Question 1-Corporate Governance, Recognition, Measurement,

Presentation and Disclosure of MFRSs

1) History of the Company

In the year 1908, Dr. Kikunae Ikeda from the University of Tokyo discovered the
Umami. He isolated glutamate from the seaweed and discovered it’s flavour enhancing
properties. The following year, this discovery was introduced to the market in the form of the
flavour enhancer AJI-NO-MOTO meaning the Essence of taste. In scientific terms, it is
Monosodium Glutamate, or MSG in short.

Ajinomoto (Malaysia) Berhad was introduced in 1961. It started its operations as AJI-
NO-MOTO monosodium glutamate producer. It is also one of the very first Japanese joint-
venture companies to be set up in this country. Since then, Ajinomoto (Malaysia) Berhad has
been a household item in almost every Malaysian home. It has also grown into a dynamic food
seasoning manufacturer marketing diverse brand name that is trusted by Malaysian for decades.

The company’s slogan which is "Eat Well, Live Well" is an ideal that has been
scientifically proven. In the year 2000, researchers at the University of Miami reported the
presence of umami receptors on the tongue, and in 2006 Ajinomoto's Institute of Life Sciences
discovered that such receptors were also present in the stomach. This shows the importance of
glutamate not only to our sense of taste but also in the nutritional and physiological sense

Ajinomoto (Malaysia) Berhad has their own mission and vision. The mission is to
contribute to the world’s food and wellness and to better lives for the future. Their vision is to
become the genuine global food company group with specialities guided by their leading edge
bioscience and fine chemical technologies. The table below is their philosophy.
The objectives of this company are:

 Contribute to the future progress of humanity and the Earth.

 Process our own industry-leading technologies and business domains.
 Assemble a group of diverse, globally capable talent.
 Achieve the business and profit scale of a global company.
 Meet global efficiency standards to generate profit.
2. Corporate Governance of the Company

Board Organization and Structure

Figure 1 below shows the organization chart of Ajinomoto Malaysia Berhad

(AMB):
Role of the Board

The Board of Directors of the company recognizes the importance of maintaining high
standards of corporate governance within the company as this would serve to protect
shareholders’ value while at the same time preserving the interest of the company’s
other stakeholders. The Board has establish clear roles and responsibilities to sustain
the desired performance.

1.1 Establish clear functions reserved for the Board and those delegated to
management
1.2 Establish clear roles and responsibilities in discharging the Board’s fiduciary
and leadership functions
 Review and adopt a strategic plan for the Company
 Oversee the conduct of the Company’s business
 Identify principal risks and ensure implementation of appropriate internal
controls and mitigation measures
 Succession planning
 Oversee development and implementation of a shareholder communications
policy for the Company
 Review adequacy and integrity of the management information and internal
controls system of the Company

1.3 Formalise ethical standards through a code of conduct and ensure its
compliance
 Code of Conduct
 Whistleblowing Policy

1.4 Ensure that the Company’s strategies promote sustainability

1.5 Have procedures to allow Board members access to information and advice
1.6 Ensure the Board is supported by suitably qualified and competent company
secretaries
1.7 Formalise, periodically review and make public the Board Charter
 Board Composition

Figure 3 and Figure 4 depict the distribution of employees by gender and age group,
respectively. Figure 3 reveals that male employees were higher by 30% compared to female
employees, while Figure 4 shows the distribution for employees under 30 years old and more
than 50 years old to be 27.4%, 62.9% and 9.7% respectively.

Figure 5 portrays the distribution of male employees across three employment levels:

 Management
 Executive
 Non-executive

Figure 6 shows the distribution of female employees across the same three employment levels
Figure 7 displays the percentage distribution of AMB’s foreign workers. The total number of
foreign workers for 2016 was 122. Of these Bangladeshi and Indonesian foreign workers
constituted 79.5%.

Board Meetings

AMB has invested in developing individual talents within the organisation into powerful
leaders, capable of handling different challenges. The training programmes, both internal and
external focus on employees’ leadership competencies, functional competencies, personal
effectiveness and building team spirit. The different training programmes are:

 5s Training to enhance workplace efficiency

 ‘See-Think-Plan-Do’ Tool Training for problem solving
 Analytical Skills Training
 Team Building Training
 Positive Work Attitude Training
 Quality Management System Training
 Quality Control Tool Training
 Supervisory Skills Training
 Division of work for the Board
This Sustainability Reporting Working Committee at AMB involves designing the
company’s business improvement plan and strategy and setting guidelines for the company.
The main work of the committee constitutes determining the Economic, Environment and
Social (EES) risks and opportunities within the eco-system of the organization.
Board Committees and CEO
3.

MFRS 5: Non-Current Asset Held For Sale

1)
From paragraph 1

The objective of this MFRS is to specify the accounting for assets held for

sale, and the presentation and disclosure of discontinued operations. In

particular, the MFRS requires:

(a) assets that meet the criteria to be classified as held for sale to be

measured at the lower of carrying amount and fair value less costs to

sell, and depreciation on such assets to cease

Financial assets are classified as financial assets at fair value through profit or loss if they are
held for trading or are designated as such upon initial recognition. Financial assets held for
trading are derivatives (including separated embedded derivatives) or financial assets acquired
principally for the purpose of selling in the near term. [Note2.3 (d)(i)]

2)
From paragraph 37

Any gain or loss on the remeasurement of a non-current asset (or disposal

group) classified as held for sale that does not meet the definition of a
discontinued operation shall be included in profit or loss from continuing
operations.

Subsequent to initial recognition, financial assets at fair value through profit or loss are
measured at fair value. Any gains or losses arising from changes in fair value are recognised in
profit or loss. Net gains or net losses on financial assets at fair value through profit or loss do
not include exchange differences, interest and dividend income. Exchange differences, interest
and dividend income on financial assets at fair value through profit or loss are recognised
separately in profit or loss as part of other losses or other income. [Note2.3 (d)(i)]
MFRS 101: Presentation Of Financial Statements
1)
From paragraph 138

An entity shall disclose the following, if not disclosed elsewhere in

information published with the financial statements:

(a) the domicile and legal form of the entity, its country of
incorporation and the address of its registered office (or principal
place of business, if different from the registered office);

(b) a description of the nature of the entity’s operations and its

principal activities;

(c) the name of the parent and the ultimate parent of the group; and

(d) if it is a limited life entity, information regarding the length of its

life.

The Company is a public limited liability company, incorporated and domiciled in

Malaysia, and is listed on the Main Market of Bursa Malaysia Securities. The registered office
of the Company is located at Lot 5710, Jalan Kuchai Lama, Petaling, 58200 Kuala Lumpur.

The holding company is Ajinomoto Co, Inc, a corporation incorporated in Japan.

The principal activities of the Company are manufacturing and selling of monosodium
glutamate and other related products. There have been no significant changes in the nature of
the principal activities during the financial year.

The financial statements were authorised for issue by the Board of Directors in accordance
with a resolution of the directors on 29 June 2017. (Note 1)

2) From paragraph 2

An entity shall apply this Standard in preparing and presenting

general purpose financial statements in accordance with Malaysian
Financial Reporting Standards (MFRSs).
 The financial statements of the Company comply with Malaysian Financial Reporting
Standards "MFRS"), International Financial Reporting Standards ('IFRS") and the
requirements of the Companies Act 2016 in Malaysia.

The financial statements of the Company have been prepared on a historical cost basis unless
otherwise indicated in the accounting policies below.

The financial statements are presented in Ringgit Malaysia ("RM") which is also the
Company's functional currency. (Note 2.1)

3) From paragraph 120

Each entity considers the nature of its operations and the policies that the
users of its financial statements would expect to be disclosed for that type
of entity. For example, users would expect an entity subject to income
taxes to disclose its accounting policies for income taxes, including those
applicable to deferred tax liabilities and assets. When an entity has
significant foreign operations or transactions in foreign currencies, users
would expect disclosure of accounting policies for the recognition of
foreign exchange gains and losses.

Transactions in foreign currencies are measured in the functional currency of the

company and are recorded on initial recognition in the functional currency at exchange rates
approximating those ruling at the transaction dates. Monetary assets and liabilities denominated
in foreign currencies are translated at the rate of exchange ruling at the reporting date. Non-
monetary items denominated in foreign currencies that are measured at historical cost are
translated using the exchange rates as at the dates of the initial transactions. Non-monetary
items denominated in foreign currencies measured at fair value are translated using the
exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary

items at the reporting date are recognised in profit or loss. [Note 2.3 (a)(ii)]
4)
From paragraph 107

An entity shall present, either in the statement of changes in equity or in

the notes, the amount of dividends recognised as distributions to owners
during the period, and the related amount of dividends per share.

At the forthcoming Annual General Meeting, a first and final single tier dividend of 42.00
sen per ordinary share in respect of the financial year ended 31 March2017 amounting to a
dividend payable of RM25,535.384 will be proposed for shareholders' approval. The financial
statements for the current financial year do not reflect this proposed dividend. Such dividends,
if approved by the shareholders will be accounted for in shareholders’ equity as an
appropriation of retained earnings in the financial year ending 31 March 2018.

At the forthcoming Extraordinary General Meeting, a special one-off single tier dividend of
113.00 sen per ordinary share in respect of the financial year ended 31 March 2017 amounting
to a dividend payable of RM68,702,343 will be proposed for shareholders’ approval. The
financial statements for the current financial year do not reflect this proposed dividend. Such
dividends, if approved by the shareholders, will be accounted for in shareholders’ equity as an
appropriation of retained earnings in the financial year ending 31 March 2018. (Note 11)
5) From paragraph 54

As a minimum, the statement of financial position shall include line items

that present the following amounts:

(a) property, plant and equipment;

(b) investment property;

(c) intangible assets;

(d) financial assets (excluding amounts shown under (e), (h) and (i));

(e) investments accounted for using the equity method;

(f) biological assets;

(g) inventories;

(h) trade and other receivables;

(i) cash and cash equivalents;

(j) the total of assets classified as held for sale and assets included in
disposal groups classified as held for sale in accordance with MFRS 5
Non-current Assets Held for Sale and Discontinued Operations;

(k) trade and other payables;

(l) provisions;

(m) financial liabilities (excluding amounts shown under (k) and (l));

(n) liabilities and assets for current tax, as defined in MFRS 112 Income
Taxes;

(o) deferred tax liabilities and deferred tax assets, as defined in MFRS
112;

(p) liabilities included in disposal groups classified as held for sale in

accordance with MFRS 5;

(q) non-controlling interests, presented within equity; and

(r) issued capital and reserves attributable to owners of the parent.

a) Property, plant and equipment (Note 12)

The net carrying amount of property, plant and equipment is RM89,545,984 for 2017
and RM105,043,473 for 2016.

g) Inventories (Note 15)

The cost of inventories recognised as expense is RM61,501,284 for 2017 and

RM53,309,443 for 2016.

h) Trade and other receivables (Note 16)

The total loans and receivables carried at amortised cost is RM179,895,725 in 2017 and
RM205,134,849 in 2016.

k) Trade and other payables (Note 20)

The total trade and other payables, representing total financial liabilities carried at
amortised cost is RM38,861,184 for 2016 and RM43,295,725 for 2017.
6) From paragraph 82

In addition to items required by other MFRSs, the profit or loss section or the
statement of profit or loss shall include line items that present the following
amounts for the period:

(a) revenue;

(b) finance costs;

(c) share of the profit or loss of associates and joint ventures accounted for
using the equity method;

(d) tax expense;

(e) [Deleted by IASB]

(ea) a single amount for the total of discontinued operations (see MFRS 5).

(f–i) [Deleted by IASB]

a) Revenue (Note 4)

There is a total revenue of RM419,917,079 for the year 2017 and RM400,200,539 for
the year 2016.

d) Tax expense (Note 9)

The total income tax expense is RM24,006,710 for 2017 and RM13,154,438 for the year
2016.
MFRS 110: Events after reporting period
MFRS 110 defines events after the reporting date as ‘those events, both favourable and
unfavourable, that occur between the end of the reporting period and the date when the financial
statements are authorised for issue’. The standard has identified two types of events. They are:
a. Those events that provide further evidence of conditions that existed at the end of the
reporting period (adjusting events).

b. Those that are indicative of conditions that arose after the end of the reporting period (non-
adjusting events).

No presentation and disclosure requirements of MFRS 110 in Ajinomoto (Malaysia) Berhad

2017 annual report.

MFRS 116: Property, Plant and Equipment

1) Recognition

From para 7, MFRS 116

The cost of an item of property, plant and equipment shall be recognized as an asset if
and only if:
a) It is probable that future economic benefits associated with the item will flow to the
entity; and
b) The cost of the item can be measured reliably.
The company recognizes the cost of its property, plant and equipment as follows: (Note 12)

Property, Plant and Equipment At Cost (RM)

Buildings 56,795,493
Motor Vehicles 9,231,519
Plant, machinery and equipment 151,385,118
Furniture, fixtures and fittings 7,868,560
Capital work in progress 9,697,323

2) Disclosure
From para 73, MFRS 116
The financial statements shall disclose, for each class of property, plant and equipment:
(a) The measurement bases used for determining the gross carrying amount
(b) The depreciation methods used
(c) The useful lives or the depreciation rates used
(d) The gross carrying amount and the accumulated depreciation ( aggregated with
accumulated impairment losses) at the beginning and end of the period
(e) A reconciliation of the carrying amount at the beginning and end of the period
showing

From para 30, MFRS 116

After recognition as an asset, an item of property, plant and equipment shall be
carried at its cost less any accumulated depreciation and any accumulated
impairment losses.

 The Company chooses the cost model as its accounting policy and apply
that policy to property, plant and equipment. Subsequent to recognition, the
property, plant and equipment are measured at cost less accumulated
depreciation and accumulated impairment losses. [Note 2.3 (b)]

 Useful lives of the plant and machinery are estimated to be within 4 to 15

years and are based on life expectancies of the plant and machinery used.
Changes in the expected level of usage and technological developments
could impact the economical useful lives and the residual values of these
assets, therefore future depreciation charges could be revised. [Note 3.2 (a)]

 Freehold land has an unlimited useful life and therefore is not depreciated.
Leasehold lands are depreciated over their period of their respective lease
 term. Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets as follows: [Note 2.3 (b)]
Property, Plant and Equipment Useful Lives (Years)
Buildings 9 to 15
Motor Vehicles 6
Plant, machinery and equipment 4 to 15
Furniture, fixtures and fittings 10

Capital work in process included in property, plant and equipment are not
depreciated as these assets are not yet available for use.

 The Company review the residual value, useful life and depreciation method
at each financial year end to ensure the amount, method and period of
depreciation are consistent with previous estimates and expected pattern of
consumption of the economic benefits embodied in the property, plant and
equipment and adjusted prospectively, if appropriate. [Note 2.3 (b)]
 The Company’s carrying amount of property, plant and equipment from the
beginning and end of the period are stated below: (Note 12)
Property, Plant and Carrying Amount at Carrying Amount at
Equipment 2016 (RM) 2017 (RM)
Buildings 59,601,731 56,795,493
Motor Vehicles 9,085,401 9,231,519
Plant, machinery and 161,340,767 151,385,118
equipment
Furniture, fixtures and 8,008,040 7,868,560
fittings
Capital Work in process 582,271 9,697,323

 The accumulated depreciation of property, plant and equipment from the

beginning and end of the period are stated below: (Note 12)
 Property, Plant and Accumulated Accumulated
Equipment Depreciation at 2016 Depreciation at 2017
(RM) (RM)
Buildings 46,384,875 45,206,339
Motor Vehicles 3,058,375 3,309,508
Plant, machinery and 117,193,330 110,858,723
equipment
Furniture, fixtures ad 4,174,370 4,670,758
fitting

MFRS 117: Leases

Finance Leases – Initial Recognition

From para 20, MFRS 117
At the commencement of the lease term, lessees shall recognise finance leases as assets
and liabilities in their statements of financial position at amounts equal to the fair value
of the leased property or, if lower, the present value of the minimum lease payments,
each determined at the inception of the lease.

Ajinomoto Malaysia Berhad as a Lessee

From para 4, MFRS 117
A finance lease is a lease that transfers substantially all the risks and rewards incidental
to ownership of an asset. Title may or may not eventually be transferred

 Finance leases that are transfer to the Company are capitalised at the
inception of the lease at the fair value of the leased asset or, if lower, at the
present value of the minimum lease payments. Any initial direct costs are
also added to the amount capitalised. [Note 2.3 (Li)]

From para 25, MFRS 117

Minimum lease payments shall be apportioned between the finance charge and the
reduction of the outstanding liability. The finance charge shall be allocated to each
period during the lease term so as to produce a constant periodic rate of interest on the
remaining balance of the liability. Contingent rents shall be charged as expenses in the
periods in which they are incurred.

 Lease payments are apportioned between the finance charges and reduction
of the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are charged to profit or
loss. Contingent rents, if any, are charged as expenses in the periods in
which they are incurred. [Note 2.3 (Li)]

From para 28, MFRS 117

The depreciable amount of a leased asset is allocated to each accounting period during
the period of expected use on a systematic basis consistent with the depreciation policy
the lessee adopts for depreciable assets that are owned. If there is reasonable certainty
that the lessee will obtain ownership by the end of the lease term, the period of expected
use is the useful life of the asset; otherwise the asset is depreciated over the shorter of
the lease term and its useful life.

 Leased assets are depreciated over the estimated useful life of the asset.
However, if there is no reasonable certainty that the Company will obtain
ownership by the end of the ease term, the asset is depreciated over the
shorter of the estimated useful life and the lease term [Note 2.3 (Li)]

From para 33, MFRS 117

Lease payments under an operating lease shall be recognised as an expense on a
straight-line basis over the lease term unless another systematic basis is more
representative of the time pattern of the user’s benefit

 Operating lease payments are recognized as an expense in profit or loss on

a straight-line basis over the lease term. The aggregate benefit of incentives
 provided by the lessor is recognized as a reduction of rental expense over
the lease term on a straight-line basis

MFRS 133: Earnings per Share

---pg 80 of Annual Report 2017

Number of Ordinary shares in both 2016 and 2017 is shown as above.

---pg 68 of Annual Report 2017

Based on MFRS133, stated in Paragraph 9: “For the purpose of calculating basic earnings per
share, the number of ordinary shares shall be the weighted average number of ordinary shares
outstanding during the period.”

Ajinomoto(Malaysia)Berhad calculates their earnings per share using weighted average

number of ordinary shares in issue during financial year.

Besides, based on Paragraph 26: “The weighted average number of ordinary shares outstanding
during the period and for all periods presented shall be adjusted for events, other than the
conversion of potential ordinary shares, that have changed the number of ordinary shares
outstanding without a corresponding change in resources.”

No additional ordinary shares issued, therefore no diluted earnings per share disclosed.

MFRS 137 : Provisions, Contingent Liabilities, and Contingent Assets.

Provisions
1. Recognition
From Para IN2, MFRS 137

The company recognized provision when it has present obligation (legal or

constructive) as a result of past event, it is probable that an outflow of resources embodying
economic benefits that will be required to settle the obligation and when the amount can
be estimated reliably. (Note 2.3(h) pg 56)

2. Measurement
From Para IN6, MFRS 137
 The company measures Provisions considering effect of time value of money is
material. Provisions are discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the liability. When discounting is used, the increase in
provision due to the passage of time is recognised as a finance cost. (Note 2.3 (h) pg 56)

3) Disclosure

From Para 84, MFRS 137

In the Notes to the Financial Statements, carrying amount at the beginning and end of the
period is recorded. Additional provision in the period, amount used and unsed reversed,
and increase are also disclosed.

(Note 16 (a) & (b) pg 74-76)

From Para 85, MFRS 137

Trade receivables are non-interest bearing for this company and are generally on 14-90
days’ terms.
The company disclosed trade receivables amounting to RM11,453,971 (2016:
RM11,863,541) that are past due at the reporting date but not impaired.
At the reporting date, those receivables unsecured in nature and relates to customers
who have never defaulted on payments but are slow payer and hence are periodically
monitored.
(Note 16 (a) pg 73)
Trade receivables that are individually determined to be impaired at the reporting date
relate to debtors that are in significant financial difficulties and have defaulted on
payments.
(Note 16 (b) pg 74)
The company’s other receivables that are impaired at the reporting date is staff loans.
Non-current amounts have an average maturity of 2.71 years (2016: 2.86 Years).
Allowances for impairment loss
For trade receivables – RM31,954(2016: RM50,623)
For Other receivables – (2016: RM 8,373)
(Note 16 pg 72)
From Para 86, MFRS 137

The company disclosed the following contingent liabilities (Note 26 pg82):

Question 2- The New MFRS 16 Leases

Question 2 (a)

MFRS 16 was issued by the Malaysian Accounting Standards Board (MASB) in April 2016
and will be applicable beginning 1 January 2019 onwards. MFRS 16 is equivalent to IFRS 16
Leases which was issued by the International Accounting Standards Board (IASB) on January
2016.

The new MFRS 16 replaces MFRS 117 because MFRS 117 does not require lessees to
recognise assets and liabilities arising from operating lease and it will be retained off from
balance sheet. Only finance lease will be on the balance sheet. Hence, MFRS 117 fails to meet
the need of user financial statements as it does not give a faithful presentation. This is why
MFRS 16 was issued to recognise the assets and liabilities for operating leases.

At the commencement date, a lessee shall recognize a right-of -use asset and a lease liability
for both operating lease and finance lease including those operating leases that are treated as
off balance sheet. A lessor shall recognize an asset under finance lease (transfers substantially
all the risks and rewards incidental to ownership of an underlying asset) in its statement of
financial position and present them as a receivable at an amount equal to the net investment in
the lease. Expenses recognition is also included which are interest expenses and amortization
expenses. As for operating lease (it does not transfer substantially all the risks and rewards
incidental to ownership of an underlying asset), the lessor shall recognise lease payments as
income on either a straight-line basis or other systematic basis.

Measurement consists of two types which are initial measurement and subsequent
measurement. Under both initial and subsequent measurement, it divides into right-to-use
assets and liabilities.
Under initial measurement, the cost of right-to-use assets comprise of:

(a) the amount of the initial measurement of the lease liability

(b) any lease payments made at or before the commencement date, less any lease
incentives received;
(c) any initial direct costs incurred by the lessee; and
 (d) an estimate of costs to be incurred by the lessee in dismantling and removing the
underlying asset, restoring the site on which it is located or restoring the underlying
asset to the condition required by the terms and conditions of the lease, unless those
costs are incurred to produce inventories.

and under liability comprise the following payments for the right to use the underlying asset
during the lease term that are not paid at the commencement date:

(a) fixed payments

(b) variable lease payments
(c) amounts expected to be payable by the lessee under residual value guarantees; and
(d) the exercise price of a purchase option
(e) payments of penalties for terminating the lease

As for subsequent measurement, a lessee shall measure the right-to-use assets applying cost
model comprise of:
(a) less any accumulated depreciation and any accumulated impairment losses; and
(b) adjusted for any remeasurement of the lease liability
and under subsequent measurement, a lessee shall measure the lease liability by:

(a) increasing the carrying amount to reflect interest on the lease liability;
(b) reducing the carrying amount to reflect the lease payments made; and
(c) remeasuring the carrying amount to reflect any reassessment or lease modifications
Question 2 (b)

The difference between the old MFRS 117 and the new MFRS 16 are under MFRS 117, leases
are classified either as finance leases or operating leases but under MFRS 16, it eliminates the
distinction between finance and operating leases for lessees. All leases will be brought onto its
balance sheet including operating that are off balance sheet.

With MFRS 16, a lessee is required to recognize assets and liabilities for operating and finance
leases with terms of more than 12 months, unless the underlying asset is of low value. This
would affect the current practice of many entities with retained off balance sheet operating
lease. For example, airline and shipping entities that currently treat rental of airplanes and ships
as operating leases would be required to recognize the airplanes and ships as right-of-use asset
alongside with lease liabilities in the statement of financial position. Lease payments for certain
short-term leases and lease of low value assets may be continued to be recognized as expenses
on a straight-line basis or other systematic basis. The impact of this differences on the financial
performance are lease expenses would reduce as depreciation, and interest expenses would
improve. MFRS 16 would result in a different total expense recognition pattern compared to
MFRS 117.

Another difference is, MFRS 16 requires a lessee to classify cash payments for the principal
portion of a lease liability within financing activities in statements of cash flows. MFRS 107
‘Statement of Cash Flows’ permits a lessee to present interest expenses in finance and operating
lease. Payments for certain short-term leases and low-value assets not included in the
measurement of lease liability are presented within the operating lease along with variable lease
payments. Lessee are expected to experience a lower financing activities and improved
operating activities.
Question 2 (c)

According to MFRS 16, lessees are required to recognise most leases on their balance
sheets, regardless of the industry that the entity operates in. Lessees will have a single
accounting model for all leases, with two exemptions (low value assets and short term leases).

MFRS 16 basically abolishes the distinction between an operating lease and a finance lease
in the financial statements of lessees. A few industries are expected to be greatly affected such
as Retail and consumer product entities, Telecommunications entities, Banking and other
financial services, Metals and mining entities, Oil and gas entities, and Insurance entities.

Retail and consumer product entities will be most greatly affected by the new MFRS 16
with the changes in the requirements of the new lease standard. Leased retail space is very
important in a business model. Manufacturing entities will also need to consider all of their
major contracts that they entered as most manufacturer lease on high value assets such as plants
and equipment .

Other than that, Telecommunication entities will also be affected by the new MFRS 16.
New arrangements will be needed to fit with the new definition of lease. Contracts also need
to be analysed where those equipments are being provided to their customers.

Banking and other financial services entities will also be affected by the new MFRS 16.
Extensive branch network, contracts over ATMs, and the related space occupied need to be
assessed under the new MFRS standard.

Metals and mining entities will also be affected as they entered into major contracts. The
new lease standard will significantly increase their balance sheet lease accounting.

Oil and gas entities may also be affected due to land, buildings, vehicles and equipment.

Insurance entities will also be affected by MFRS 16 as major arrangements will be

considered in the balance sheet.
Reference

(1 June, 2016). Malaysian Financial Reporting Standards (MFRS). Malaysian Accounting

Standard Board.
Retrieved from: http://www.masb.org.my/pages.php?id=89

(May, 2016). Lease: A summary of IRFS 16.

Retrieved from: http://www.ey.com/Publication/vwLUAssets/ey-leases-a-summary-
of-ifrs-16-and-its-effects-may-2016/$FILE/ey-leases-a-summary-of-ifrs-16-and-its-effects-
may-2016.pdf

Malaysia Financial Reporting Standard 162016