TRIMESTER- I, 2016/2017 SESSION

BAC 3634 Corporate Accounting I

Group Assignment

Group members

Name ID

G Leader Lim Ye Yng 1132702569

2 Chin Shu Mei 1132702502

3 Siti Aishah Binti Mohd Yusof 1132702669

4 Srimathi A/P Thangabello 1132702709

5 Goh Kun Quan 1132701683

Table of content
Title Page

Distribution of Work Table 1

Company Background 2-7

Statement of profit or loss 8 - 10

Statement of Financial Position 11 - 14

Statement of Cash Flow 15 - 16

Conclusion 17

References 18
Distribution of Work Table

I am Lim Ye Yng which is the leader of the Corporation Accounting 1s assignment.

My group members consist of total 5 members which are Chin Shu Mei, Siti Aishah Binti
Mohd Yusof, Srimathi A/P Thangabello, Goh Kun Quan and myself. We have working
together as a team and putting effort to complete this assignment.

The objective of the assignment is to enable us as an accounting student to analysis a

company background and their organizational structure. Besides that, this assignment also
help us to more understand the financial statement which prepared by the company and the
MFRS requirement to prepare a financial statement. Thus for the purpose of complete this
assignment, I have distribution this assignment into different part and divide among our
group. I have assign Siti Aishah and Goh Kun Quan to complete the part of introduction and
background of the company. This include describe the group profile of company in detail,
organizational structure and number of layers and comment on organizational complexity.
The company we have chosen for this assignment is Telekom Malaysia Berhad.

Next, I have assign Srimathi to discuss on the group and companys statement of cash
flows. Chin Shu Mei is responsible to discuss on the group and companys statement of
financial position. I, myself is discussing the group and companys statement of profit and
loss. While doing the discussion, we have reviewed the MFRS which stated in the note of
financial statement and other additional MFRS. When all the members have finished their
part of assignment, I have to overview the entire workout which prepared by them and make
a conclusion. During the process of the assignment, we have faced some of the problems such
as the misunderstanding of the financial statement. However, our lecturer of Corporation
Accounting 1, Ramaiyer Subramanian has provided a lot of help and guidance in our
assignment. We appreciate and thankful for the helpful of our lecturer in the assignment.
Besides that, I also feel thankful for the hard work done by all our group members.
Introduction

Ownership Structure

Telekom Malaysia Berhad (TM), is Malaysias no.1 converged communication

services provider. The company is offering a comprehensive range of communications
services and fully integrated business solutions in broadband, fixed line, data, Information
and Communication Technology (ICT) and Business Process Outsourcing (BPO) services.

Telekom Malaysia Berhad or TM was established as the Telecommunications

Department of Malaya in 1946, TM has been continuously developing and improving the
countrys telecommunications infrastructure over the years. Until 2015, TM have acquires a
number of companies locally and internationally. TM has acquired over 50 subsidiaries
companies with more than 50% interest in each of the company. 80% of the subsidiaries that
TM acquired, they have 100% interest in the companies. For example, Menara Kuala Lumpur
Sdn. Bhd. which TM have RM 10 million paid-up capital. Besides that, with RM 650 million
paid up capital, TM also have 100% interest in Universiti Telekom Sdn. Bhd.

The remaining 20% of the subsidiaries, TM have 50% to 55.3% interest in the
companies. As an example, TM has 55.3% interest in Millercom Sdn, Bhd with RM 300,000
paid-up capital. On the other hand, TM has a lesser interest of 51% in Inneonusa Sdn. Bhd.
with paid-up capital of RM 15 million.

Major Shareholders

The major shareholder of Telekom Malaysia Sdn. Bhd. is the Khazanah Nasioanal
Berhad (Khazanah) with 28.65% equity interest and is a related party to the Group and the
Company. Khazanah is owned by the Ministry of Finance and a wholly-owned entity of the
MoF Inc. Ministry of Finance is a ministry of Federal Government of Malaysia. Therefore,
the Malaysian Government and bodies controlled and jointly controlled by the Government
of Malaysia are also related parties to the Group and the Company.

Board of Directors
 Telekom Malaysia Sdn Bhd. continues to be led and controlled by an active, engaged
and experienced Board. The Board comprises a healthy mix of Directors with varying
backgrounds encompassing economics, finance, technology and regulatory from both private
and public sectors, along with experiences in the telecommunications industry both locally
and abroad. Two of the Directors are experienced in the local and foreign
telecommunications industry from the perspectives of consultant and regulators.

Board of Directors of Telekom Malaysia Sdn. Bhd. consists of a number of fourteen

directors. Five of them are Non-Independent Non-Executive Directors, seven are the
Independent Non-Executive Directors and two of them are Non-Independent Executive
Directors. The directors are responsible to prepare the companys financial statement and also
the annual report.

The roles and responsibilities of the Board and Management are clearly described in
the Board Charter. Although the respective principles, roles and responsibilities of the
Chairman, Executive Directors (EDs) and Non-Executive Directors (NEDs) are
differentiated, their functions are mutually co-dependent, ensuring efficient and effective
execution of their duties and responsibilities.

The two Non-Independent Non-Executive Directors (NINED) representing the

interest of the Special and Major Shareholders have also appointed their respective alternate
Directors on the Board. Seven of Independent Executive Directors (INED) forms a majority
on the Board of 12 directors, assuring effective checks and balances in its functions.
Organisational Structure and Complexity
Based on the TMs organisation structures, there are board of directors members, internal
auditor members and the management team members. The board of directors (BoD) consists
of 14 members, which are

1. Chairman Tan Sri Dato Seri Dr Sulaiman Mahbob (Non-Independent Non-Executive

Director),

2. Managing Director/ Group Chief Executive Tan Sri Dato Sri Zamzamzairani Mohd
Isa (Officer Non-Independent Executive Director),

3. Executive Director/ Group Chief Financial Officer Datuk Bazlan Osman (Non-
Independent Executive Director),

4. Dato Sri Dr Mohmad Isa Hussain (Non-Independent Non-Executive Director),

5. Tunku Dato Mahmood Fawzy Tunku Muhiyiddin (Non-Independent Non-Executive

Director),

6. Dato Danapalan T.P Vinggrasalam (Senior Independent Non-Executive Director),

7. Datuk Zalekha Hassan (Independent Non-Executive Director),

8. Dato Ir Abdul Rahim Abu Bakar (Independent Non-Executive Director),

9. Dato Ibrahim Marsidi (Independent Non-Executive Director),

10. Davide Giacomo Federico Benello @ David Benello (Independent Non-Executive

Director),

11. Datuk Seri Fateh Iskandar Tan Sri Dato Mohamed Mansor (Independent Non-
Executive Director),

12. Gee Siew Yoong (Independent Non-Executive Director),

13. Asri Hamidin @ Hamidon (Non-Independent Non-Executive Alternate Director),

14. Nik Rizal Kamil Tan Sri Nik Ibrahim Kamil (Non-Independent Non-Executive
Alternate Director).

TM consist 20 varies team department and subordinates, which are

1. Datuk Bazlan Osman (Executive Director/Group Chief Financial Officer)

2. Dr Farid Mohamed Sani (Chief Strategy Officer)

3. Giorgio Migliarina (Chief Techonology and Innovation Officer/Chairman Managed

Accounts)

4. Dato Mohd Khalis Abdul Rahim (Chief Human Capital Officer)

5. Idrus Ismail (Chief Legal, Compliance and Company Secretary)

6. Idrus Ismail Mohamad Mohamad Zain (Chief Procurement Officer)

7. Dato Rafaai Samsi (Chief Customer Experience/ Deputy Chief Technology and
Innovation Officer)

8. Ahmad Ismail (Chief Corporate and Regulatory Officer)

9. Hazimi Kassim (Chief Internal Auditor)

10. Ahmad Azhar Yahya (Chief Advocate Officer)

11. Dato Ghazali Omar (Group Special Advisor, Transformation Programme)

12. Imri Mokhtar (Executive Vice President, Consumer and SME)

13. Dato Kairul Annuar Mohamed Zamzam (Executive Vice President, Government)

14. Wan Ahmad Kamal Wan Halim (Executive Vice President, Enterprise)

15. Mohamad Rozaimy Abd Rahman (Executive Vice President, Global and Wholesale)

16. Jeremy Kung Eng Chuang (Executive Vice President, New Media/CEO TM Net Sdn
Bhd)

17. Datuk Zaini Maatan (Vice President, Support Business)

18. Izlyn Ramli (Vice President, Group Brand and Communication)

19. Puan Chan Cheong (CEO, Packet One Networks (Malaysia) Sdn Bhd)

20. Massimo Migliuolo (CEO, VADS Berhad)

Based on the view of organization structure, TM is applying the tall organizations

structures, which shows more layers compared to other company. The TM will have a long
chain of command and a narrow span of managerial control. This means that subordinates
submit their report or work directly to the manager and the manger report to officer.

TM is the larger internet service company in Malaysia, and involving in different

service area. Therefore, this will definitely increase the complexity of organization. But, TM
has reduced the complexity of organization by ensure that every people or employees inside
the TM will be properly assign with their position, duties, work and can report the problem to
their superior.

TM is one of the listed companies in Bursa Malaysia. Thus, it is important for the
company to list out the subsidiary of the company. MFRS 3 Business Combinations outlines
the accounting when an acquirer obtains control of one or more business. Such business
combinations are accounted for using the 'acquisition method', which generally requires
assets acquired and liabilities assumed to be measured at their fair values at the acquisition
date.

In the annual report of year 2015, TM has report the two business combination events
completed during the previous financial year. First at all, the TM acquired the Packet One
Networks (Malaysia) Sdn Bhd (P1). In the event, the wholly-owned subsidiary of TM,
Mobikom Sdn Bhd (Mobikom) had entered into a conditional investment agreement with
SKT and Green Packet. The TM has detailed out in the annual report that the discussion of
number of shares acquired, purchase price, call / put option and further requirement or
condition that required between TM and P1. Lastly, the TM stated the consideration paid for
P1 and the amount of identifiable assets acquired and liabilities which based on the fair value
at the acquisition date which clearly stated in note (5)(a). MFRS 3 Business Combination also
enables the company to recognize and measure the goodwill acquired in the business
combination or a gain from bargain purchase. Note (5)(a) shows the amount of RM 52.1 mil
from the business combination with P1 Sdn Bhd on the date of acquisition. Goodwill will be
recorded in the financial statement of financial position as intangible asset which stated in
note (24). Non-controlling interest should also be calculated as TM not acquires P1 Sdn Bhd
at 100 %.

Second, the TM acquired GTC Global Sdn Bhd. On 27 November 2013, the TM
entered into a conditional Share Sale Agreement (SSA) with Gapurna Global Solutions Sdn
Bhd (GGS) to acquire the entire equity interest held by GGS in GTC (Sale Shares) for a total
consideration of RM45.0 million to be satisfied by way of cash (Acquisition). Note (5)(b)
shows the consideration paid and fair value of assets acquired and liabilities assumed at the
date of acquisition. However, non-controlling interest is excluded due to 100 % wholly-
owned subsidiary. Negative goodwill which calculated from the business combination with
GTC Global Sdn Bhd should be credit to consolidated income statement as income based on
MFRS 3.
Analysis of Statement of Comprehensive Income

Based on MFRS 101 Presentation of Financial Statements, a company is required to

present a financial statement for that particular year and previous year. The purpose of
prepare financial statement of a company is to ensure comparability with the companys
financial statement of previous periods and also comparability with the financial statement of
other company. Thus, MFRS 101 set up some overall requirement, guidelines and minimum
requirement for their contents when prepare the financial statement. The complete financial
statement of the company based on the MFRS 101 include the statement of financial position
at the end of the period, statement of profit and loss for the period, statement of change in
equity, statement of cash flow for that period and notes which comprising a summary of
significant accounting policy or other explanatory notes. Now, we will here to analysis the
statement of comprehensive income of the company, Telekom Malaysia Berhad (TM).

TM has prepared the consolidated financial which include his company and
subsidiary based on the rule of MFRS 10 Consolidated Financial Statement. MFRS 10
provide principle for the presentation and preparation of consolidated financial statement
when a company controls one or more other companies. In the note (1), the principal
activities of Telekom Malaysia Berhad which include establishment, maintenance and
provision of telecommunications and related services. Thus all profit which earned from the
principal activities is included in the company operating revenue such as voice services,
internet and multimedia services and so on which clearly stated in the note (6). However,
non-telecommunications related service is not part of the company operating revenue due to
it is not part of the principal activities of TM. But it can include in group operating revenue as
it combines both parent and subsidiaries company revenue. Based on MFRS 118 Revenue,
revenue can only be recognized when it is probable that future economic benefit will flow to
the company and the benefit can be measured reliably. Besides that, MFRS 118 also
classified 3 types of the revenue which include sales of the good, rendering of service and
interest, royalties and dividends. However, operating revenue only can record when the
revenue is under the main principal activities of the company.

In the income statement of the TM, the operating cost is calculated to reduce against
the operating revenue which stated in note (7) (a) and (b). In the note (7) (a), depreciation,
impairment and amortization is included in the operating cost. Based on MFRS 116 Property,
Plant and Equipment, the each part of the item of property, plant and equipment (PPE) with a
cost that is significant in relation to the total cost of the item should be depreciated separately.
The depreciation amount should be reduced under the operating cost to maintain the carry
amount of the PPE. This application also applied to MFRS 140 Investment Property.
However, in the group financial statement, the depreciation of the investment property show
0 amount which due to the intra-company transaction. The investment property of the
company comprise of an office which rented and occupied by a wholly-owned subsidiary.
The details can be show in note (23). Based on MFRS 10 of the accounting requirement, all
the intra-group assets and liabilities, equity, income, expenses and cash flow are eliminated in
full.
 Other that depreciation of the asset, impairment of asset should be included in the
operating costs. Based on MFRS 136 Impairment of Assets, impairment of asset includes
PPE, intangible asset which covered under MFRS 138 Intangible Assets and goodwill. The
purpose of impairment is to enable the amount disclosed in the financial statement represent
the economic benefit which will flow to the company. The impairment of asset of Telekom
Malaysia Berhad is stated in the note (7) (a), (22) (c) and (32) (a). There is no impairment of
goodwill in the year 2015 for TM. In the note (7) (b), other operating cost include all the
expense or cost which incurred when earning the operating revenue such as agency
commissions and charges, domestic interconnect and international out payment, staff costs
and so on. For the purpose of group operating cost which required under MFRS 10, all the
operating cost of parent and subsidiary are combined line by line together. However, for the
impairment / reversal of impairment for investment in subsidiaries should be adjusted when
group of operating cost is calculated due to the intra-group transactions. Based on MFRS 118
Revenue, revenue can be classified to many types. However, company only recognizes
revenue which incur in their principal activities in the operating revenue. Thus, other revenue
is recorded as other operating income which will be added in the income statement later. The
other operating income of TM is listed in note (8) such as dividend income from subsidiaries
and equity securities, income from sales of scraps and subsidiaries, rental income, profit on
disposal of assets and so on. However, intra-company transaction should be eliminated when
in preparing other operating income of group. In the note (8), dividend income from
subsidiaries, income from subsidiaries ( interest and others ) and rental income from vehicle
should be adjusted. Addition on, in the note (9), it displays details about the other losses or
gain of the company. For example, adjustment of fair value movement of the assets and so
on.

Based on MFRS 101 Presentation of Financial Statements, the finance cost should be
calculated and minus against operating profit to get the amount of profit before tax. To
calculate net finance cost, it should include the finance income, finance cost and foreign
exchange loss on borrowing from domestic, foreign and also Islamic principles. Note (10)
show all the detail of calculation of net finance cost of company and group. Based on MFRS
128 Investments in Associates and Joint Ventures, associate can be defined as an entity over
which the investor has significant influence. For the purpose of consolidated financial
statement, Telekom Malaysian Berhad uses the equity method to account the investment in
associate. Equity method is the method of accounting whereby the investment is initially
recognized at cost and adjusted thereafter for the post-acquisition change in investors share
of net assets of an investee. The profile or loss of the investor should include the share of the
profit or loss of the investee and other comprehensive income of the investor include its share
of other comprehensive income of the investee. As shown in the income statement of TM, the
company as it does not recognized the amount of the revenue and profit of associate in their
company. However, when prepare the groups share of revenue and profit of associate, the
amount of RM 24.7 million is recognized as shown in the note (27).

Based on MFRS 112 Income Taxes, profile and loss or other comprehensive income
of a company should be tax based on taxation rate of the particular country. Note (11) show
the tax rate which is 25.0% is applied on the profile before taxation and zakat in Malaysia.
Besides that, note (11) also show adjustment of the deferred tax as deferred tax liability is an
account which show difference between company accounting and tax carry value, the
anticipated and enacted income tax rate and estimated taxes payable for the current year. The
remaining profile is divided among shareholder of the company and non-controlling interest
based on MFRS 10. This is due to non-controlling interest is the portion of equity ownership
in a subsidiary not attribute to the parent company, who has a controlling interest and
consolidates the subsidiarys financial result with its own. The profile is attributing based on
the investment of the company to the subsidiary. Earnings per share (EPS) are important for
any company especially listed company. This is because EPS able to provide a measure of the
interests of each ordinary share of company in term of performance and control. Based on
MFRS 133 Earnings per Share, a company is required to calculate EPS for profit and loss
attribute to ordinary equity holders of the company. The formula of EPS is profit attribute to
equity holders of the company divide by weighted average number of ordinary shares which
stated clearly in note (12).

The difference between income statement and comprehensive income which is

comprehensive income is the sum of the net income from income statement and other item
that must bypass the income statement as they have not been realized such as unrealized gain
on available for sales of investment. In the statement of comprehensive income of Telekom
Malaysia Berhad, the profit for the financial year need to make adjustment for the purpose of
calculate comprehensive income for the particular year. The total comprehensive income
should also allocated among equity holder and non-controlling interest.
Analysis of Statement of Financial Position

Statement of financial position is a financial statement that presents the assets,

liabilities and equity of an entity on a specific period while consolidated financial statement is
a combination of financial statement of a parent company and its subsidiaries. The
consolidated financial statement helps users to evaluate the overall health of an entire group
of companies compared to a companys individual position as a consolidated financial
statement presents the group financial statement and the parent company financial statement
side by side. Based on MFRS 10 Consolidated Financial Statement and MFRS 127
Consolidated and Separate Financial Statement, a parent company is required to prepare a
consolidated statement of financial statement. MFRS 101 Presentation of financial statement
also requires the financial statement to be presented with comparative information of the
previous year in order for the financial statement users to evaluate and compare the
companys current performance with past performance. Telekom Malaysia Berhad has
prepared the consolidated financial statement in accordance to MFRS 10 and MFRS 127
MFRS 101 as it is a parent company of subsidiaries such as Multimedia University, Packet
One Networks, GTC Global Sdn Bhd, Yayasan Telekom Malaysia and etc.

The main components of consolidated financial statement of Telekom Malaysia

Berhad are asset, liabilities and equity. Assets are the properties of an entity that can be used
to produce goods or provide services and generate revenue. TM divided its assets into current
asset and non-current asset. Property, plant and equipment are one of the non-current assets
of Telekom Malaysia Berhad. Telekom Malaysia Berhad had capitalized the borrowing costs
of RM37.1 million which is directly attributable to the construction of qualifying assets as
part of the asset. This is in accordance to MFRS 123 Borrowing Cost which allows the
borrowing costs to be written off as expenses or capitalized as part of the assets. It was stated
that the property, plant and equipment should be measured at cost based on MFRS 116.
Telekom Malaysia Berhad has included lands as part of the property, plant and equipment.
However, there is no depreciation has made as lands have indefinite life. The calculation of
the cost of property, plant and equipment is carrying value less any accumulated depreciation
and any impairment loss. There are two types of depreciation methods that often used in
practice: straight line method and accelerated method. TM used straight line depreciation
method to calculate the value of depreciation of property, plant and equipment. Straight line
depreciation method distributes the depreciation amount of an asset equally over its useful
life. The company performed annual review to evaluate the useful life of its property, plant
and equipment. The useful life of each assets is clearly show in note (2)(d)(ii). The company
has compliance with MFRS 116 property, plant and equipment as it has mentioned that The
residual value and the useful life of an asset shall be reviewed at least at each financial year-
end and, if expectations differ from previous estimates, the change(s) shall be accounted for
as a change in an accounting estimate in accordance with MFRS 108 Accounting Policies,
Changes in Accounting Estimates and Errors. The useful lives of certain network equipment
and computer supporting system have been extended. The change in estimate result a lower
depreciation charge of RM19.9 million for the current financial year. Besides that, Telekom
Malaysia Berhad does not depreciate capital work-in-progress because MFRS 116 property,
plant and equipment has stated that the depreciation of a depreciable asset to begin when the
asset is ready to use. Since the capital work-in-progress is not ready to use, hence Telekom
Malaysia Berhad does not depreciate it. The company of TM has disposed RM4.0 million of
movable plant and equipment, RM0.4 million of it is disposed to a subsidiary. Other than
that, the group has transferred of RM0.4 million of land and RM1.3 million of building to
non-current asset held for sale. It means that the carrying amount of these land and building
will be recovered through sale transaction. MFRS 5 Non-current asset held for sale and
discontinued operations provides that a non-current asset classified as held for sale should
be presented separately from other assets in the statement of financial position. The
information about non-current asset held for sale can be found in the note (32) to the financial
statement and on the face of consolidated financial statement. TM has followed the standard
of MFRS 5 in presenting non-current assets held for sale separately from other assets on the
face of statement of financial position.

Intangible asset is an asset that does not physically exist. According to MFRS 138
intangible asset, intangible asset is identifiable when it is separable from the entity or arises
from contractual or other legal right, regardless of whether those rights are transferable or
separable from the entity or from other rights and obligations. TM has four categories of
intangible assets: goodwill, customer base, telecommunication spectrum and other intangibles
comprise of the fair value of acquired development expenditure incurred in the design,
development and testing products as well as software and programme rights of subsidiaries.
This information can be found in the note (24) and note (2)(f) to the financial statement.
Intangible asset can be classified into finite and indefinite. TM did not amortize
telecommunication spectrum which has indefinite life but TM will carry out the impairment
review for telecommunication spectrum on annual basis to see if there is an indication for the
asset to be impaired. However, TM Bhd has amortized the customer base and other intangible
on straight line basis over the period of the expected benefit as customer base and other
intangible assets have finite lives. This shows that Telekom Malaysia Bhd has compliance
with MFRS 138 intangible asset as it states that intangible assets with indefinite useful lives
should not be amortized however intangible assets with finite useful life should be amortized
over its useful life. Other than that, TM undertakes annual test for impairment of goodwills
cash generating unit. Besides that, TM Berhad did not recognize the impairment loss of
goodwill as the recoverable amount of cash generating unit exceeds the carrying amount of
the unit according to the MFRS 136 as MFRS 136 provides that, the unit and the goodwill
allocated should not be impaired if the recoverable amount of a cash generating unit of
goodwill exceeds the carrying amount of the unit in an impairment test.

Liabilities are debt obligation that an entity has a loan from to other companies,
institutions and individuals. TM has divided its liabilities into current liabilities and non-
current liabilities. The biggest liability of TM is from borrowings. The group has borrowed
RM7,175.4 million of long term borrowing and RM408.3 million of short term borrowing.
Telekom Malaysia Berhad has disclosed the information of borrowings in note (17) to the
financial statement. We can see that the group and the company borrowed the fund from
domestic and foreign secured and unsecured financial instrument. In addition, the company
has issued TM Islamic Stapled Income Securities (TM ISIS) through itself and its subsidiary,
Hijrah Pertama Berhad. The TM ISIS is classified as debt instrument and hence it is recorded
as liability. The TM ISIS consists of Class C and Class D of non-convertible redeemable
preference shares. These non-convertible redeemable preference shares will not be converted
to ordinary shares and therefore there will be no voting right for the non-convertible
redeemable preference shares holders. Besides that, in the note (20) to the financial statement,
TM Berhad has disclosed the deferred tax information about the deferred tax asset and
deferred tax liability. Based on MFRS 112 Income taxes, deferred tax arises in Telekom
Malaysia Berhad because of the acquisition cost of business combination of Packet One
Networks Sdn Bhd and GTC Global Sdn Bhd is allocated to the identifiable assets and
liabilities acquired by reference to the fair value but there is no fair value adjustment has been
made for the tax purpose. The total deferred tax assets is RM11.5 million and the total
deferred tax liabilities is RM1367.6 million. The total deferred tax is the offset between total
deferred tax assets and total deferred tax liabilities which is RM 1,356.1 million. Other than
that, TM has made fair value adjustment upon the acquisition of Packet One Networks
(Malaysia) Sdn Bhd (P1) in note (20) to the financial position. This is because TM needs to
replace the cost of investment with the fair value of the assets and liabilities of the subsidiary.
Besides that, there is a currency translation difference in the note (20) to financial statement.
This is because TM Bhd has foreign subsidiaries and associates in foreign country such as
Singapore, Hong Kong and USA. According to MFRS 121 The effects of changes in foreign
exchange rates, Telekom Malaysia Bhd need to do translation of financial statement as the
presentation currency of the subsidiaries and associated companies are not the same as that of
the Telekom Malaysia Bhd used, which is Ringgit Malaysia for the purpose of presentation of
the consolidated financial statement.

Other than that, the group has eliminated the intragroup transactions and balance
between the company and its subsidiaries in consolidating the financial statement in
accordance to MFRS 127 Consolidated and Separate Financial Statement. We can see from
financial statement and note (34) and (37) to the financial statement, the company recognized
the year end balances of receivables from subsidiaries and payables to subsidiaries but the
group did not record the year end balances of receivables from subsidiaries and payables to
subsidiaries. In addition, the company gave loans and advance to subsidiaries of RM914.3
million which shows in the note (26) to financial statement. Since the company and the
subsidiaries are treated as one entity in the consolidated statement, we can see that the group
did not record the loan and advances to subsidiaries in the consolidated statement of financial
position. However, the group has not eliminated the inter-company account balances from the
transactions between company and its associate. We can see from the note (34) the group has
recognized the year end balances of receivables of RM1.0 million from associates. Telekom
Malaysia Bhd has followed the rule of MFRS 128 Investment in Associate which states that
the inter-company account balances from transactions between parent and associate are not
eliminated.

Equity is made up of the ownership of an entity. Telekom Malaysia Berhads equity is

categorized into share capital, share premium, retained earnings, other reserves and non-
controlling interest. TM Bhds authorized share capital consist ordinary shares, special right
redeemable preference shares and non-convertible redeemable preferences shares. From notes
(14), we can see that TM Berhad has issued ordinary shares and has been fully paid up to
RM0.70 each under dividend reinvestment scheme. Dividend reinvestment scheme provides
shareholders of the company to reinvest on whole or in part the portion of dividend at issue
price of RM0.70 each for new company shares. In addition, the non-convertible redeemable
preference shares issued which are class C and class D of non-convertible redeemable
preference shares have been classified as liabilities. Other than that, other reserves of TM
consists of fair value reserves, hedging reserve, capital redemption reserve and currency
transaction differences arising from translation of subsidiaries and associate. On the other
hand, TM consists of non-controlling interest as it has only acquired portion of equity
ownership in subsidiaries. Non-controlling interest is the portion of equity ownership in
subsidiaries that is not belongs to TM Berhad. For example, Telekom Malaysia Berhad only
acquired 55.3% of ordinary shares of Packet One (L) Ltd, another 44.7% of ordinary shares
of Packet One (L) Ltd is belong to outside shareholders which are referred to non-controlling
shareholders and their interests in Packet One (L) Ltds net assets and operating results is
referred to as non-controlling interest. Telekom Malaysia Berhad stated in note 2 (b) that it
used two types of non-controlling interest measurement method: fair value or fair value of the
net identifiable assets of the subsidiary to calculate the non-controlling interest which is in
accordance to MFRS 3 business combination. In addition, TM Berhad has divided any post-
acquisition gain or loss in the subsidiaries according to the proportion of parent and non-
controlling interest which they share profits and losses.
Analysis of Statement of Cash Flow

MFRS 107 Statement of Cash Flow states that the statement of cash flows provides
information as to the inflow and outflow of cash and cash equivalents from operating,
investing and financing activities during the period. Malaysia Accounting Standards Board
(MASB) requires all entities to present the statement of cash flows as an integral part of their
financial statements. To briefly describe statement of cash flows starting off with cash, cash
comprises cash on hand and demand deposits. For the operating activities, it is the principal
revenue-producing activities of the entity and other activities that are not investing or
financing activities. Next, investing activities is the acquisition and disposal of long-term
assets and other investments not included in cash equivalent. Financing activities are
activities that result in changes in size and composition of the contributed equity and
borrowings of the entity.

TM has prepared its statement of cash flows in accordance to MFRS 107. As

disclosed in note (2), for the purpose of the statement of cash flows, cash and cash
equivalents comprise cash on hand, deposits held at call with bank, other short term, highly
liquid investments with original maturities of 3 months or less. Deposits held as pledged
securities for term loans granted are not included as cash and cash equivalents. This fulfils the
definition of cash equivalents in MFRS 107 where cash equivalents are short-term, highly
liquid investments that can readily be converted into cash and are held for meeting short-term
commitments. They have short-term maturity of three months or less from the date of
acquisition. Moreover, investment in equity shares does not qualify as cash equivalents but
the overdrafts that are payable on demand are cash equivalents.

The cash and cash equivalents at the end of the financial year for group is RM3,
510.80 and for the company is RM2, 580. As disclosed in note (36), the cash and cash
balance comprise of deposits with other financial institutions with sovereign equivalent
ratings. These deposits have maturities ranging from overnight to 90 days for the group and
company. For the bank balances, deposits are held at call with banks. The statement also
disclosed here the currency exposure profile of cash and bank balances. Telekom Malaysia
Berhad had transactions involving Malaysia Ringgit, United States Dollar and other
currencies. MFRS 107 requires transactions in foreign currency to be recorded in the entitys
functional currency by applying the exchange rate between the functional currency and the
foreign currency ruling at the date of cash flow. Thus, the effect of exchange rate changes on
cash and cash equivalents held or due in a foreign currency is reported in the statement of
cash flows in order to reconcile cash and cash equivalents at the beginning and end of the
period.

Cash flow from operating activities indicates the extent to which cash flows from
operations of the entity and are used to pay dividends and for investments activities. In
accordance to MFRS 107, there are two methods of presenting the cash flows from operating
activities. TM used direct method because the entity disclosed in the notes a statement
reconciling the cash flows from operations to the net profit for the period. Note (39) shows
the supplementary statement of reconciling cash flow from operating activities which consist
of receipts from customers, payments to suppliers and employees, finance cost, income taxes
and zakat.

Telekom Malaysia Berhad presented the consolidated statement of cash flow where
the cash flows between these investees and the group will be confined to the actual cash flow
that is cash received or cash paid. As mention early, investing activities is the acquisition and
disposal of long-term assets and other investments not included in cash equivalent. Note (40)
shows the types of investing activities which incur by TM company and the amount of cash
incur. For example, the dividends received in TM are disclosed under investing activities.
The amount of dividend received in 2015 for group is RM 7,100. Cash from investing
activities presents mainly the acquisition and disposal of non-current assets and investments
that are not considered to be cash equivalents. Besides that, intra-group transaction should be
eliminated even in the statement of cash flow such as subscription of shares in a subsidiary,
disposal of financial assets at FV through profit and loss and so on which stated in note (40).

Activity that involves the increase and decrease of contributed equity and borrowings
are recorded in financing activities. For example, payment of capital portion on the finance
lease liability, cash received or cash paid on issue of shares or share buy-back. In the
consolidated statement of cash flows reported by TM Berhad, the dividends paid to the non-
controlling interest and shareholders are disclosed as cash outflow of financing activities
because they are the cost of obtaining finance by issuing shares. Note (41) disclose the
changes in share capital and long-term borrowings. For example, proceeds from issuance of
shares, capital contribution by non-controlling interest and so on.
Conclusion

While doing this assignment, we able to understand TM Company in term of

organizational structure, background and so on. Besides that, when discussing on the
financial statement, we apply some of the MFRS to analysis the financial statement. Example
of MFRS which applied are MRFS 3 Business Combination, MFRS 13 Fair Value
Measurement, MFRS 116 Property, Plant and Equipment, MFRS 140 Investment Property,
MFRS 10 Consolidated Financial Statements, MFRS 101 Presentation of Financial
Statements, MFRS 107 Statement of Cash Flows, MFRS Income Taxes, MRFS 118 Revenue,
MFRS 123 Borrowing Costs, MFRS 133 Earnings per Share and MFRS 138 Intangible
Assets and so on.

In the process of preparing financial statement, some company face problems in term
of budget. This is due to preparing financial statement need time and resources to complete it,
especially company which is listed company in Bursa Malaysia. The company needs to
comply with MFRS rule and also need additional audit report which incur higher cost.
Moreover, the purpose of financial statement is to reveal how much a company earns in the
entire year. But the sales may fluctuate and financial planners should able to identify a pattern
over years of sales figure.

However, preparing financial statement can be benefit to the company, public and
government regulatory. This is because financial statement able helps the company to
analysis the performance and value of company compared to previous year and other
companys performance. The company also able to understand and run their business with
more accurate and timely information provided. Besides that, financial statement is useful to
public as public able to more easily understand the companys performance and make
decision whether the company can be invested or not. Moreover, government regulatory uses
companys financial statement for various purposes especially for the tax payment. Due to
this benefit, the company is required to prepare a financial statement based on MFRS rule.
Reference
Accounting Simplified.com . (n.d.). Retrieved Sept 15, 2016, from Statement of Financial Position :
http://accounting-simplified.com/financial/statements/statement-of-financial-position.html

Lazar, J. (2014). Financial Reporting Standards for Malaysia. Malaysia : McGraw-Hill Malaysia.

Malaysian Accounting Standrads Board ( MASB) . (n.d.). Retrieved Sept 12, 2016, from Malaysian
Financial Reporting Standards ( MFRSs): http://www.masb.org.my/pages.php?id=89