Assignment 1

1.0 International Accounting Standard 28 (IAS 28) defines a joint venture as “A joint venture

is a joint arrangement whereby the parties that have joint control of the arrangement have

rights to the net assets of the arrangement.” A joint arrangement is an arrangement of which

two or more parties have joint control. Joint control is the contractually agreed sharing of

control of an agreement, which exists only when decisions about the relevant activities

require the unanimous consent of the parties sharing control. Joint arrangement can exist in

two different forms as set out by IFRS 11: joint operation and joint venture. The benefits of

joint venture arrangement are access to new markets which forming a joint venture can

enable the participants to access geographic or high-growth markets that they would not

otherwise have access to individually. The parties may also pool their access to suppliers or

customers. For example, one joint venture member may have the required intellectual

property for a venture while the other has the infrastructure or distribution networks to access

markets and customers. Given the size of the joint venture, the parties may also find that they

have greater bargaining power in negotiating contracts for the distribution or supply contracts

or agreements for the purchase of goods, supplies and services than they would have

individually. Another key reason that parties enter into joint ventures is to diversify their own

businesses. As mentioned above, a joint venture may help participants gain access to markets

or businesses that they could not enter individually. Diversification helps reduce a

participant’s business risk across its product or service lines and may also increase the

participants access to resources such as superior talent and more capital if the profit or assets

of the joint venture grow significantly. Diversification also has the potential to improve cash

flow and profitability of the co-ventures, either directly through the venture or indirectly via

improvements or enhancements to their own products, services or operations. A joint venture

enables the participants to share the business risk of creating a new product or service or
entering or expanding a business. Individually, neither party may have the risk appetite to

develop the necessary assets or resources that it currently lacks, especially considering the

possibility that its new investment may not yield enough revenue to make the development

costs worthwhile. Sharing resources and costs can help ease the burden of the risk. Creating

joint venture allows the participants to share their collective tangible and intangible assets

in pursuit of a common goal. For example, two or more parties may collectively own the

intellectual property required to develop a new product or technology, but none of the parties

individually has all the necessary IP rights to pursue the project. In another example, one

party may supply the cash funding, while another party supplies real property or property

rights, equipment, supplies and access to other assets. Finally, another key benefit of entering

into a joint venture is sharing costs. Joint ventures often allow their participants to undertake

a venture that neither could afford independently. Research and development, labour and

management, distribution, supply and administrative costs as a percentage of revenues may

be significantly reduced for each party relative to what they would have been had each party

tried to pursue the venture on its own. In addition, economies of scale may also be reached in

which per-unit costs may be reduced due to efficiencies reached at larger joint production

levels.

International Accounting Standard 28 (IAS 28) defines an associate as “An associate is an

entity over which the investor has significant influence.” Significant influence means the

power to participate in the financial and operating policy decisions of the investee but is not

control or joint control of those policies. Significant influence is usually acquired by

purchasing more than 20% of voting power but less than 50%. Here are some benefits of

associate are which is the association may serve as a prudent investment option, especially

for companies that are looking to purchase a majority stake in another business, particularly

in a competitor. Next, both the parent and associate companies can take advantage of stable
financial support, research and technological advancement, and improved production

capabilities. Finally investing in associate companies allows larger companies to expand their

operations or enter into new markets and an associate’s company helps boosts the parent

company’s profitability and overall value.

2.0 Accounting Treatment for Associates and Joint Venture Companies

In general, Malaysian Financial Reporting Standard (MFRS) 128 requires that both

investment in associate and joint venture should be accounted for using the equity method.

MFRS 128 Paragraph 3 defines equity method as an accounting method whereby the

investment is initially recognised at cost and subsequently adjusted for post-acquisition

change in the investor’s share of net assets. The investors profit or loss includes it share of the

investee’s other comprehensive income. In order to have a better understanding on the

accounting treatment for both associate and joint venture companies, some of the example

will be discussed as below:

Investment in Joint Venture Company

In view of joint venture, the nature of the joint venture accounting depends on whether a

separate legal entity is formed to undertake the joint venture (Elie Chrysostom, R. N., 2013).

If a separate legal entity is formed, the bookkeeping and the accounts of the entity are

maintained in the usual manner with each party reporting their share of the operation using

the equity method. How if the joint venture accounting look like when there is no legal entity

formed and each business only maintains the booking records for its own transactions. This

type of operation is generally referred to as a joint operation.

For example, two businesses John and Spartan decide to undertake a joint venture to

manufacture and sell a product. John will primarily be responsible for manufacture while

Spartan is responsible for selling, with a profit sharing of 60% to John and 40% to Spartan.
John and Spartan have the following transaction relation to manufacture and selling of the

product:

Company John
 Supply Materials RM 3,200
 Wages RM 4,000

Company Spartan
 Selling Expenses RM 2,400
 Wages RM 5,000
 Revenue RM 26,000


Both companies will record their own transaction in their accounting records, in each case the

other side of the double entry bookkeeping posting will go to a joint venture control account.

To reflect such transaction, John and Spartan posting:

Company John – Joint Venture Accounting Journal Entry

Account Debit Credit

Purchases 3,200
Wages 4,000
Joint Venture Account 7,200

(Business 2)
Total 7,200 7,200
Company Spartan – Joint Venture Accounting Journal Entry

Account Debit Credit

Selling expenses 2,400
Wages 5,000
Revenue 26,000
Joint Venture Account 18,600

(Business 1)
Total 26,000 26,000

At this point neither companies know the full details of all transaction affecting the joint

venture, they must now share details in order that a memorandum income statement can be

produces. After combining all transaction, the memorandum income statement would be as

follows:

Joint Venture Memorandum Income Statement

Revenue 26,000
Purchase Business 1 3,200
Wages Business 1 4000
Gross margin 18,800
Selling expenses Business 2 2,400
Wages Business 2 5,000
Operating expenses 7,400
Net income 11,400

From the joint venture memorandum income statement, we can see that the profit of the joint venture

is RM 11,400, where Company John will receive 60% - RM6,480 and Company Spartan will receive

40% - RM 4,560.

Investment in Associate Company

For example, Company J acquired 30% of Company K shares for RM500,000. At the end of

the year, Company K reports a net income of RM100,000 and a dividend of RM50,000 to its
shareholders. In this case, when Company J make the purchase, it should record the

investment under non-current asset account as “Investment in Associate” in Balance Sheet.

The transaction shall record at costs as well.

Dr Investment in Associates RM500,000

Cr Cash RM500,000

When Company J receives the dividend of RM15,000 which represent 30% of dividend

declared RM50,000 from its associate, Company K such transaction shall records a reduction

in their investment account. The reason for this is that they have received money from their

investee. In other words, there is an outflow of cash from investee, as reflected in the reduced

investment account. The double entry will be recorded as follow:

Dr Cash RM15,000

Cr Investment in Associates RM15,000

As at the end of the year Company K reports a net income of RM100,000 therefore,

Company J shall record the net income for its portion (30% x RM100,000) from Company K

as an increase to its investment account. The double entry will be recorded as:

Dr Investment in Associates RM30,000

Cr Investment Revenue RM30,000

Finally, the ending balance in Company J’s “Investment in Associate” account at the end of

the year is RM515,000 which represent a RM15,000 increase from their investment cost. This

RM15,000 increased amount can reconcile with its 30% portion of Company K’s retained

earnings, RM50,000: (RM100,000 net income – RM50,000 dividend) which is exactly

RM15,000 as well.
3.0 In conclusion, joint ventures and associate must comply with MFRS 12 in disclosing the

interests of owner entities. If an enterprise holds between 20% to 50% ownership in another

company directly or indirectly, the investing is deemed to have significant influence over the

investee company and the investee company is called an associate. An associate company are

typically formed due to the course of a joint venture, where one company buys a significant

number of shares in another firm to create a larger organization with synergies. Due to the

minority interest does not include the right to control the associate company’s board decision;

the parent company does not have full authority over the policies and business decision-

making aspects of the associate company. In term of financial statement, both investment in

associate and joint venture used equity method. An associate unlike subsidiary, its financial

statements need not be consolidated with parent company. Furthermore, a joint venture as

well prepares its own financial statement separately from the owners pooling their resources.

MFRS 128 provides than an associate must be accounted for using the equity method with

certain exceptions as per Paragraph 17. For a joint venture, the parties have rights to the net

assets of the arrangement, while for a joint operation, the parties have rights to the assets and

obligations for liabilities of the arrangement.

Assignment 2
1.0 Genting Malaysia Berhad
Genting Malaysia Berhad (“Genting Malaysia” or the “Group”) (www.gentingmalaysia.com)

is one of the leading leisure and hospitality corporations in the world which located at 24 th

Floor Wisma Genting Jalan Sultan Sultan Ismail Kuala Lumpur 50250 Malaysia.

Incorporated in 1980, Genting Malaysia was subsequently listed on Bursa Malaysia’s Main
Market in 1989. Genting Malaysia is a renowned provider of premier leisure and

entertainment services and has a market capitalisation of RM15 billion as at 31 December

2020. Genting Malaysia owns and operates major resort properties including Resorts World

Genting (“RWG”) in Malaysia, Resorts World Casino New York City (“RWNYC”) and

Resorts World Bimini (“RW Bimini”) in the Bahamas, Resorts World Birmingham and over

30 casinos in the United Kingdom(“UK”) and Crockfords Cairo in Egypt. Genting Malaysia

also owns and operates two seaside resorts in Malaysia, namely Resorts World Kijal in

Terengganu and Resorts World Langkawi on Langkawi island.

Mah Sing Group Berhad

Mah Sing Group Berhad was listed on Bursa Malaysia in 1992 and ventured into property

development in 1994 which located at 1 Southbay City, Jalan Permatang Damar Laut,

Kampung Batu Maung, 11960 Bayan Lepas Pulau Pinang. Mah Sing Group Berhad is a

Malaysia-based company, which is engaged in investment holding and the provision of

management services to its subsidiary companies. The company’s operating segments include

properties, plastics and investment holding and others. The properties segment includes

investment and development of residential, commercial and industrial properties. The plastics

segment includes manufacture, assembly and trading of a range of plastic moulded products.

The investment holding and others segment includes investment holding operations,

provision of management and property support services and trading of building materials. Its

subsidiaries are engaged in property development, property management, investment holding,

trading of plastic and related products, provision of hospitality management services and

provision of utilities and management services among others.

2.0 Public listed company in Malaysia must prepare their financial statement in accordance

with Malaysia Financial Reporting Standard (MFRS) and the requirement of Companies Act
2016. In accordance to the MFRS 12 – Disclosure of Interest in Other Entities, all the

companies are required to disclose information that enables users of its financial statement to

evaluate:

a) The nature of, and risk associated with, its interest in other entities; and

b) the effect of those interests on its financial position, financial performance and cash flow.

Genting Malaysia Berhad

As refer to annual report 2020, the Group’s share of losses in an associate, Genting Empire

Resorts LLC, the holding company of Empire Resorts, Inc. (“Empire”) amounted to

RM285.1 million in 2020. The losses comprise of share of Empire’s operating loss of

RM58.8 million, financing costs as well as depreciation and amortisation of RM226.3

million. Empire’s operating performance was adversely impacted by the temporary closure of

Resorts World Catskills (“RWC”). RWC resumed operations with reduced capacity in early

September 2020. In FY 2019, the Group recognised a share of loss of RM31.6 million upon

the completion of the acquisition of Empire in November 2019. Such statement made in

annual report 2020 is in accordance with MFRS 12, saying that an entity is required to

disclose the name and the nature of the entity’s relationship with the associate. Furthermore,

MFRS 12 also require the entity to disclose the principal place of the business of the associate

and the proportion of ownership interest or participating share held by the entity, and if

different the proportion of voting rights held (if applicable). In order to fulfil such

requirement, Genting Malaysia Berhad has disclose the invested associate company

information in its group corporate structure as at 25 February 2021:

 S

ubsidiaries, if the business combination is achieved in stages, the carrying value of the

acquirer’s previously held equity interest in the acquire is remeasured to fair value at the

acquisition date, any gain or loss arising from such remeasurement are recognised in profit or

loss and Associates are entities in which the Group has significant influence. Significant

influence is the power to participate in the financial and operating policy decisions of the

associates but not control over policies. Furthermore, such information also finds from annual

report 2020, page 87 “Subsidiaries and Associate”.

In additional, Genting Malaysia Berhad also disclose the information of its associate such as

whether the investment in the associate is measured using the equity method or fair value and

a summarised financial information on the associates. The details are as follow:

From the details provided, we can conclude that the Group’s associate is accounted by using

equity method which including fair value adjustment for differences in accounting policy.

From the details can also be noted that the associate has a RM635.4 million comprehensive

loss for the period. The group has stated that there are no capital commitment and contingent

liability relating to Group’s interest in associate at the reporting date except for the Group’s

capital commitment.

The Group’s amount (16.7) due to an associate is unsecured, interest free and repayable on

demand.
Mah Sing Group Berhad

When the Group reduces its ownership interest in an associated company, but the Group

continues to use the equity method, the Group reclassifies to profit or loss the proportion of

the gain or loss that had previously been recognised in other comprehensive income relating

to that reduction in ownership interest if that gain or loss would be reclassified to profit or

loss on the disposal of the related assets or liabilities. When the group entity transacts with an

associated company of the Group, profits or losses resulting from the transactions with the

associated company of are recognised in the Group’s consolidated financial statements only

to the extent of the Group’s interest in the associated company that are not related to the

Group. Furthermore, Investment in Associated Company, annual report 2020 in accordance

to MFRS 12.

The company of Mah sing group berhad invested associate company was Prestige Greenery

Sdn Bhd and it is a dormant company as at 31 December 2020. The proportion of ownership

interest and voting power held by the group as at 2020 is 39.5% which same as 2019.

Besides, the amount or unquoted shares Mah Sing invested in associate and accumulated

impairment. Group’s share of post-acquisition accumulated losses is (-).

The details of associate company are as follows:

The associated company of the Group and of the Company is under the process of striking

off. Accordingly, the cost of investment has been written off during the year.

3.0 The similarities between Genting Malaysia Berhad and Mah Sing Group Berhad are both

companies have disclosed the name, proportion of ownership interest and voting power held

by the group, the principal activity and the principal business place of their associated

company in the financial statement in accordance to MFRS 12. The main similarities for both

companies in disclosure are that the investments in associate company are accounted for

using equity method. However, there are some differences in disclosure between both

companies which is Mah Sing meets zero (-) unquoted shares, at cost, accumulated

impairment and group’s share of post-acquisition accumulated losses compared to Genting

Malaysia Berhad as at 31 December 2020. Finally, Genting Malaysia Berhad Group’s share

in the accumulated loss of associated company added in its 2020 annual report due to the

transaction of acquired associate company was just completed recently but Mah Sing Group

Berhad Group’s share in the accumulated losses of associated company ceased due to share

of losses of associated company exceed the carrying amount of its investment in the

associated company.
BBFA4403
ADVANCED FINANCIAL
ACCOUNTING
Two heads are better than one.
Undeniably, companies will
benefit from
hiring associates. Company
can work independently and
give the appearance as if
the company is made up of a
team of professionals.
Potential clients will see the
company as a corporation
rather than someone flying
solo. Here are some benefits
of associate companies are:
BBFA4403
ADVANCED FINANCIAL
ACCOUNTING
Two heads are better than one.
Undeniably, companies will
benefit from
hiring associates. Company
can work independently and
give the appearance as if
the company is made up of a
team of professionals.
Potential clients will see the
company as a corporation
rather than someone flying
solo. Here are some benefits
of associate companies are:
BBFA4403
ADVANCED FINANCIAL
ACCOUNTING
Two heads are better than one.
Undeniably, companies will
benefit from
hiring associates. Company
can work independently and
give the appearance as if
the company is made up of a
team of professionals.
Potential clients will see the
company as a corporation
rather than someone flying
solo. Here are some benefits
of associate companies are:
4.0 In conclusion, all the public listed companies in Malaysia are required to disclose their

interest in other entities such as associate, join arrangement or subsidiaries under MFRS 12. It

is a important for all the companies to follow the disclosure. Under MFRS 12, the

information such as the name of the entity, the nature of the entity’s relationship, the

principle business place, the proportion of ownership interest or participating share held by

the entity, the fair value of investment if there is a quoted market price for the investment,

summarised financial information about the investment, the total comprehensive income,

other income, profit or loss for the investment commitment and contingent liabilities all of

the disclosed in the financial statement accordingly. MFRS 12 important disclosure which

used to protect the users by enable them to evaluate the nature, extent and financial effects of

an entity’s interest in either an associate or joint venture.