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< BACHELOR ACCOUNTING>

< SEPT 2020>

< BBSA 4103>

< SPECIALISED FINANCIAL ACCOUNTING>

MATRICULATION NO : <960828016204001>

IDENTITY CARD NO. : <960828016204>

TELEPHONE NO. : <018-4654028>

E-MAIL  : <[email protected]>

LEARNING CENTRE : <JOHOR>


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                                                    Content                                                  
Pages              
Assignment 1

1.0 Discussion of MFRS 141 disclosure requirements…………         3-4

2.0 Analysis on the contribution of plantation companies towards


Malaysian current economy………………………………………………. 4-6

          
  3.0 Summary…… …………………………………. 6

4.0 References ………………………………………………………. 7

Assignment 2

1.0 Introduction of selected company of plantation sector…………         8-9

2.0 Evaluation of MFRS 141 conformity in the financial statements for


the selected company……….…………………………………. 10-11

          
  3.0 Summary…… …………………………………. 12
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Assignment 1

1.0 MFRS 141 Agriculture was issued by the Malaysian Accounting Standards Boars

(MASB) which comprises standards as issued by IASB are effective on 1 January

2012. In general, plantation companies in Malaysia should report their biological

assets in the financial statement in accordance to (MASB), the Companies Act 1965,

the Securities Commission’s guidelines and the Bursa Malaysia’s listing requirements

(Tan,2010). MFRS 141 now requires biological assets and agriculture produce too be

measured at fair value through profit and loss. The presentation or disclosure of the

biological assets basically will appear in the Statement of Financial Position and in the

Statement of Comprehensive Income as required by the standards. Gain or loss arising

from the changes in fair values is usually shown in the statement of Profit or Loss and

other Comprehensive Income. According to PwC (2009), as the changes in the fair

value may be both a positive as well as a negative amount, it is most appropriate to

present the change in fair value after revenues and other income, but before expenses.

The presentation should take into consideration the unique characteristics of the

production of the entity. Usually, gain or loss arising from the changes in fair value

occurs when there is a price difference between current market price and previous

market price. The reason why there are changes in prices for biological assets is

because of age factor (livestock) and high demand from customers (plantation). The

disclosure information published with the financial position, an entity shall disclose

the existence and carrying amounts of biological assets whose title is restricted, and

the carrying amounts of biological assets pledged as security for liabilities, the amount

of commitments for the development or acquisition of biological assets and financial

risk management strategies related to agricultural activity. In additional, the nature of

its activities involving each group of biological assets, non-financial measures or


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estimates of the physical quantities of each group of the entity’s biological assets at

the end of the period and output of agricultural produce during the period. An entity

shall present a reconciliation of changes in the carrying amount of biological assets

between the beginning and the end of the current period. The reconciliation shall

include, the increase due to purchase, decreases attributable to sales and biological

assets classified as held for sale ( or included in a disposal group that is classified as

held for sale), decreases due to harvest, increases resulting from business

combinations, net exchange differences arising on the translation of financial

statements into a different presentation currency, and on the translation of a foreign

operation into the presentation currency of the reporting entity and other changes.

2.0 2020 is a challenging year for most of the plantation companies in the Malaysia due to

the outbreak of COVID-19 pandemic. This outbreak gives negative effects on the

country’s economy from global supply and demand shocks and also domestic factors

during the lockdown. For example, Malaysian palm oil affected by the outbreak of the

coronavirus. Slow demand from the palm oil importing countries as well as domestic

consumption. Also, the movement control order has interrupted the normal upstream

activities such as fertilizing, harvesting, collection of FFB and milling. This has

resulted in a lack of manpower and logistic issues thus will hamper the palm oil

production. On March 24 Sabah government imposed a closure on oil palm estates

and mills in six districts until April 14 after some of the workers have tested positive

for COVID-19. With the appeals from MPIC, MPOA and plantation companies the

closure was lifted on the 8 April. The brief shutdown of the estates and mills has

affected nearly 75% of Sabah’s CPO production and about 100,000 workers. Sabah

constitutes 25% of Malaysian palm oil production. However, on 20 April, FGV

Holdings has voluntarily ceased its operation within the Sahabat region in Hahad
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Datu, Sabah after 11 COVID-19 cases were detected. The closure involves 115,432

hectares of plantation, comprising 7 mills and 48 estates. It is projected that Malaysian

palm oil production will likely to have slow growth in 2020 compared to 2019. The is

based on the impact of the low fertilizer application in 2019, dry weather in the middle

of 2019 which resulting in diminished oil palm fruit yields and also brief suspension

of Sabah oil palm estates and mills due to COVID-19 pandemic. Palm oil ending

stock is one of the important variables that influence the CPO price movement.

Fundamentally, the low stock will result in a higher CPO price and vice versa. It is

forecasted that Malaysian palm oil stock to be at 1.9 million tonnes by the end of 2020

compared to 2 million tonnes in 2019. This might be because of slow demand from

the importing countries due to COVID-19 outbreak and also postponement of B20

biodiesel mandate. For the period January to March Malaysian palm oil export record

decline by 25% to 3.48 million MT compared to the same period 2019. The decline

was mainly contributed by low import from major importing countries such as India,

China and EU. However, other important countries for MPO such as South Korea,

USA, Philippines and Japan showed an increment in their imports. Ii shows that for

the first quarter of 2020, the COVID-19 pandemic issue was yet affected the

plantation companies.Furthermore, production of natural rubber increased 24.7% in

July 2020 to 41,801 tonnes as compared to 33,531 tonnes in the previous month.

Comparison year on year showed a decrease of 30.4% as compared to the same month

in the previous year. Exports of Malaysia’s natural rubber amounted 45,385 tonnes in

July 2020, an increase of 17.8% against 38,587 tonnes in June 2020. People’s

Republic of China remains as the main destination for natural rubber exports, with a

share of 58.9% of total exports in July 2020 followed Germany (6.0%), Finland

(5.1%), Iran (3.9%) and Taiwan (3.0%). Rubber gloves was the main export item with
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export value increasing by 14.0% from RM2.78 billion in June 2020 to RM3.17

billion in July 2020. Total domestic consumption for natural rubber was 46,844

tonnes, increased by 5.8%. Rubber gloves companies dominates the use of natural

rubber with 36,024 tonnes or 76.9% from the total domestic consumption.

3.0 In conclusion, under MFRS 141, 40 listed plantation companies on Bursa

Malaysia are required to disclose their accounting for biological assets in the annual

report. Disclosing the items that are required by the standard is very important for the

companies in order to provide quality annual reports. Thus, the prepares of the annual

reports should be aware of any changes in the accounting standard. Furthermore, the

plantation companies have grown tremendously, contributing significantly to socio-

economic development. However, there are numerous issues and challenges faced by

the sectors, including labour shortage; acreage limitation; import restriction; high

tariff; highly volatile; global commodity prices. Acknowledging the importance of

plantation companies to the economy, the Government has undertaken various

measures to boost production and expand the market for plantation. These include

introducing mechanisation, diversifying export markets, endorsing biodiesel and

complying with international standards. These measures are expected to enhance the

competitiveness of Malaysian plantation globally while ensuring the sustainability of

the companies.
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References

Ghulam Kadir, Ahmad Parveez (2020). OIL PALM ECONOMIC PERFORMANCE IN

MALAYSIA AND R&D PROGRESS IN 2019. Journal of Oil Palm Research.

Kuok Ho, Daniel Tang & Qahtani, Hamas. (2019). Sustainability of oil palm plantations in

Malaysia. Environment, Development and Sustainability.

Ismail, A., Ahmad, S.M., & Sharudin, Z. (2015). Labour Productivity in The Malaysian Oil

Palm Plantation Sector. Oil Palm Industry Economic Journal, 15(2), 1-10.

Kushairi, A., Ong-Abullah, M., Nambiappan, B., Hishamuddin, E., Bidin, M.N.I.Z., Ghazali,

R., Subramaniam, V., Sundram, S, Parveez G.K.A 2019. Oil Palm economic performance in

Malaysia. (Journal of oil palm research)


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Assignment 2

1.0 As a globally integrated plantation company, Sime Darby Plantation which corporate

office located at Main Block, 3, Plantation Tower No.2, Jalan PJU 1A/7 Ara Damansara

47301 Petaling Jaya, Selangor is involved in the full spectrum of the palm oil value chain,

from upstream to downstream activities, R&D, renewables and agribusiness. Sime Darby

Plantation also involved in rubber and sugarcane plantations as well as cattle rearing. The

company’s total land bank approximately 1 million hectares which over 600,000 ha

planted with oil palm, over 11,000 ha planted with rubber, over 5,000 ha planted with

sugar cane and 9,000 ha used as grazing pastures. Sime Darby Plantation is the world’s

largest oil palm plantation company by planted area, accounting for about 4% of total

global production of CPO, with a strong focus on operational excellence, research,

innovation and sustainability. The primary activities involve (Upstream) developing,

cultivating and managing oil palm, rubber and sugarcane plantation estates; Milling of

FFB into CPO and PK, processing and sales of rubber and sugarcane and cattle rearing

and beef production. In upstream, Sime Darby Plantation operate and manage 241

plantation estates and 71 palm oil mills located in Malaysia, Indonesia, PNG and the

Soloman Islands. Activities involve (Downstream) Crushing of PK into CPKO and PKE;

Production and sales of bulk and refined oils and fats (which includes specialty and end-

user oils and fats; Production and sales of nutraceutical products which includes

nutritional supplements such as tocotrienols and animal nutrition products, oleochemicals,

biodiesel products and derivatives. Sime Darby Plantation downstream operation is

present in 16 countries which is Malaysia, Singapore, Indonesia, South Korea, India,


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Thailand, Vietnam, Japan, China, Germany, United Kingdom, South Africa, Netherlands,

United States of America, Papua New Guinea and Solomon Islands. Other activities

including agricultural products and services, production and sales of oil palm seeds and

seedlings, research and breeding programmes of oil palm and rubber with special focus

on genome science and renewables business with a focus on development of green

technology and renewable energy which includes bio-based chemicals, biogas and

composting.

Financial Highlights of Sime Darby Plantation

Financial Year 2016 FY 30Jun 2017 FY 30Jun 2018 FP 31Dec2018 FY 31Dec 2019

Six-month FP
Revenue 11,945,994 14,767,93 14,335,826 6,518,321 12,062.266

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EBITDA 2,394,776 6,073,863 3,872,983 1,213,295 1,611,899
Profit before 1,275,604 4,848,815 2,736,749 614,687 405,886
interest and tax
Profit before tax 855,274 4,424,443 2,577,722 513,175 251,316
Profit after tax 1,019,170 3,945,390 2,086175 367,923 274,885
Perpetual sukuk - 2,724 124,300 62,661 124,300
Non-controlling 35,756 42,087 33,624 5,626 28,952
interest
Operating margin% 10.8 32.9 19.2 9.4 3.4
Return on 10.1 28.2 12.6 3.7 (1.5)
shareholders’
equity%
Debt/Equity% 55.0 51.2 39.8 46.3 48.8
Debt/EBITDA(x) 2.3 1.4 1.8 6.0 4.8
Basic earnings per 14.4 52.2 25.5 3.6 (2.9)
share (sen)
Net asset per share 1.4 1.8 2.0 1.9 1.9
(rm)
Net dividend per 116.7 150.0 17.5 1.7 1.0
share (sen)
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2.0 The evaluation of MFRS1 141 conformity in the Sime Darby Plantation financial

statement for the year ended 2019. Oil palm represents the fresh fruit (“FFB”) of up to 2

weeks prior to harvest for use in the Group’s and the Company’s palm product operations.

During the financial year, the Group and the Company harvested approximately 9,579,000

metric tonnes (“MT”) of FFB (2018: 5,576,000 MT) and 3,610,557 MT of FFB (2018:

1,995,000 MT) respectively. The quantity of unharvested FFB of the Group and of the

Company as at 31 December 2019 included in the fair valuation of FFB was 291,652 MT

(2018: 370,299 MT) and 87,373 MT (2018: 142,976 MT) respectively. The Group and the

Company attribute a fair value on the FFB prior to harvest at each statement of financial

position date as required under MFRS 141 “Agriculture”. FFB are produce of oil palm trees

and are harvested continuously throughout the financial year to be used in the production of

crude palm oil (“CPO”). Each FFB takes approximately 22 weeks from pollination to reach

maximum oil content to be ready for harvesting. The value of each FFB at each point of the

FFB production cycle will vary based on the cumulative oil content in each fruit. In

determining the fair values of FFB, management has considered the oil content of all unripe

FFB from the week after pollination to the week prior to harvest. As the oil content accrues

exponentially in the 2 weeks prior harvest, the FFB prior to 2 weeks before harvesting are

excluded in the valuation as the increase in fair values are considered negligible. The

valuation model adopted by the Group and the Company is a discounted cash flow model

which includes all cash inflows, cash outflows and imputed contributory asset charges where

no actual cash flows associated with the use of assets essential to the agricultural activity are

accounted for. The net present value of cash flows is then determined with reference to the

market value of CPO at the reporting date, adjusted for freight, extraction rates, production,

transportation, contributory asset charges and other cost to sell at the point of harvest.
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Changes to the assumed tonnage included in the valuation will have a direct effect on the

reported valuation. Growing canes represent the standing canes prior to harvest whereby the

values are dependent on the age, sucrose content and condition as at the statement of financial

position date. During the financial year, the Group harvested approximately 165,680 MT

(2018: 184,916 MT) of canes. The estimated quantity of unharvested canes as at 31

December 2019 included in the fair valuation of growing canes of the Group was 258,040

MT (2018: 319,315 MT). The determination of fair value for the Group’s growing canes

requires estimates to be made of the anticipated canes harvest, its age and sugar prices. These

anticipated canes harvest is based on management’s historical records, current planting

statistics and production forecast. Fair value of the harvested canes is based on the accepted

industry benchmark of allocating the fair value of sugar production between the fair value

attributable to the canes grower and the value attributable to the miller. The fair value of the

growing canes at the statement of financial position date is based on the estimated fair value

of the growing canes less further costs to be incurred in growing and harvesting the canes up

to the point of harvest and contributory asset charges. If the estimated harvest volume of

canes increased or decreased by 10% (2018: 6%), fair value changes in growing canes would

have increased or decreased by approximately RM8.3 million (2018: RM2.0 million)

accordingly. Livestock comprise the cattle livestock included within the Group’s beef

production operations. Cattle livestock generally fed for 120 days prior to use for beef

production. During the financial year, the Group produced 1,957,5 tonnes (2018: 982.2

tonnes) of beef. The umber of cattle as at 31 December 2019 included in the fair values of

livestock was 24,625 heads (2018: 23,527 heads). The fair value of livestock is based on the

Group’s assessment of age, average weights and market values of the livestock at the

statement of financial position date. If the average weight per cattle increase or decreases by
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1% (2018: 1%), fair value changes in livestock would have increased or decreased by

approximately RM0.7 million (2018: RM0.5 million) respectively.

3.0 MFRS 141 Agriculture is a short standard that has significant impact on the entities

affected by this standard, and it applies to Sime Darby Plantation that grow or rear biological

assets for profit. The principle of the standard is that the value of such assets increases over

time, and are to be recognised as income as the asset grows and develops, rather than solely

upon harvest or sale. MFRS 141 now requires biological assets and agriculture produce to be

measured at fair value through profit and loss. However, measuring fair value poses

significant challenges due to the inherent risk in using judgement that can be construed as

providing subjective rather than objective financial information. Fundamentally, IAS 41 is a

Standard on accounting for biological transformation. Biological transformation of bearer

assets occurs both prior to maturity and after maturity. A cost model ignores biological

transformation when it occurs. That is why IAS 41 requires fair value measurement. “Those

who support fair value measurement argue that the effects of changes brought about by

biological transformation are best reflected by reference to the fair value changes in

biological assets. They believe that fair value changes in biological assets have a direct

relationship to changes in expectations of future economic benefits to the entity.

Words: 2700

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