexibility for other companies as they will not be required to undergo certain
legal procedures which are required as per the law. Thus in this manner AirAsia Berhad has
ensured that by forming a Joint Venture with Tata Sons for operating AirAsia India it has formed
a relationship between Malaysia and India. The certain rules of trade of Malaysia and India
which would have been applicable on both of these companies are not applicable when they are
in a Joint Venture which therefore creates an advantage for them.
Sharing of risk- By forming a Joint Venture the companies are able to share their risk
(Hu, 2020). This is quite beneficial for them in the future because this allows them to identify the
way through which they can reduce their level of risk which they face by partnering with another
company. Thus if AirAisa decides to enter into a Joint Venture it will be able to share the risk
which is present in its business which will be quite helpful for it in the future. When AirAsia
Berhad formed a Joint Venture with AirAsia India it ensured that they are able to share their risk
which will help them a lot in their business. The risk is shared as both the companies are equally
responsible for any kind of losses which can be incurred in the course of the business. This is
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particularly helpful for them to progress further in the business by taking the advantage of the
opportunities which are available for them.
Thus due to these advantages the companies prefer Joint Ventures to be able to target the
achievement of their specific aims in the future (Sledgianowski, Gomaa and Tan, 2017). It
ensures that they can combine resources and responsibility, offers flexibility for participating
companies and ensures that the companies can share their risk.
Risks of Joint Venture Companies
There are different types of risks which are associated with the Joint Venture Companies.
These are explained as follows-
 Risk related to integration- In Joint Ventures integration risk is present for the
businesses (Huang, 2020). Integrated Joint Ventures ensure that there is a pooling of
different types of resources. While in Non-Integrated Joint Ventures partners are
allocated specific tasks to perform. Thus if AirAsia enters into a Joint Venture then this
can lead towards problems and issues related to integration. As AirAsia Berhad has
entered into a Joint Venture with Tata Sons for operating AirAsia Berhad it has risk
related to integration as both of these companies may not pool their resources properly to
achieve business objectives. Due to improper pooling of the resources the company can
face difficulties related to funds, manpower and various other needs and requirements
which can hurt the prospects of the Joint Venture.
 Scope- When the organizations entering into a Joint Venture then this can create an issue
related to the scope (Joint Ventures: What are the risks and how do you avoid them?,
2018). This can happen when both of them are doing their work at a similar level of
scope. Therefore this can create different types of doubts and confusions. For AirAisa,
this is a risk which is present if it enters into a Joint Venture with another company. As
AirAsia Berhad has entered into a Joint Venture with Tata Sons for operating AirAsia
India it has given scope to it for operating in the market of India thus leaving the market
wide open for it. Thus in this way the airline has ensured that a particular market has been
left open for the other company in Joint Venture which helps in ensuring that it utilizes its
scope there to earn reasonable level of profits.
 Decision-making- When the firms enter into Joint Ventures this creates problems related
to taking of various sorts of decisions. There can be conflicts on the taking of decisions
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related to work. Thus this is a risk which is present for AirAsia when they enter into a
Joint Venture with the other companies. This can lead towards creation of an impact on
their overall decision-making and can also slow down this whole process. By forming a
Joint Venture with Tata Sons for operating AirAsia India the decision-making power has
been divided between the two groups. Sometimes conflicts may be created in the
companies having a Joint Venture as they may not agree mutually on the decisions which
are required to be taken which thus affects them a lot as they are unable to take crucial
decisions at the right time thus resulting in the loss of utilization of opportunities.
 Conflicts- Forming of Joint Ventures between the companies can lead towards various
conflicts (Liu and Gao, 2017). They can be related to decision-making and various other
fields. Thus this is a risk which is present for AirAsia if it is planning to enter into a
partnership with any other company. By entering into Joint Venture with Tata Sons for
operating AirAsia India the group has risks of conflicts happening because of difference
in opinion for decision-making. In the Joint Ventures, the companies may face this
problem due to which they can face issues related with the taking of decisions at the right
time. This has to be avoided between the companies who are forming a Joint Venture.
Summary
Thus from the above discussion it can be summarised that the forming of Joint Ventures
is quite crucial from the point of view of the companies if they wish to achieve certain specific
goals and objectives. It allows them to be able to ensure that they can use their resources to attain
strategic advantage within the market. Partnership between the organizations has to be formed
after considering the various types of parameters which are present. The companies should make
sure that there is a specific purpose for which a Joint Venture is formed. Also there are its certain
benefits for them. Further, there are also risks present when the organizations enter into it.
PROJECT 2
Introduction of the companies
Axiata Group- Axiata Group is a Malaysian Company which deals in providing
telecommunications services to its various customers in the market (Maksy, 2017). It offers its
services in the different categories to its various customers at affordable rates. It has a strong
presence in the Malaysian market with a substantial customer base. It also has different
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subsidiary holdings present in the market. The company has been earning substantial profits for
the last few years and has been targeting expanding its customer base in the market. Also it tries
out various innovations to be able to identify the way customers can be satisfied with the services
which its is providing to them. The company has a substantial interest in Joint Ventures and
Associates because of the benefits offered by them. The information regarding the same has been
discussed in the Annual Report of the company. Axiata Group has its headquarters in Kuala
Lumpur, Malaysia. The services which are offered by the company are related to
Telecommunications such as Mobile Services, Internet Services etc. They are provided by the
company to its different customers. The company earned a profit of RM 1.8 billion which was its
financial highlight.
Digi Group- Digi is a Malaysian Company which also provides telecommunication
services to its customers in the market (Miller and Shawver, 2016). The range of services
provided by it are quite extensive in nature. In the Malaysian market, it has a good presence and
has a substantial base of customers who make the use of its services. The company has expanded
itself in offering other services in the telecommunications sector and is making sure that it offers
a good competition to the other companies in the market. Therefore in this way it ensures that the
telecommunications services are provided to a wider range of population. It has different rates
for its plans and covers different types of customers who subscribe to them. It has been making
good profits over the last few years which has allowed it to obtain a substantial share in the
market. The Group has an interest in Joint Ventures and Associates and has invested its funds in
them. Detailed information regarding the same has been provided in the Annual Report of the
company. The headquarters of Digi Group are in Shah Alam, Malaysia. The services which are
offered by it to the custoemrs are related with Telecommunications such as Mobile Services,
Internet Services etc. The Group earned 2.917 MYR as its profits which is its financial highlight.
Disclosure of compliance with MFRS 12 by Axiata Group
Through the thorough analysis of Annual Report of Axiata Group, it has been analysed
that the company has a substantial amount of interest in MFRS 12. It means that it has a detailed
interest in the Joint Ventures and Associate Companies. The report states that for the financial
year beginning from 1st January 2019 different standards have been adopted by the company for
the first time.
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One of them is MFRS 12 which means that the group has a long-term interest in investing
in Associates and Joint Ventures. According to the Annual Report of the company, there is a
share of the group in Idea Company. However due to the amalgamation between Vodafone and
Idea leading to forming of a new company named VIL the interest of the group has fallen from
16.33 % to 8.15 %. The group has classified the investment made in Ideas a non-current asset
due to the high probability of amalgamation of Vodafone and Idea.
According to the requirements of MFRS 12, the group has made the following
disclosures in its Annual Report related to its investments in Associates and Joint Ventures-
In the previous financial year a total investment of RM 45.6 million in an associated
organization was impaired by the group due to reasons for voluntary administration by an
associate. Also the group has its share of loss due to associates which have turned out to be
immaterial which is valued at RM 1.0 million.
Further, the carrying amount of the associates of the group stands at 207,357. This
implies the investments which have been made by the group in its associates.
The details related to the group's interest in the associates are as follows-
 Safoca Sdn Bhd- 15.12 %
 Firstsource- Dialog Solutions (Private) Limited- 21.66%
 Digital Realty (Private) Limited- 29.16%
 Axiata Digital Innovation Fund Sdn Bhd- 62.19 %
 SADIF LP- 57.98%
 PT Princeton Digital Group Data Centres- 19.91 %
Further, the group has made substantial investments in the Joint Ventures. The details
related to its investments in Joint Ventures are as follows-
 PLDT Malaysia Sdn Bhd- 49 %
 Tune Talk Sdn Bhd- 35 %
 Merchantrade Asia Sdn Bhd- 20 %
 PT One Indonesia Synergy- 33.18 %
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Disclosure of compliance of MFRS 12 by Digi
Through the analysis of the Annual Report of Digi, it has been analysed that it has an
interest in the investment in Joint Ventures and other associates. It has been complying with the
rules and regulations and is making sure that it is following MFRS 12. It has disclosed the
investments which it has made in the Joint Ventures and the associates in its annual report.
The details of its investments in subsidiaries is as follows-
Digi Telecommunications Sdn Bhd- 100%
Y3llownation Sdn Bhd- 100 %
Digi Services Sdn Bhd- 100 %
Y3llowLabs Sdn Bhd- 100 %
Thus these are the details of the investments which have been made by Digi in the
subsidiaries, Joint Ventures and associates. Thus it can be said that there has been a substantial
amount of investment made by the company in the other companies which discloses its interest
in the Joint Ventures and associates.
Its investments stand at a value of RM 772,751. Therefore this ensures that the group is
earning substantial profits from the investments which have been made by it. Therefore this
shows that the group is substantially interested in investing in the Joint Ventures as well as
Associates. Also it is fully complying with the rules and regulations as per MFRS 128.
Thus it can be seen that the company is following all the rules and regulations and the
laws related to the disclosure of the relevant information. This ensures that the required
information is provided to the investors who wish to invest in the company. All the statutory
requirements related to the disclosure have also been met by the group. Further, the group is
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managing its investments fairly which is evident with the analysis of its financial statements as a
part of its Annual Report 2019.
Summary
Thus from the above discussion, it can be summarised that both Axiata Group and Digi
are following the relevant rules and regulations regarding Disclosure of interest in Associates
and Joint Ventures. In the Annual Report of both the companies compliance with MFRS 12 is
mentioned. Further, the details regarding the investments in Associates and Joint Ventures is
mentioned as a part of the report. Proper disclosure has been provided by both of the companies
in their report.
Therefore it can be said that investments in Joint Ventures and Associates provide a lot of
benefits to the organizations. Therefore, the companies are required to make sure that they invest
in them which will help them a lot to obtain a higher market share in the future. Also, through
these investments there can be an increase in the overall value of the company leading towards a
lot of advantages in the future.
Thus it can be summarised that both Axiata Group and Digi are disclosing the proper
financial information as required by the provisions of the law. Thus both of them are meeting the
statutory requirements as per the law of Malaysia.
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CONCLUSION
From the above report, it can be concluded that Advanced Financial Accounting deals
with varied topics which can create an impact on the financial position of the organizations.
There is a specific interest of the organizations in Associates and Joint Venture Companies. This
can be due to the varied benefits which investments in them can offer. Also due to MFRS 12, the
companies are required to declare and disclose their specific interest in the Joint Venture and
Associate Companies. They are required to provide the relevant details regarding the same in
their Annual Report. Proper disclosure has to be made by them regarding the investments which
they have made in the Joint Ventures and Associates. Axiata Group and Digi Group are chosen
as companies showing substantial interest in Joint Ventures and Associates. Disclosure of Axiata
Group showing compliance with MFRS 12 has been covered. Disclosure of Digi Group
regarding compliance with MFRS 12 has also been covered. Thus both of these companies are
showing compliance with MFRS 12.
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