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Cc2 Group n2
Cc2 Group n2
Comprehensive Case 2
Prepared For:
Dr. Faisol B Elham
Prepared By:
Group 2
No Name Matric No.
1. Gui Xue Ching 277223
2. Ahmad Afiq Irfan Bin Ahmad Kamal 280468
3. Siti Sholehah Binti Johar 280544
4. Adeleen Farhani binti Ahmad Fauzi 281508
5. Mazlina Binti Muhammad 281603
Submission Date:
(a) Show the necessary journal entries for the derivative instruments during
2020
April 1 No Journal Entry - -
Cash 2,392,540.80
Forward Contract – Aluminium 2,392,540.80
(USD1,229,382 -USD 1,769,641.20
+USD 2,932,800)
Forward contract-Foreign currency 350,400
Cash Flow Hedge Reserve [(4.16- 350,400
4.08) x USD 4,380,000]
Forward contract-Foreign currency 62,196
Cash (USD 412,596 - USD 350,400) 62,196
Inventory – raw material 20,592,000
Cash (3000 x USD 1650 x 4.16) 20,592,000
Transportation Cost 20,800
Cash (4.16 x USD5,000) 20,800
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30 June 2020
Change in FV of forward contract = (USD 1570 – USD 1460) x 3000 MT = USD
330,000
The discount rate on 30 June 2020 = USD 330,000 x 0.887 = USD 292,710
The exchange rate on 30 June 2020 = USD 292710 X 4.20 = USD 1,229,382
31 Dec 2020
Change in FV of forward contract = (USD 1570 – USD 1415) x 3000 MT = USD
465,000
The discount rate on 30 June 2020 = 465000 X 0.942 = USD 438,030
The exchange rate on 30 June 2020 = USD 438030 X 4.04 =USD 1,769,641.20
30 June 2021
Change in FV of forward contract = (USD 1650 – USD 1415) x 3000 MT = USD
705,000
The exchange rate on 30 June 2020 = USD 705000 x 4.16 = USD 2,932,800
reported in the financial statements for the year ended 31 December 2020 with
SP Bhd aware that their company need to be in line with its risk management
Therefore, on 1 April 2020, SP Bhd entered a foreign currency forward contract. The
hedge was classified as fair value hedge and only intrinsic value was designated as
and qualify as fair value hedges are recorded in profit or loss, together with any
changes in the fair value of the hedged asset or liability that are attributable to the
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hedged risk. Financial instruments are initially recognized in the statement of financial
position at cost and are carried as assets when fair value is positive and as liabilities
as fair value is negative. Changes in fair value of derivatives are included in the income
statement.
4,380,000 (USD 1,460x3000) and there are changes in the fair value on 30 June 2020
which is USD 330,000. Meanwhile on 31 December 2020, there are changes in the
fair value with the amount of USD 465,000 and there are also changes in the fair value
on 30 June 2021 which is USD 705,000. The differences between the fair value will
The information that needs to be reported in the financial statements for the
year ended 30 June 2020 in SP Bhd is an asset (forward contract) at amount USD
4,710,000 in financial position as the fair value is higher than contract price. While in
the financial statements for the year ended 31 December 2020 in SP Bhd is a liability
(forward contract) at amount USD 4,245 ,000 in financial position as the fair value is
lower than contract price and forward contract is asset in the financial statement for
(c) Explain how to test hedge effectiveness under MFRS 9 and its accounting
at the start of the hedge and on an ongoing basis, as well as through retrospective
testing on a regular basis to establish how efficient the hedging relationship is. The
Standard under MFRS9, on the other hand, does not define a single approach for
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determining whether a hedging relationship fulfils hedge effectiveness standards. As
entity's risk management strategy, which includes the key aspects of the hedging
criteria, the approach might be either qualitative or quantitative. Ratio analysis, which
compares previous changes in the fair value or cash flows of the hedged item
attributable to the hedge risk with past changes in the fair value or cash flows of the
hedging instrument, is one approach that may be utilised. A company may also utilise
between the hedged item's fair value or cash flow and those of the hedging instrument.
If the cash flow hedge fulfils the qualification requirements, the hedging
under the heading 'cash flow hedge reserve.' Furthermore, any remaining gain or loss
profit or loss.
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SECTION B
According to MFRS13, fair value is the price that would receive to sell an asset
the date of measurement. The assumptions that market participants would use will be
used by a company to price the asset or liability under current market conditions,
including assumptions about risk in measuring fair value. The company is required to
disclose information in order to help the users of financial statements to get to know
the assets and liabilities that are measured at fair value either on a recurring basis or
non-recurring basis in the Statement of Financial Position after initial recognition, the
measurements. Besides that, the disclosure of information also includes the fair value
measurement that applied significant unobservable inputs (Level 3), the effect of the
fair value measurement, the nature, characteristics and risks of the asset or liability,
and the level of the fair value hierarchy. The fair value measurements are classified
as Level 1, Level 2 and Level 3. For the amounts of any transfers of assets and
liabilities between Level 1 and Level 2 of the fair value hierarchy, the reasons for those
transfers between levels are deemed to have occurred, separately disclosing and
discussing transfers into and out of each level. For fair value measurements classified
within Level 2 and Level 3 of the fair value hierarchy, valuation techniques and the
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inputs used in the fair value measurement should be described, any change in the
valuation techniques and the reason for making such change. However, for fair value
information about the significant unobservable inputs used in the fair value
measurement. The company should also disclose the reason a non-financial asset is
being used to differ from its highest and best use if the highest and best use of a non-
the companies.
The fair value of the investment properties as of 31 December 2020 has been
and category of the properties being valued, and not related to the company. The fair
value was determined based on the comparison approach that reflects recent
transaction prices for similar properties and adjusts to reflect the conditions and
locations of the subject properties. In estimating the fair value of the properties, the
highest and best use of the properties is their current use. Harn Len Corporation Bhd
classified their investment properties such as freehold land and building and long-term
leasehold land and building are using a fair value hierarchy that reflects the nature and
complexity of the significant inputs used in making the disclosure. At the end of the
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reporting period, the fair value measurement of the company’s properties is classified
For financial instruments, the carrying amounts of financial assets of the Harn
Len Corporation Bhd as at the reporting date are approximately at their fair values due
to their short-term nature, the insignificant impact of discounting or they are floating
rate instruments that are re-priced to market interest rates on or near the reporting
date. The company uses fair value hierarchy to measure the assets for financial
instruments. They make an analysis of financial instruments that are measured after
initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which
the fair value is observable. In level 1, the fair value is RM 3,892,023 and increased in
level 3 which is RM 2,500,000. At level 1 of fair value, the fair value of other
investments in quoted shares that are quoted in an active market at the end of the
reporting period and at level 3, the fair value of other investments in unquoted shares
measured at amortized cost, fair value through other comprehensive income (FVOCI)
and fair value through profit or loss (FVPL) whereas financial liabilities are measured
at FVPL and at amortised cost. Both financial asset unquoted equity securities at
FVOCI and wealth management products at FVPL are measured by level 3 of fair
Financial liabilities are recognized initially at fair value and in the case of loans and
borrowings and payables, net of direct transaction cost. Financial liabilities that held
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for trading are measured at FVPL whereas other financial liabilities which are trade
and other payables, lease liabilities, loans and borrowings including bank overdraft,
measured at fair value at each reporting date. The fair values of long-term loans and
estimated by discounting expected future cash flows and lease payment at market
at cost, including transaction costs. The investment properties are measured based
valuers on direct comparison method or market approach. The fair values of the
completed investment properties are categorized as Level 3 under the fair value
hierarchy. The total amount of investment properties by using level 3 of the fair value
price per square foot of comparable properties adjusted for location, accessibility, size,
title conditions and restrictions, land tenure, zoning or designated use, building,
improvements and amenities and time element. Under the market approach, a
based upon the principle of substitution under which a potential buyer will not pay more
for the property than it will cost to buy a comparable substitute property.
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3. TH Plantation Berhad
measured by level 3 of fair value hierarchy with the amount of RM 1,825,000. The
valuation technique for the unquoted price is by calculating the net assets value at the
entity reporting date. While all financial liabilities are measured at carrying amount, not
at fair value within Level 3. Financial liabilities, the amount due to related companies
not carried at fair value because discounted cash flows using a rate based on the
current market of borrowing of the group at the entities reporting date while the amount
due from subsidiaries (SUKUK Murabahah Medium Term Notes and Commodity
Murabahah Term Financing-i) is because of discounted cash flows using a rate based
The biological assets of TH Plantation Berhad are measured initially at fair values
with less cost to sell and the changes in fair value shall be recognised in profit or loss
for the period. The main biological asset of the company is Fresh Fruit Bunches (FFB).
The company used fair value hierarchy as fair value measurement of the company’s
biological asset. The total amount of biological assets of the Group by using level 3 of
instruments held at fair value, which include quoted bonds/funds and quoted shares.
The fair value of financial instruments held at fair value hierarchy comprises of Level
1 and Level 2 fair value hierarchy for assets under financial instruments. The present
value of future principal and interest cash flows, discounted at the market rate of
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interest at the end of the reporting period, is used to establish fair value for disclosure
reasons. Globetronics Technology Berhad discloses that the fair value of an asset to
circumstances that precipitated the transfer. The financial accounts reflect that there
was no transfer between Level 1 and Level 2 fair values throughout the year.
building leased to a group affiliate. The company designated its investment properties
as level 3 fair value by estimating the investment property's fair value using
unobservable inputs. Because relevant inputs are not visible, they must be designed
to represent the assumptions that market participants would make when calculating a
suitable price for the assets. The Directors' appraisal for the fair value of the Group's
investment property is based on the most current available market information as well
as recent experience and expertise in the region and type of property being assessed.
level 3 fair value, with an estimated at approximately RM14.6 million utilizing the
investment property's unobservable inputs. The Directors evaluate the fair value of the
have been advertised for sale in the same or other comparable areas.
• Enquiries from relevant property valuers and real estate agents on market
The company discloses that the fair value of an asset to be transferred between levels
the transfer.
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5. SMRT Holdings Berhad
Fair value of an asset or a liability, except for share-based payment and lease
transactions, is determined as the price that would be received to sell an asset or paid
measurement date. Fair value is categorized into different levels in a fair value
hierarchy based on input used in the valuation technique. The carrying amounts of
cash and bank balances, trade and other receivables, trade and other payables and
short-term borrowings, are reasonable approximation of fair value due to the relatively
with variable interest rates, the carrying amounts approximate fair values as they are
repriced to market interest rates for liabilities with similar risk profiles. The fair value
been no transfer between Level 1 and Level 2 during the financial year (2019: no
Investment properties are leasehold land and buildings which are held either to
earn rental income or capital appreciation or for both and are not substantially
occupied by the Group. Such properties are measured initially at cost, including
transaction costs. After the initial recognition, investment properties are stated at cost
policies. Any gains and losses on the retirement or disposal of investment properties
are recognized in the profit or loss in the financial year in which they arise. Transfers
are made to or from investment property only when there is a change in use. For a
transfer from investment property carried at fair value to owner-occupied property, the
deemed cost for subsequent accounting is the fair value at the date of change in use.
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c. Summarize the key finding(s) of the application of the disclosure of fair
seen from the discussion in part (b) above. Each company must act in accordance
with the disclosure requirement and provide users information on fair value
unobservable inputs.
value, each company is expected to disclose the valuation technique and inputs used.
There are three ways that can be applied by companies in general which are the
market approach, the income approach, and the cost approach. The approach applied
Based on the information in part (b) above, all companies that use level 2 or
level 3 of the fair value hierarchy will declare the valuation technique that they use.
For example, Harn Len Corporation and others 4 companies that have been stated in
part (b) above has used level 3 for investment properties that has specified the
valuation technique they use, which is a combination of the comparison method and
Aside from that, each corporation must publish the level of the fair value
hierarchy it used, whether it was level 1, level 2, or level 3. A company must first
identify and analyze the inputs that they will use to calculate the fair value of their
assets and liabilities before calculating the fair value. If there is a quoted price for
equivalent assets or liabilities in an active market, the corporation can apply level 1
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and measure the fair value without making any adjustments. However, if there is no
readily available quoted price, the company can choose level 2 or level 3. When the
asset or liability has inputs other than the quoted price that are observable, the
corporation must use level 2. When the inputs are unobservable, they must use level
3.
Based on the findings in part (b) above, all five companies report that they utilize
level 1 for their assets or liabilities only when there is a quoted price in an active market
that they may use to determine fair value. In level 1, the assets always identified as
current assets. The company should disclose inputs used for level 2 or unobservable
inputs used for level 3 when measuring fair value using level 2 or level 3. In part (b)
above, most companies disclose their fair value of the assets in level 3 fair value
Berhad that using level 3 to disclose their investment properties, the company has
identified and reveal that investment property's unobservable inputs that will be utilize
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References
Web Source:
Parkson Holdings Berhad. (2020). Annual Report 2020. Retrieved December 4, 2020,
from https://www.bursamalaysia.com/marketinformation/announcements/com
pany_announcement/announcement_details?ann_id=3099672
Bhd, H. L. (2021, April 30). Annual Report Harn Len Corporation Bhd 2020. 、
Retrieved from Bursa Malaysia:
https://www.bursamalaysia.com/market_information/announcements/compan
y_announcement/announcement_details?ann_id=3153547
SMRT Holdings Berhad (2020). Annual Report 2020. Retrieved December 12, 2021,
from
https://www.bursamalaysia.com/market_information/announcements/company_announc
ement/announcement_details?ann_id=3162347
Globetronics Technology Berhad (2020) Annual Report 2020. Retrieved December 12,
2021, from
https://www.bursamalaysia.com/market_information/announcements/company_annou
ncement/announcement_details?ann_id=3145964
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Appendices
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Figure 3: Parkson Holdings Berhad Investment Properties
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Figure 5: Harn Len Corporation Bhd Financial Instrument
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Figure 7: TH Plantation Berhad Financial Instrument
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Figure 9: SMRT Holdings Berhad Financial Instruments
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Figure 11: SMRT Holdings Berhad Investment Properties
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Figure 13: Globetronics Technology Berhad Financial Instruments
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