COMPREHENSIVE CASE 1:

CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING, RECORDING

PROCESS AND PRESENTATION OF FINANCIAL STATEMENTS
A231

Deadline: 30 October 2023

Pauh Melimpah Bhd (PAUH), previously known as Pauh Melimpah Sdn Bhd commenced
its operations as a textile store in Sintok, Kedah on 1 January 2021. PAUH manufactures
tailored garment to government and private institutions and to retail buyers. After two years
in operation, the business has thrived, and the owner has changed the status of the company
to public listed companies to get more capital to expand the business. As the business has
become more complex, many substantial changes have been made and proposed as well as
many issues have been raised, such as the recognition and measurement of financial items in
financial statement preparation. For that, PAUH has appointed an experience-chartered
accountant, En. Aiman to lead the accounting department that consists of a few staff, namely
En. Lee, En. Zubir, Puan Tania and Cik Maira who previously were held responsible for
handling company’s account. They have little experience in preparing financial statements in
accordance with conceptual framework and MFRS standards as required by MASB.

To make his staff familiar with the need for a conceptual framework and related MFRS
standards, En. Aiman arranged a weekly meeting with them to explain the importance of the
framework and standards. This meeting officially started on 1 January 2023, in conjunction
with the first day of annual accounting term for PAUH. By organizing this meeting, En.
Aiman believed his staff will be able to prepare company’s financial statements properly at
the end of the year 2023. In the first meeting, En. Hasnan, one of the senior staff from
accounting department asked questions regarding the theoretical framework.

In the first meeting as well, En. Aiman and his staff discussed various aspects of the
Conceptual Framework. En. Aiman asserted that the Conceptual Framework examines the
characteristics of accounting information that make it useful for decision-making. He also
pointed out that there is main constraint inherent in the measurement, and reporting process
may necessitate trade-offs or sacrifices among the characteristics of useful information. The
meeting sessions so far seem fruitful. Staff were satisfied with the explanations given by En.
Aiman.

In July 2022, PAUH acquired a business in publishing industry- Terbit Sdn Bhd. The
accountant in that subsidiary company presented a report on the examination of the financial
statement to the board of directors of PAUH. In the meeting, one of the new directors
expressed surprise that the income statement assumes that an equal proportion of the revenue
is earned with the publication of every issue of the company’s magazine. She felt that the
revenue should be recognised when the customers make the payments. Customers are
required to make full payment for the year in January. The magazines are delivered to the
customers at the end of each month. She said that she did not understand why the revenue
cannot be recognised at the payment date.

In the latest weekly meeting, Cik Maira expressed her concern regarding the stolen money
from company’s night safe amount RM2,500. Cik Maira, as the staff responsible for handling
the cash safe, atoned to the negligence by reimbursing her own money to replace the amount
loss. She would like to know the right way to account this event.

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After a few sessions of meetings, En. Aiman then tried to test his staff understanding by
asking them to prepare a statement of profit or loss and other comprehensive income
(combined statement format) for anonymous company, X Bhd for the year ended 31
December 2022, based on the information on hand. They were required to follow a format
from a recent statement of profit or loss and other comprehensive income of any Malaysian
listed company. En. Aiman provided them with the following information:

**XYZ Bhd
Trial balance
31 December 2022
Debit Credit
RM RM
Cash 189,700
Accounts receivable 105,000
Rent revenue 18,000
Retained earnings 160,000
Salaries and wages payable 18,000
Sales revenue 1,100,000
Notes receivable 110,000
Accounts payable 49,000
Accumulated depreciation-equipment 28,000
Sales discounts 14,500
Sales returns and allowances 17,500
Notes payable 60,000
Selling expenses 232,000
Administrative expenses 99,000
Share capital-ordinary 300,000
Income tax expense 53,900
Cash dividends 45,000
Allowances for impairment loss on receivable 5,000
Supplies 14,000
Cost of sales 645,000
Land 70,000
Equipment 140,000
Bonds payable 100,000
Gain on sale of land 20,000
Accumulated depreciation-buildings 18,600
Inventory 64,000
Buildings 98,000
Revaluation of land and buildings 21,000
Total 1,897,600 1,897,600

Additional Information:
i. Depreciation of building and equipment for the year are RM10,000 and RM9,000
respectively which are not yet considered in the current administration expense.
ii. Accrued revenue earned but not recorded are RM12,000.
iii. The balance of salaries and wages payable total RM18,000 is for the remaining 3 days in
the month of December as the pay date for the company is on 27th every month.
iv. Interest of 10% is accrued on note payable at 31 December.

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** The financial data provided in the above trial balance is not related to PAUH. En. Aiman
purposely provided this data to test his staff understanding to apply what they have learned
for the past few sessions regarding MFRS and conceptual framework.

END OF CASE

CASE INSTRUCTIONS:
(1) Help En. Aiman to explain the purpose of a conceptual framework. (Cognitive skills:
Problem Identification)
(2) Describe briefly the following characteristics of useful accounting information. State
whether each of the characteristics is fundamental quality or ingredient to
fundamental quality.
(a) Relevance
(b) Faithful representation
(c) Understandability
(d) Comparability
(e) Neutrality
(3) Identify the main constraint that limits the company to provide information with the
qualitative characteristic that makes it useful. (Cognitive skills: Problem analysis)
(4) Refer to the case of Terbit Sdn Bhd. Explain to the new director the timing of
recognition of revenue for magazine subscription based on the Conceptual
Framework for Financial Reporting. (Cognitive skills: Generation and
Application)
(5) Help Cik Maira to:
(i) analyse the problem faced by her with regard to the stolen money by referring to
the Conceptual Framework for Financial Reporting (Cognitive skills: Problem
evaluation)
(ii) make a decision related to accounting for the stolen money. (Cognitive skills:
Decision Making)
(6) Assume that you were a part of the team. Journalise the adjusting entries and prepare
a statement of profit or loss and other comprehensive income (combined statement
format) for XYZ Bhd for the year ended 31 December 2022. You are suggested to
follow a format from a recent statement of profit or loss and other comprehensive
income of any Malaysian listed company