Tunku Abdul Rahman University College

Faculty of Accountancy, Finance and Business

BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

Reporting period and comparative figures

Quarterly- 2nd Qtr Comparative
SOFP At end of current interim At end of immediately preceding financial year
period
SOPLOCI Current interim period Comparable interim period of immediately
and Cumulatively for preceding financial year
current financial year to
date Comparable year to date period of immediately
preceding financial year
SOCF Cumulatively for current Comparable year to date period of immediately
financial year to date preceding financial year
SOCIE Cumulatively for current Comparable year to date period of immediately
financial year to date preceding financial year

By Michelle Tan (2019) 1

 Tunku Abdul Rahman University College
Faculty of Accountancy, Finance and Business
BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

Question 1:
An entity prepares interim financial statements as at 30 June 2017, with a financial year end
of 31 December 2017.
Required:
Determine the relevant dates for which periods the statement of Financial Position, the
statement of profit or loss and comprehensive income, statement of changes in equity and the
statement of cash flow have to be presented in the entity’s quarterly (and its equivalent of
preceding period) comparative financial statements as at 30 June 2017.

Ans:

 Statement of Financial Position. As of the end of the current interim period (ie

30 June 2017) and the immediately preceding fiscal year (ie. 31 Dec 2016).
 Statement of Profit or loss. For the current interim period (1 April 2017- 30 June
2017), and the fiscal year-to-date (period ended 30 June 2017), and the corresponding
periods for the immediately preceding fiscal year (period ended 30 June 2016).
 Statement of cash flows. For the current fiscal year-to-date period (period ended
30 June 2017, and the corresponding period for the immediately preceding fiscal year
(period ended 30 June 2016).
 Statement of Changes in Equity: For the current fiscal year-to-date period
(period ended 30 June 2017, and the corresponding period for the immediately preceding
fiscal year (period ended 30 June 2016).

Alternative presentation of answer:

Quarterly- 2nd Qtr Comparative

SOFP End of interim period 30 End of preceding financial year 31 December
Jun 2017 2016
SOPLOCI Interim period Comparable interim period 1 Jan – 30 Jun 2016
1 Apr- 30 Jun 2017; and
YTD period ended 30
Jun 2017
SOCF Interim period Comparable interim period 1 Jan – 30 Jun 2016
1 Jan- 30 Jun 2017
SOCIE Interim period Comparable interim period 1 Jan – 30 Jun 2016
1 Jan- 30 Jun 2017

By Michelle Tan (2019) 2

 Tunku Abdul Rahman University College
Faculty of Accountancy, Finance and Business
BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

OR

Statement of profit and loss for second quarter

Current period Comparative Current Period Comparative
Individual Quarter Cumulative Quarter
Quarter end Quarter end Year end Year end
1/1/2017-
1/4/2017 - 30/6/2017 1/4/2016 - 30/6/2016 1/1/2016- 30/6/2016
30/6/2017
30/6/2017 30/6/2016 30/6/2016
30/6/2017

Statement of financial position

Current period Comparative
as at as at
30/6/2017 31/12/2016

Statement of change in equity

Current period Comparative
1/1/2017 - 30/6/2017 1/1/2016 - 30/6/2016

Statement of cash flow

Current period Comparative
Period end Period end
30/6/2017 30/6/2016

Question 2:

By Michelle Tan (2019) 3

 Tunku Abdul Rahman University College
Faculty of Accountancy, Finance and Business
BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

Zorro Bhd presents quarterly interim financial statements and its financial year ends on 31
December each year. Zorro owns as office building which has a book value of RM5.5 million
as at 30 June 2016. However, the market value of the property showed a significant decline,
thus indicating impairment. The recoverable amount has been determined as RM3million.
Required:
How should the impairment be accounted for in preparing the financial statements during
the second quarter ending 30 June 2016?

Ans:

MFRS 134 requires that an entity apply the same impairment testing, recognition and reversal
criteria at an interim date as it would at the end of its financial year. That does not mean,
however, that an entity must necessarily make a detailed impairment calculation at the end of
each interim period. Rather, an entity will review for indications of significant impairment
since the end of the most recent financial year to determine whether such a calculation is
needed.
In this case, there is indication of impairment as the market value of the property shows a
decline. Thus, the carrying amount of building of RM5.5 million as of 30 June 2016 is then
compared with its recoverable amount of RM3 million. An impairment of RM2.5 million is
recognized in the P&L and the adjusted carrying amount of the building is now RM3 million.

Carrying amount (CA) Impairment Loss Recoverable amount (RA)

RM' mil RM' mil RM' mil
Office
buildin
30-Jun-16 g 5.5 -2.5 3

The asset's carrying amount should be reduced

to its recoverable amount in the SOFP at 30 June 2016,
and the significant impairment loss of RM2.5 mil should be
recognized immediately in the SOPL at 30 June 2016.

By Michelle Tan (2019) 4

 Tunku Abdul Rahman University College
Faculty of Accountancy, Finance and Business
BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

Question 3:
An entity reports quarterly. During the first quarter of the financial year, the entity introduced
new products that will be sold throughout the year. It is incurred a significant advertising cost
and is believed to benefit in the form of increased sales throughout the year.
Required:
Will it be appropriate to spread the major advertising cost over all the four quarters
(matching concept) or should the entity recognised the entire cost as an expense of the first
quarter?

Ans:

IAS 38 Intangible Assets / MFRS 138 requires that all expenditure on advertising and
promotional activities should be recognized as an expense when incurred. A cost that does
not meet the definition of an asset at the end of an interim period is not deferred, either to
await future information as to whether it has met the definition of an asset or to smooth
earnings over interim periods within a financial year.

The advertising costs should not be spread over the four quarters based on the grounds
that the entity would benefit in the form of increased sales. Therefore, the entire cost is
recognized in profit or loss in the first quarter. An explanatory note of disclosure may be
required.

By Michelle Tan (2019) 5

 Tunku Abdul Rahman University College
Faculty of Accountancy, Finance and Business
BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

Question 4:
An electric car manufacturer faces RM800 million losses in the first quarter. However, the
entity expects production to increase by 60% in the second quarter and sales to start doubling
from then on. The entity wishes to spread the loss over the four quarters, based on the
quarter’s share of forecasted annual revenue. This is an attempt to show favourable results in
the first quarter.
Required:
Discuss if the actions of the entity are allowable.

Ans:

No, it is not acceptable. The RM800 million losses should be reported in the first quarter
and should not be spread over the four quarters.

OR

Based on IAS 34, the car manufacturer is not allowable to spread the loss over the four
quarters in their interim report based on the quarter’s share of forecasted annual revenue.
Costs that are incurred unevenly during a financial year should be anticipated or deferred for
interim reporting purposes if, and only if, it is also appropriate to anticipate or defer that type
of cost at the end of financial year. (If the losses are anticipated, means previously always
incurred then can spread it.) But here, the loss arises from the costs incurred in first quarter
should be recognized in that period immediately in which they are incurred. (If want to
enhance the confidence of shareholders to company due to unfavourable result in first
quarter, we can make a disclosure note that emphasis on the overall revenue at the year-end
are sufficient to cover all the loss incurred.)

By Michelle Tan (2019) 6

 Tunku Abdul Rahman University College
Faculty of Accountancy, Finance and Business
BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

Question5:
A pharmaceutical company, with a December year end, reports quarterly. During 2012, the
research and development department embarked on a new medical drug development project.
The following development cost were incurred in 2012.
RM million
Quarter 1 150
Quarter 2 200
Quarter 3 180
Quarter 4 220

The development cost incurred in quarter 1 was expensed as it did not meet the criteria
for capitalization. However, on 1 April, the technically and commercially feasibility was
established by a team of experts and thus, met the criteria for capitalisation as per MFRS
138 / IAS 38 Intangible Assets.
Required:
Will it be acceptable to reverse out the amount of the development cost which was
expense in quarter 1 and capitalised it, as the criteria for capitalization has been met
on 1 April?

Ans:

The development cost of RM150 million incurred in Quarter 1 should be expensed in this
quarter itself, IAS 38 does not allow reinstatement of development cost which was previously
expensed.
IAS 38 also states that asset recognition begins at the point in time at which the recognition
criteria are met. As the criteria for capitalization was met on 1 April, then costs of RM200
million, RM180 million and RM220 million capitalized in Quarters 2, 3 and 4
respectively.

By Michelle Tan (2019) 7

 Tunku Abdul Rahman University College
Faculty of Accountancy, Finance and Business
BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

ITA is to be recognized only if, the following criteria are met:

o it is probable that future economic benefits from the asset will flow to the
entity
o the cost of the asset can be reliably measured.

Development phase

Under IAS 38, an intangible asset arising from development must be capitalized if an

entity can demonstrate all of the following criteria:
o (T) the technical feasibility of completing the intangible asset (so that it will
be available for use or sale)
o (I) intention to complete and use or sell the asset
o (A) ability to use or sell the asset
o (A) existence of a market (Ability to sell) or, if to be used internally, the
usefulness of the asset (ability to use) 
o (T) availability of adequate technical, financial, and other resources to
complete the asset
o (E) the expenditure of the asset can be measured reliably.
o (P) Probable future economic benefits

By Michelle Tan (2019) 8

 Tunku Abdul Rahman University College
Faculty of Accountancy, Finance and Business
BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

Pg 453
Management commentary
The purpose of the management commentary is to provide a context for interpreting a
company’s financial position, performance and cash flows.

- Supplements and complements financial statements

- Provides management’s view of performance, position and progress

A management commentary should include forward-looking information that is useful to

primary users of financial statements.

Definition
A narrative report that relates to financial statements that have been prepared in accordance
with IFRs. Management commentary provides users with historical explanations of the
amounts presented in the financial statements, specifically the entity’s financial position,
financial performance and cash flows. It also provides commentary on an entity’s prospects
and other information not presented in the financial statements. Management commentary
also serves as a basis for understanding management’s objectives and its strategies for
achieving those objectives.

By Michelle Tan (2019) 9

 Tunku Abdul Rahman University College
Faculty of Accountancy, Finance and Business
BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

Pg 682
Elements of management commentary
The particular focus of management commentary will depend on the facts and circumstances
of the entity.
However, Practice Statement 1 requires a management commentary to include information
that is essential to an understanding of (para. 24):
IFRS Practice Statement 1: Management Commentary has provided a table relating the five
elements to its assessment of the needs of the primary users of a management commentary
(existing and potential investors, lenders and creditors).

Element User needs

Nature of the business The knowledge of the business in which an entity is engaged and the
external environment in which it operates

Objectives and strategies To assess the strategies adopted by the entity and the likelihood that
those strategies will be successful in meeting management’s stated
objectives

Resources, risks and A basis for determining the resources available to the entity as well as
relationships obligations to transfer resources to others; the ability of the entity to
generate long-term sustainable net inflows of resources; and the risks to
which those resource-generating activities are exposed, both in the near
term and in the long term

Results and prospects The ability to understand whether an entity has delivered results in line
with expectations and, implicitly, how well management has understood
the entity’s market, executed its strategy and managed the entity’s
resources, risks and relationships

Performance measures The ability to focus on the critical performance measures and indicators
and indicators that management uses to assess and manage the entity’s performance
against stated objectives and strategies

By Michelle Tan (2019) 10

 Tunku Abdul Rahman University College
Faculty of Accountancy, Finance and Business
BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

Advantages and disadvantages of a compulsory management commentary

Advantages Disadvantages

Entity Entity

- Promotes the entity, and attracts - Costs may outweigh benefits

investors, lenders, customers and - Risk that investors may ignore the
suppliers financial statements
- Communicates management plans and
outlook

Users Users

- Financial statements not enough to - Subjective

make decisions (financial information - Not normally audited
only) - Could encourage companies to de-list
- Financial statements backward looking (to avoid requirement to produce MC)
(need forward looking information) - Different countries have different needs
- Highlights risks
- Useful for comparability to other
entities

By Michelle Tan (2019) 11

 Tunku Abdul Rahman University College
Faculty of Accountancy, Finance and Business
BBFA3013 Advance Accounting Practice
Tutorial 3: IAS 34/ MFRS134 Interim Financial Reporting

By Michelle Tan (2019) 12