13 Bbfa1103 T9

Topic  Accounting for
Companies
9
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe current and long-term liabilities;
2. Differentiate the equity components of sole proprietorship,
partnership and company;
3. Calculate the amount of dividends entitled to shareholders based on
the different types of shares;
4. Calculate earnings before tax for company; and
5. Prepare balance sheet for company and statement of retained
earnings.
 INTRODUCTION
You have a great business idea that will guarantee huge profits. To start this
business you need RM1,000,000 cash. You managed to raise RM600,000 cash after
selling all your personal assets and belongings. How can you source the remaining
RM400,000 cash needed to start the business? You might be able to find a partner
who is willing to invest RM400,000 cash in the business or you can borrow the
amount needed from your friend or from a financial institution. There are several
ways to raise capital (money) needed for a business. This can be done through
borrowings (liabilities) or through equity financing.
Copyright © Open University Malaysia (OUM)

206  TOPIC 9 ACCOUNTING FOR COMPANIES
We will start by looking at the definition of current liabilities as defined by the

Malaysian Financial Reporting Standards (MFRS). The components of selected
current liabilities and long-term liabilities will be explained. We will also look at the
ownerÊs equity and the different components of equity for sole proprietorship,
partnership and company. Emphasis is made to explain the equity component of a
company. Comparison of how equity will be reported by each form of business will
be made as well. It is important to understand the equity component of a company
for financial statements analysis, where the companyÊs financial statements will be
used.
9.1 DEFINITION OF LIABILITIES
ACTIVITY 9.1
List down all your liabilities and identify the years you need to settle
them.
Do you plan to settle any of them sooner than necessary? Why?
Funds or money to finance business activities (buying fixed assets, paying

expenses) comes either from borrowings (liabilities) or from ownerÊs contribution
(ownerÊs equity). You have learned earlier how to record borrowings from the
bank as well as the purchase of goods on credit. All these transactions give rise to
liabilities.
Liability represents an obligation for an entity. This obligation needs to be

satisfied by the entity through payment of cash or the surrendering of the
entityÊs assets or services.
To illustrate, let us assume that you received cash today for two cakes to be
delivered to your client in two weeksÊ time. Have you earned your revenue? Did
you deliver any goods or services? The fact is that you have received cash in
advanced for goods that will be delivered later, hence, no revenue is earned. Upon
receiving the cash, you have the obligation to deliver the cakes in two weeksÊ time,
thus you should record the receipt of cash (unearned revenue) as a liability.
In Topic 1, you were told that liabilities can be categorised as current or non-
current. Now let us look at how the Malaysian accounting standard defines current
liabilities.

TOPIC 9 ACCOUNTING FOR COMPANIES  207
According to MFRS 101 ă Presentation of Financial Statements, a liability shall

be classified as current when:
(a) The entity expects to settle the liability in its normal operating cycle;
(b) The entity holds the liability primarily for the purpose of trading;
(c) The liability is due to be settled within twelve months after the reporting
period; or
(d) The entity does not have an unconditional right to defer settlement of the
liability for at least twelve months after the reporting period. Terms of a
liability that could, at the option of the counterparty, result in its
settlement by the issue of equity instruments do not affect its
classification.
An entity shall classify all other liabilities as non-current.

Source: http://www.masb.org.my/pdf.php?pdf=
BV2018_MFRS%20101.pdf&file_path=pdf_file (para 69)
9.2 CURRENT LIABILITIES
Current liabilities are obligations by an entity that need to be settled using

current assets or by creating another current liability within a period of one
year.
You have learned how to record transactions related to accounts payable,

borrowings and accrued expenses in an earlier topic. Current liabilities comprise
the following as shown in Figure 9.1. We will discuss some of these current
liabilities in the following.

Figure 9.1: Current liabilities
9.2.1 Bank Overdraft

A bank overdraft is a facility given by banks to current account holders to enable
the holder to draw cheques with larger amount than the holderÊs bank balance. An
overdraft is indicated by a credit balance in a firmÊs cash account. The bank will
charge the firm a fixed interest rate for the overdraft amount. The original amount
plus the interest must be paid by the current account holder.

9.2.2 Bank Loans

Bank loans are also referred to as notes payable, representing borrowings made by
businesses. Borrowings can be long term or short term. Short term refers to
borrowings that need to be paid within a period of one year. Borrowings are
subjected to interest. Interest rate is normally quoted per annum.
Example 1
You borrow RM10,000 from Giant Bank and the interest rate is 10%, and you
are required to pay back the original amount borrowed plus the interest in six
monthsÊ time. How much do you need to pay back? The amount is RM10,000
(the original amount) plus interest of RM500 (RM10,000 × 10% × 6/12). The
interest is not RM1,000 since you only borrow the money for six months.
The journal entry to be recorded at the date of payment is:
Date Dr Bank loan 10,000
Dr Interest expense 500
Cr Cash 10,500
To record repayment of bank loan plus interest charges.
If you have long-term borrowings, for reporting purposes, you will need to
identify the amount that is due within the next twelve monthsÊ period and separate
this from the amount that is due after the twelve months. The amount that is due
within twelve months will be reported as the current portion of long-term
liabilities under current liabilities while the remaining balance will be reported as
non-current liabilities.
Example 2
On 31 December 2019 you borrow RM1,000,000 from Giant Bank and the
interest rate is 10%. You are required to pay back the original amount in ten
instalments (at the end of every year) plus the annual interest. What will be
reported in the balance sheet as at 31 December 2019?
You will report RM100,000 as the current portion of long-term liabilities (as the
first instalment is due on 31 December 2020 within 12 months). For your
information no accrued interest will be recorded on 31 December 2019 as it is
the first day of borrowing (refer to Topic 5 – accrued expenses).
The remaining RM900,000 will be reported as long-term liabilities in the
balance sheet.

9.2.3 Bills Payable
Bills payable is a note issued by one entity, promising to pay another entity.
It is usually issued when you, as the debtor, are unable to pay your account
payable balance to your supplier (creditor).
You will issue a bill payable note promising to pay the amount within a certain
period at a certain interest. In other words, your account payable balance will be
zero but you have created another liability called bill payable. The amount plus
interest will need to be paid within the promised time period.
Example 3
You purchased goods on credit from Paris Trading for RM6,000 on 1 June 2019.
Credit term was n30. If after thirty days you are unable to pay for the amount,
you can issue a bill payable to Paris Trading. The note promises to pay the
amount in three monthsÊ time, and at a 10% interest.
You will record the issue of bill payable as follows:
1 July 2019 Dr Account payable 6,000

Cr Bill payable 6,000
To record the issue of bill payable, term three months and
10% interest.
Regarding the date of settlement of the bill payable, you can pay earlier, which
means the interest charges will be lower. Assume that the payment is made on
1 September 2019 (two months instead of the promised three months). The
interest is RM100 (RM6,000 × 10% × 2/12). The following entries will be made:
1 Sept 2019 Dr Bill payable 6,000

Dr Interest expense 100
Cr Cash 6,100
To record the settlement of bill payable and the interest charged.
The receiver of bill payable will record this as bill receivable and will report this
under current assets.

Example 4
To illustrate, we will look at how the Example 3 will be recorded in Paris
Trading.
Paris Trading will record the receipt of bill payable from you in his book as the
following:
1 July 2019 Dr Bill receivable 6,000

Cr Account receivable 6,000
To record the bill receivable term three months and 10%
interest.
When payment is received on 1 Sept 2019, the following will be recorded:
1 Sept 2019 Dr Cash 6,100

Cr Bill receivable 6,000
Cr Interest revenue 100
To record the receipt of bill receivable and interest received.
9.2.4 Dividends Payable
Dividends payable is a liability unique to companies. It arises as a result of

the difference in the date when the dividend is declared and the date when
the dividend is paid.
The date when the dividends are declared and date of payment might be months
apart. For example, final dividends are declared at the end of the accounting
period while the payment will only be made two or three months later in the next
accounting period. This represents a liability for the company to pay the amount
in the next period. You will learn more about dividends in the equity section of
this topic.

9.3 LONG-TERM LIABILITIES
Long-term liabilities are obligations of an entity that need to be settled in a

period of more than twelve months from the date of reporting. The
obligation is settled by giving up (sacrificing) the entityÊs current assets.
Long-term liabilities are as shown in Figure 9.2 and will be discussed in the
following subtopics.
Figure 9.2: Long-term liabilities
9.3.1 Long-term Bank Loans

Long-term bank loans (notes payable) are borrowings that need to be paid within
a period of more than twelve months. As we have learned earlier, long-term loans
can be classified partially as current and partially as a long-term liability.

9.3.2 Mortgage Loans

Mortgage loans refer to borrowings made by an entity (for example, bank) that
involves securing a loan against an asset. In other words, the amount of borrowing
is tied against the entityÊs assets (building, vehicle or land). For this type of liability,
in the event that the borrower cannot pay the amount, the lender can sell off the
assets secured and the payment received will be used to pay off the debts. Your
housing loan is an example of a secured loan. If you are unable to pay off the loan,
the bank can take control of your house, sell it and the money will be used to pay
off the amount borrowed. The difference (surplus) is returned to the borrower.
9.3.3 Bonds and Debentures

Bonds and debentures are issued by an entity in order to finance its activities.
Normally big corporations and governments will issue bonds. The Government of
Malaysia issued 10-year Samurai Bonds during the quarter of 2019 that were
priced at a full cost of 0.63% per annum amounting to RM7.4 billion and due in
2029.
The issuer will have an obligation to pay the interest payment to the bond holder,
normally semi-annually until the bond matures. The face value or bond will be
paid by the issuer upon maturity.
ACTIVITY 9.2
1. The Government of Malaysia has issued several bonds to the

public. Can you identify and list down the reasons why these
bonds are offered to the public?
2. Categorise all the obligations that you have into current and non-
current liabilities.
Discuss in the myINSPIRE forum.

9.4 EQUITY
Do you remember equity or ownerÊs equity from Topic 1? It is the ownerÊs residual
claims on business assets after paying off its liabilities. Let us look at the differences
in reporting equity for sole proprietorship, partnership and company.
9.4.1 Equity in Sole Proprietorship

For sole proprietorship, the equity section of a balance sheet will have only one
account, that is, the capital account. The balance of the capital account represents:
(a) The original amount contributed by the owner;
(b) Any increase or decrease as a result of profits or losses;
(c) Any increase as a result of additional contribution by the owner; and
(d) Any decrease as a result of drawings made by the owner.
Figure 9.3: Capital account

Let us look at an extract of a balance sheet of a sole proprietorship, Perniagaan

Runcit Tunggal owned by Ammar.
Perniagaan Runcit Tunggal

Extract of Balance Sheet
for the year ended 30 June 2019
OwnerÊs Equity RM
Opening Capital – Ammar 20,000
+ Net income 6,000
26,000
– Drawings (5,000)
Closing Capital – Ammar 21,000
Figure 9.4: OwnerÊs equity of a sole proprietorship
The closing balance of RM21,000 shows the equity of the proprietorship – the
owner, AmmarÊs claims against the businessÊ net assets.
9.4.2 Equity in Partnership

For the purpose of comparison, let us look at partnership, where we know there
are at least two owners. These owners might not contribute capital in equal
amounts, make equal amounts of drawings nor do they share profits the same
way. Therefore, it is necessary to separate the capital and drawings accounts of
each partner.
Under partnership, the capital account only records the amounts originally
contributed by the partners while another account called current account is used
to record the profit or loss of the partnership as well as the drawings made by
them.

Figure 9.5: Equity component of a partnership
In other words, when comparing the reporting of equity of a sole proprietorship

in the balance sheet, the equity of partnership will be reported as follows:
Perniagaan Runcit Tunggal

Extract of Balance Sheet
for the year ended 30 June 2019
RM RM RM
OwnerÊs Equity Ali Amir
Capital 50,000 100,000 150,000
Current account – opening

30,000 45,000
balance
+ share of net income 20,000 30,000
50,000 75,000
- drawings by partners 8,000 12,000
Current account – closing
42,000 63,000 105,000
balance
255,000
Figure 9.6: Reporting equity of a single proprietorship

From this example you can see that the total owner equity is RM255,000, which is
the total of capital and the current account of both partners, Ali and Amir.
How the net income is shared or allocated to the partners will be taught in another
module.
9.4.3 Company Formation

Company formation in Malaysia is a more complex process than sole
proprietorship and partnership. According to www.ssm.com.my, the Companies
Commission of Malaysia (SSM) has drafted all the incorporation procedures and
all companies are required to adhere to the following procedures in order to form
a company:
(a) Application of Name Search

The company is required to perform a name search. This is to make sure that
the proposed name of the company is available for use. Firstly, Form 13A
CA (Request for Availability of Name) needs to be completed and submitted
to SSM. Next, a fee of RM30 for each name applied is payable to SSM. When
the companyÊs name is approved by SSM, a three-month reservation period
from the date of approval will be given.
(b) Lodgement of Incorporation Documents

Within the three-reservation period above, incorporation documents such as
the following are lodged:
(i) Memorandum and Article of Association;
(ii) Form 48A (Statutory Declaration by a Director or Promoter before
Appointment);
(iii) Form 6 (Declaration of Compliance); and
(iv) Additional documents (Original copy of Form 13A, a copy of the letter
from SSM approving the name of the company, and a copy of the
identity card of each director and company secretary).

(c) Registration Fees

The registration fees chargeable by SSM are listed as follows:
Authorised Share Capital (RM) Fees (RM)

0 – 400,000 1,000
400,001 – 500,000 3,000
500,001 – 1 million 5,000
1,000,001 – 5 million 8,000
5,000,001 – 10 million 10,000
10,000,001 – 25 million 20,000
25,000,001 – 50 million 40,000
50,000,001 – 100 million 50,000
100,000,001 and above 70,000
(d) Certificate of Corporation

A Certificate of Incorporation will be issued by SSM upon compliance with
the incorporation procedures and submission of the duly completed
incorporation documents.
9.4.4 Equity in Company

In the next topic, we will be looking at the financial analysis of an income statement
using a company balance sheet and income statement. Hence, it is important for
you to understand the composition of the ownersÊ equity and the difference in
reporting ownersÊ equity for a company (corporation).
The equity component of a company comprises the following:

(a) Shareholder funds;
(b) Retained earnings; and
(c) Reserves.
Before we look at the components in detail, let us learn about the types of shares
available.

The owners of a company comprise many individuals called shareholders.

Therefore, it is impractical to have an capital account for each shareholder.
Shareholders own shares of the company. Shareholders (owners) cannot withdraw
profits from the company whenever they like. However, the company will give
dividends to its shareholders.
For a start, a company will issue initial share offers (stocks) to the public called
initial public offering (IPO). You have probably seen a prospectus in the
newspaper inviting the public to purchase shares of a listed company. In general,
there are two types of shares, namely common or ordinary shares and preference
shares. The shares will be issued at a fixed face value or par value. The face value
is also called the nominal value. The par value of a share can be 50 sen, RM1 or any
other value.
Shares are first issued by a company to the public at a price that is normally
different from the par value of the shares. For example, a share with par value of
RM1 can be issued at RM2 or any other value when it is first offered to the public.
Primary market is where the company trades its issued shares with the public.
After the shares are issued to the public, shareholders can sell their shares to other
buyers in the Bursa Malaysia, or they can buy more shares from other shareholders
in the Bursa Malaysia. In other words, Bursa Malaysia is a secondary market for
shares. Figure 9.7 shows the primary and secondary share market.
Figure 9.7: Primary and secondary share market

Now let us look at the composition of the shareholder fund.
(a) Shareholder Funds

The shareholder fund is made up of the par value of shares multiply by the
number of shares issued by a company. For example, if a company issues
3 million ordinary shares of RM1 par value each, then the shareholder fund
is RM3 million. Let us look at the characteristics of the various types of
shares.
(i) Ordinary or Common Shares

• Holders of common shares are the true owner of a company. They
have the rights to vote.
• Ordinary shareholdersÊ rights to dividends follows that of
preference shareholders.
• The dividend amount of ordinary shares is not fixed.
• In the event that a business does not perform well, the company
does not have an obligation to declare dividends for ordinary
shares. However, once a company declares its dividends, the
company must fulfil its obligation to pay.
(ii) Preference Shares

• Holders of preference shares do not have the rights to vote.
• Preference shares have special rights attached to them – rights to
receive dividends before ordinary shareholders and rights to
residual assets before ordinary shareholders if the company winds
up.
• The dividend amount of preference shares is fixed. Preference
shares will be issued with fixed dividend rates.
• A company has the obligation to pay this dividend regardless
whether businessÊ performance is good or bad. Hence, in ratio
analysis, preference shares are treated as liabilities rather than
equity.

For your information, there are many types of preference shares in the
market. For this moduleÊs purpose, we will only look at the general
characteristics of preference shares.
Figure 9.8: Types of shareholder funds in a company
(b) Retained Earnings

The second component of equity in a company is retained earnings. Retained
earnings account is the accumulation of a companyÊs net earnings (profit)
after tax after distributions to shareholders and/or reserves. Earnings after
tax will increase retained earnings while net losses will decrease the balance
in retained earnings.
For sole proprietorship and partnership, the business is not taxed on the
profit it makes. However, the individual will need to report the profit of the
business as his income and will be taxed individually. On the other hand, a
company will have to pay tax on its income or profit. Therefore, the income
statement of company will include an additional item of expense, namely tax
expense.

Company Name
Income Statement
for the year ended XX/XX/XX
RM RM
Sales revenue* XX
Less Cost of goods sold* XX
Gross profit XXX
Less Operating expenses**
Selling and distribution expenses XX
General and administrative expenses XX
Financial expenses XX XXX
Earnings before tax XXX
Less Tax expenses XX
Earnings after tax XXX
* Details of the calculation of sales revenue and cost of goods sold is

shown through notes to the financial statements.
** Operating expenses are categorised into three types: (i) selling and
distribution expenses (ii) general and administrative expenses and (iii)
financial expenses.
Figure 9.9: Income statement of a company
Unlike sole proprietorship and partnership, where the owner can withdraw
his profits at any time, shareholders cannot do the same. However, the
company will pay dividends out of net income after tax (profits/earnings).
The dividend will reduce the balance of retained earnings.
The retained earnings balance reported in the balance sheet is net after
deducting dividends and transfer of earnings to reserves. Normally two
types of dividends are paid to shareholders:
(i) Interim dividend is declared and paid during the current financial year.
(ii) Final dividend is declared at the end of the current financial year and
will be paid in the next financial period.

ACTIVITY 9.3
Surf the web for balance sheets of companies. You can also go to the
Bursa Malaysia website http://www.klse.com.my. You can see how
corporations report their assets, liabilities and equity. Do take note of
the types of reserves being reported.
Dividends are always quoted based on the nominal value of shares, not the current
market price (quoted in Bursa Malaysia) nor the issue price of the shares. For
example, a company has issued 2 million ordinary shares par value 50 sen each, at
a price of RM2. Currently the shares are traded at RM3.50 each. Assume that the
company will declare a 5% dividend for ordinary shares at the end of year. What
is the amount of dividends that will be paid by the company?
The amount of dividends that the company will pay is RM50,000 (5% × RM1 million,
which is the nominal value of the ordinary shares).
(c) Reserves
A company may also create reserves to set aside funds from earnings for the
following purposes:
(i) Cover themselves from future loses;
(ii) Buy fixed assets;
(iii) Repay liabilities; and
(iv) Buy back their shares.
The most common reserve created is the general reserves, which will be
reported in the equity section of the balance sheet.

Figure 9.10: Equity component of a company
After learning about retained earnings, dividends and reserves, let us look at the
statement of retained earnings. Statement of retained earnings shows the changes
in retained earnings of a company over a period.
Company Name
Statement of Retained Earnings
for the year ended XX/XX/XX
RM RM
Opening Retained Earnings XX
Add Earnings after tax XX
Earnings available for distribution XXX
Less
Ordinary share dividends XX
Preference shares dividends XX XXX
Transfer to reserves XX
Closing Retained Earnings XXX
Figure 9.11: Format of statement of retained earnings
Let us look at the following example in order to learn how to prepare the statement
of retained earnings and the equity portion of the balance sheet of a corporation.

Example 5
Cyber Corporation has issued 5 million ordinary shares par value RM1 each
and 2 million 10% preference shares par value RM2 each. Earnings after tax for
the year ended 31 December 2019 is RM23,000,000. Balance of retained earnings
as at 1 January 2019 is RM123,000,000. No dividends have been paid during
the year. The directors have decided to pay 20 sen dividend per share to
ordinary shareholders and the amount due to preference shareholders. The
directors have also decided to transfer RM10,000,000 of earnings to general
reserves. General reserves balance as at 1 January 2019 is RM35,000,000.
Dividends to ordinary shareholders is 20 sen per share and there are 5 million
shares. Therefore, the total dividends for ordinary shareholders is RM1,000,000
(5 million shares × 20 sen).
For preference shares, the dividend rate is 10% (as stated 10% preference share)
and the amount of preference share is RM4,000,000 (2 million shares × RM2 par
value). Therefore, the total dividends is RM400,000 (RM4,000,000 × 10%).
The statement of retained earnings for Cyber Corporation will look like the
following:
Cyber Corporation
for the year ended 31/12/2019
RM RM
Opening Retained Earnings 123,000,000
Add Earnings after tax 23,000,000
Earnings available for distribution 146,000,000
Less
Ordinary share dividends (1,000,000)
Preference share dividends (400,000) (1,400,000)
Transfer to general reserves (10,000,000)
Closing Retained Earnings 134,600,000
Figure 9.12: Statement of retained earnings for Cyber Corporation

If the extract of a balance sheet is to be prepared (equity) for Cyber Corporation, it

will look like the following:
Cyber Corporation
for the year ended 31/12/2019
RM RM
Equity
Shareholder funds
Ordinary shares 5,000,000
Preference shares 4,000,000 9,000,000
Retained earnings 134,600,000
General reserves 45,000,000
Total Equity 188,600,000
Note:
The balance sheet of a company is similar to the balance sheet prepared by sole
proprietorship and partnership, whereby all assets and liabilities are reported
either as current or non-current. The only difference is the way equity is
reported. This is due to the different component of equity for the different forms
of businesses. Remember this at all times: The total equity will equal the total
assets minus total liabilities = net assets = equity = A – L.
Figure 9.13: Balance sheet extract of Cyber Corporation
SELF-CHECK 9.1
1. Suggest ways for a company to raise money to increase its capital.
2. Can you explain the difference in reporting equity for sole
proprietorship, partnership and company?

• Current liabilities are obligations of an entity that need to be settled using

current assets or by creating another current liability within a period of one
year.
• Bank overdraft is a facility given by banks to current account holders to enable

the holder to draw cheques with a larger amount than the holderÊs bank
balance.
• Bill payable is a note issued by one entity with the promise to pay another
entity.
• Long-term bank loans (notes payable) are borrowings that need to be paid
within a period of more than twelve months.
• Equity component of a company comprises shareholders fund, retained

earnings and reserves.
• Shareholder funds are the par value of shares multiply by the number of shares
issued by a company.
• Retained earnings account is the accumulation of the companyÊs net earnings

(profit) after tax after distributions to shareholders and/or reserves.
Bills payable Preferred stocks or preference shares

Bills receivable Reserves account
Common stocks or ordinary shares Retained earnings

1. Syarikat Demo borrowed RM500,000 from Putrajaya Bank on 1 July 2019.

Interest rate is 5% of the original loan amount and is to be paid semi-
annually. The first interest payment is due on 1 January 2020. The loan
principal is to be paid over 10 instalments, to be made annually and the first
instalment is due on 1 July 2020.
You are required to:

(a) Prepare the extract of a balance sheet as at 31 December 2019.
(b) Provide the journal entries to record the first interest payment.
(c) Provide the journal entries to record the payment of the first instalment
of the principal amount; and
(d) Prepare the extract of a balance sheet as at 31 December 2021.
2. Calculate the amount of dividends for the following situations.

(a) Exxone Corporation issued 300,000 8% preference shares par value
RM1 each.
(b) Shellex Corporation issued 400,000 9% preference share par value RM2
each.
(c) Dividend of 15% for 500,000 ordinary shares, par value 50 sen each.
(d) Dividend of 10% for 200,000 ordinary shares, par value RM1 each.
(e) Dividend of 5 sen each for 500,000 ordinary shares, par value 50 sen
each.
1. Fill in the blanks.

(a) Equity of a partnership comprises ______________ and ______________
accounts.
(b) Equity of a company comprises ______________, ______________ and
______________accounts.
(c) There are two main types of shares, namely ______________ shares and
_____________ shares.
(d) Instead of making drawings, shareholders are paid ______________.
(e) ______________ and ______________ will decrease the retained

earnings balance while ______________ will increase the retained
earnings.
2. The following information is obtained from M&S Corporation as at

31 December 2016.
Ordinary shares par value 70 sen 3,000,000 shares issued
5% Preference shares par value 50 sen 5,000,000 shares issued
Sales revenues RM57,500,000
Cost of goods sold RM15,000,000
Operating expenses RM18,000,000
Company tax rate is 30%
Retained earnings 1 January 2019 RM25,600,000
General reserves 1 January 2019 RM12,000,000
On 31 December 2019, the directors declared the following final dividends:

(a) 10% ordinary share to ordinary shareholders.
(b) The due amount to preference shareholders.
The directors also decided to transfer RM3,500,000 of retained earnings to

general reserves.
You are required to:

(a) Calculate the earnings after tax for M&S Corporation for the year
ended December 2019.
(b) Prepare the statement of retained earnings for M&S Corporation for
the year ended December 2019.
(c) Prepare the extract of balance sheet for M&S Corporation as at
31 December 2019.

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Topic  Accounting for

Copyright © Open University Malaysia (OUM)

We will start by looking at the definition of current liabilities as defined by the

9.1 DEFINITION OF LIABILITIES

Funds or money to finance business activities (buying fixed assets, paying

Liability represents an obligation for an entity. This obligation needs to be

Copyright © Open University Malaysia (OUM)

According to MFRS 101 ă Presentation of Financial Statements, a liability shall

An entity shall classify all other liabilities as non-current.

9.2 CURRENT LIABILITIES

Current liabilities are obligations by an entity that need to be settled using

You have learned how to record transactions related to accounts payable,

Copyright © Open University Malaysia (OUM)

Figure 9.1: Current liabilities

9.2.1 Bank Overdraft

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9.2.2 Bank Loans

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9.2.3 Bills Payable

You will record the issue of bill payable as follows:

1 July 2019 Dr Account payable 6,000

1 Sept 2019 Dr Bill payable 6,000

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1 July 2019 Dr Bill receivable 6,000

When payment is received on 1 Sept 2019, the following will be recorded:

1 Sept 2019 Dr Cash 6,100

9.2.4 Dividends Payable

Dividends payable is a liability unique to companies. It arises as a result of

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9.3 LONG-TERM LIABILITIES

Long-term liabilities are obligations of an entity that need to be settled in a

Figure 9.2: Long-term liabilities

9.3.1 Long-term Bank Loans

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9.3.2 Mortgage Loans

9.3.3 Bonds and Debentures

1. The Government of Malaysia has issued several bonds to the

Discuss in the myINSPIRE forum.

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9.4.1 Equity in Sole Proprietorship

Figure 9.3: Capital account

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Let us look at an extract of a balance sheet of a sole proprietorship, Perniagaan

Perniagaan Runcit Tunggal

Figure 9.4: OwnerÊs equity of a sole proprietorship

9.4.2 Equity in Partnership

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Figure 9.5: Equity component of a partnership

In other words, when comparing the reporting of equity of a sole proprietorship

Perniagaan Runcit Tunggal

Current account – opening

Figure 9.6: Reporting equity of a single proprietorship

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9.4.3 Company Formation

(a) Application of Name Search

(b) Lodgement of Incorporation Documents

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(c) Registration Fees

(e) and will decrease the retained