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Financial Accounting II - FARM FRESH BERHAD
Financial Accounting II - FARM FRESH BERHAD
DIPLOMA IN ACCOUNTING
RESEARCH PROJECT
MARK:
COMMENT:
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TABLE OF CONTENT
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PART D – Plagiarism
Declaration:
We confirm that we have read and shall comply with all the terms and condition of TARUC’s
plagiarism policy.
We declare that this assignment is free from all forms of plagiarism and for all intents and
We further confirm that the same work, where appropriate, has been verified by antiplagiarism
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TURNITIN REPORT
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MARKING SCHEME
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APPENDIX 2
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INTRODUCTION
Our research firm is Farm Fresh Company, a dairy organization in Malaysia. Farm Fresh has two
factories operating in Bandar Muadzam Shah, Pahang, and in Larkin, Johor where the industrial
facility's creation limit arrives at 12 million liters each year with an expected 1,000,000 liters each
month. The company was founded in 2009 by Loi Tuan Ee, and Khazanah Nasional Berhad, the venture
capital institution of the Malaysian government, holds 30% of the shares as an investor in the company
(Wikipedia, 2022).
Farm Fresh was becoming quicker than Loi might have at any point envisioned. With Farm Fresh
products accessible in all significant urban communities in Malaysia, Loi and Azmi spearheaded a
creative dissemination technique that would permit rustic Malaysians to find regular goodness as well.
As of March 2022, there are 46 regional stockings, 900 home distributors, and 1,772 agents in our
network, covering every state and region of Malaysia (Farm Fresh, 2022).
A few theories and practices serve as the foundation for the accounting system. Most accountants
would concur with a few fundamental ideas, commonly referred to as accounting concepts, upon which
accounting theory and practice are built. They are viewed as a collection of detailed procedures that
offer a fundamental basis for financial reports. The relevance of these ideas and precepts rests in the
fact that they touch on every aspect of financial accounting while also having an immediate impact on
the creation of financial reports. When creating financial reports, accountants must exercise sound
judgment. These ideas and guidelines support their efforts to avoid being duped and to produce accurate
financial statements (Business and Finance, 2015).
Furthermore, these concepts have likewise been coordinated into the different accounting
guidelines, so a user will not execute a norm and afterward observe that it is in a struggle with one of
the accounting concepts (AccountingTools, 2022). For example, accounting period, historical cost,
prudence, and so forth.
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CONTENT
Finished Goods: Full cream milk, Yogurt drink, and Nubian goat’s milk (Farm Fresh
Berhad, 2022)
WIP: making decisions on the budget of purchasing the raw materials and comparing them
to the timeline projects.
Raw Material: nitrile latex and natural rubber latex (Top Glove, 2021)
WIP:
(1) Latex collection is collected from rubber trees and shrubs or bought through the plastic
market and needs to be harvested immediately from the rubber trees and then sent to
the factory for production.
(2) Beading is a process in which as many as 12 chemicals are put in to assist the next
manufacturing process of latex gloves to prevent the disintegration of the elastic atoms
in a definitive item by intensity, moistness, and ozone (Kolesnikova, 2022).
Finished Goods: nitrile examination powdered glove and CPE apron (Top Glove, 2022)
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(ii) There are two types of inventories valuation methods that are allowed by MFRS102
Inventories. The first is the FIFO method. FIFO is an abbreviation for "First-In, First-
Out." It is a method used in the calculation of the cost of goods sold for cost flow
assumptions. The FIFO method is based on the assumption that the oldest products in a
company's inventory were sold first. The calculations are based on the prices paid for the
oldest products (FreshBooks, 2019). Dell Computer, Nike, and Amazon are among the
companies that use the FIFO method.
The second is the AVCO method. The average cost is also known as the weighted
average cost. When a new item is purchased or produced during the period, the AVCO of
similar items is recalculated. Put another way, the weighted average cost could be
calculated regularly such as at the end of each month. Every time a different price is paid
for an item, the average cost of inventory changes (Ruiz, 2022). Fuel companies, chemical
manufacturers, and pharmaceutical companies are examples of companies that use the
weighted average costing method for inventory purposes.
(iii) The inventory valuation method adopted by Farm Fresh from its latest financial
report is the FIFO method (Appendix 1). The accounting assumption adopted by Farm
Fresh is the historical cost assumption (Appendix 2) and the money measurement
assumption (Appendix 3) (Bursa Malaysia, 2022).
(a) The FIFO method has the advantage of being realistic because it is based on the
assumption that inventories are issued in the order in which they are received. Inventory
values are then simple to calculate and are based on the actual price paid. Closing
inventories are calculated using the most recent purchase price, which reflects the
current market value. The Inland Revenue Board of Malaysia accepts FIFO for tax
purposes, and international financial reporting standards accept it as well.
The FIFO method saves time and money when determining the exact cost of
the inventory that is being sold because it is based on the most recent cash flows from
purchases that are used first. Then, because FIFO solves the problem of sometimes
being unable to determine the costs of goods sold at the point of sale, it is also a
reasonably realistic strategy to employ.
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Furthermore, the FIFO method also has a few disadvantages. in a manufacturing
business, raw materials used in production are purchased at the earliest price (outdated
price), which is unrealistic when determining the selling price of finished goods. Then,
identical raw material items may be issued to production or jobs at different prices
simply because they are deemed to be made from different batches of purchases. FIFO
values inventories at the most recent price during inflation, which tends to understate
the cost of sales and thus overstate profit. This is contrary to the concept of prudence
because it provides a lower cost of sales figure than other methods of valuation, thereby
overstating the profit.
Various types of businesses will count their inventory in various ways. The
perpetual method is a method for quantifying closing inventory. A very large
company, for example, with massive warehouses, will have an automated inventory
system to track the movement of stock out and stock in from the beginning to the end
of the year. At the end of the year, this system will automatically generate a closing
inventory figure. Even though the perpetual method is a very accurate method of
record-keeping, most businesses conduct physical inventory counts, also known as
stock-takes. Physical inventory counts will be used by businesses to compare and
confirm the accuracy of inventory records at the end of the fiscal year.
Furthermore, at the end of the year, smaller businesses are more likely to conduct
a physical inventory count. The periodic method is a method for controlling inventory
movement. For example, at the end of the year, a small stationery store will close for a
day and perform a physical count of all the items in the store. There were no records of
inventory outflows and inflows. As a result, no records exist regarding the balance of
inventories on hand at any given time.
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(c) The FIFO method is the best inventory valuation method for Farm Fresh
Company. The majority of businesses use FIFO because it is a superior bookkeeping
strategy to use when the economy has stable costs. However, when inflation is high,
using FIFO results in what is known as "inventory profits." These are the benefits of
simply holding stock and expanding actual resources. (Heimduo, 2020).
Furthermore, the FIFO method is the only method permitted by the Internal
Revenue Service (IRS). If the company's inventory costs are decreasing over time,
FIFO will allow it to claim a higher average cost-per-piece on newer inventory, which
can help it save money on taxes. (Erply, 2022).
Moreover, Farm Fresh Company uses the FIFO method because it is a foods and
beverage manufacturer. All dairy products produced have their expiration dates.
Therefore, the company uses FIFO in order to prevent food expiration and avoid
wasting food.
Hence, the FIFO method is more accurate than others inventory valuation
methods, and it is less regulated by the IRS than others, which is why it is such a reliable
choice for enterprises (Erply, 2022).
The importance that the inventory should compute on net realisable value is
because it assists the company with calculating the cost of inventories and recording it
at the lower cost or the market cost.
NRV also directly affects the company’s cost of goods sold (COGS), total
revenue, and the monetary value of the remaining inventory at the end of the accounting
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period. Therefore, NRV will affect the profitability and potential value of the company,
as shown in its financial statement (Jenkins, 2021).
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CONCLUSION
In conclusion, we have learned about the types of farm fresh company inventories. After
conducting this research, we now understand the benefits and limitations of the FIFO method, methods
to control inventory movement, types of basic inventory control methods, the types of inventory
valuation methods permitted by MFRS102 Inventories, and the types of inventories of Farm Fresh
Company. Farm Fresh Company's operating management plays a significant role in keeping one
company running smoothly. They have excelled at overseeing all aspects of operations management
and actualizing drain from farm to shelf in as little as 48 hours for quality management.
Moreover, as a result of this research, all of us have increased our understanding of accounting
concepts and conventions, inventory methods, and the operations of this company. The accounting
concept and inventory method of the farm fresh company are broad concepts that improve their
performance and work quality. This research has also helped us gain additional knowledge, decision-
making skills, and discerning and analytical ideas.
This company's accounting system also provides critical data about costs and earnings, profits
and losses, liabilities and assets for decision-making, planning, and controlling processes within a
business that help companies grow and develop.
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APPENDICES
Appendix 1: Type of inventory valuation method of Farm Fresh (Bursa Malaysia, 2022).
Appendix 2: Historical cost concept adopted by Farm Fresh (Bursa Malaysia, 2022).
Appendix 3: Money measurement concept adopted by Farm Fresh (Bursa Malaysia, 2022).
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REFERENCES
1. AccountingTools, 2022. Accounting Concepts Definition. [Online]
Available at: https://www.accountingtools.com/articles/accounting-concepts
[Accessed 26 August 2022].
2. Bursa Malaysia, 2022. Annual Report 2022 (Part 2) of Farm Fresh Berhad. [Online]
Available at:
https://www.bursamalaysia.com/market_information/announcements/company_announcemen
t/announcement_details?ann_id=3279667
[Accessed 26 August 2022].
3. Business and Finance, 2015. The Importance of Accounting Concepts and principles. [Online]
Available at: https://businessandfinance.expertscolumn.com/importance-accounting-concepts-
and-principles
[Accessed 30 August 2022].
4. Erply, 2022. What Is FIFO Inventory Costing and Why Use It?. [Online]
Available at: https://erply.com/what-is-fifo-inventory-costing-and-why-use-it/
[Accessed 21 August 2022].
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8. Heimduo, 2020. Why do most companies use FIFO?. [Online]
Available at: https://heimduo.org/why-do-most-companies-use-fifo/
[Accessed 21 August 2022].
9. Jenkins, A., 2021. What Is Inventory Valuation and Why Is It Important?. [Online]
Available at: https://www.netsuite.com/portal/resource/articles/inventory-
management/inventory-valuation.shtml
[Accessed 23 August 2022].
10. Kolesnikova, T., 2022. Top Glove Manufacturing Process - Notes for Medics. [Online]
Available at: https://studybay.com/blog/top-glove-business-research-study-creation/
[Accessed 30 August 2022].
11. Ruiz, E. G., 2022. Weighted Average Cost Method of Calculating Inventory. [Online]
Available at: https://fitsmallbusiness.com/average-cost-
method/#:~:text=The%20weighted%20average%20cost%20(AVCO,(COGS)%20during%20t
he%20year.
[Accessed 12 August 2022].
14. Top Glove, 2021. TOP GLOVE SETS EYES ON BOLSTERING ITS WORLD LEADING
POSITION. [Online]
Available at: https://www.topglove.com/single-news-en?id=699&title=top-glove-sets-eyes-
on-bolstering-its-world-leading-
position#:~:text=Top%20Glove%20noted%20that%20it,with%20normalising%20rubber%20
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glove%20demand.
[Accessed 30 August 2022].
17. Vitello, T., 2016. Overview of the Construction Materials Industry. [Online]
Available at: https://www.eazystock.com/blog/building-business-construction-materials/amp/
[Accessed 30 August 2022].
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