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ABFA 1023 FUNDAMENTALS OF ACCOUNTINGDIPLOMA IN BUSINESS STUDIES (ACCOUNTING)
YEAR 1 – SEMESTER 2 (2011/2012)COURSEWORK 1
NAME :
FOONG YEW JOE
GAN KEAN HOE
MAVERICK NG SHUNG SERN
HUAN CHAN YANG
SEBASTIAN GOH SZE PAN
TUTORIAL GROUP : 2 DAC27
DAY :
TIME :
DATE OF SUBMISSION :
1
TABLE OF CONTENT
No. Title Page
1 Plagiarism Statement Declaration Form 3
2 Marking Schemes 4-6
3 Safe Assign Plagiarism Report 7
4 Summary 8
5 Introduction 8
6 Content:
6.1 Types of Inventories
6.2 Manufacturing Process
6.3 Valuation of Inventories Used by Company
6.4 Amount of Closing Inventories
6.5 Definitions of Relevant Information Relating to Inventories
Consignment
Types of tax charged on inventories
9-10
10-11
11
11-12
12
12-13
7 Conclusion 13
8 Appendix 14-19
9 Reference 20-21
2
1. Plagiarism Statement Declaration Form
Semester: ________________ Course Code &Title: _____________________________
DeclarationWe confirm that we have read and shall comply with all the termsand condition of TAR College’s plagiarism policy.We declare that this assignment is free from all forms of plagiarismand for all intents and purposes is my/our own properly derived work.We further confirm that the same work, where appropriate, has beenverified by anti-plagiarismsoftware ________________________ (please insert).
Name Student ID Signature
FOONG YEW JOE 11WBD04648
GAN KEAN HOE 11WBD01689
MAVERICK NG SHUNG SERN 11WBD05440
HUAN CHAN YANG 11WBD04991
SEBASTIAN GOH SZE PAN 11WBD00163
Date: ___________________
3
4
5
6
3. Safe Assign Plagiarism Report
7
4. Summary
What are inventories? Inventories are the goods that are available at a point of
time. It consists of goods for resale, work-in-progress and raw materials which belong to
a business (Frank Wood et al., 2008). Besides, it is a type of assets which will be
recorded in the financial statements. We usually value the inventories by using LCM
(Lower of Cost and Market value) rule. Inventories should be valued at the lower cost or
net realisable value to prevent profit and assets from being overstated. The cost of
inventories in a business can be determined and recorded in various types of method such
as FIFO (First-in-First-out), LIFO (Last-in-First-Out) and WAC (Weighted Average
Cost). Recording of Inventories is very important for a business, especially the
manufacturing and trading enterprises because the amount of inventories left will
influence the production lines and trading activities (R. Anthony Inman, 2011). Thus, it is
important for us to know how to record the cost of inventories.
5. Introduction
As we know, inventories are the important asset of a manufacturing enterprise
such as Fraser & Neave Holdings Berhad (F&N). F&N Holdings Berhad major in
manufacturing and distributing consumer products such as soft drinks. F&N Beverages
Marketing Sendirian Berhad is a subsidiary company of the F&N Group (F&N, 2011).
F&N Beverages Marketing Sendirian Berhad is the largest soft drink
manufacturer in Malaysia. (F&N, 2011) The company has four operating production
plants in Malaysia with well-equipped facilities, including its headquarter in Shah Alam,
Malaysia. It produces various brands of soft drinks such as 100 Plus, F&N Fun Flavours,
SEASONS and Red Bull. It also manufactures and distributes Red Bull products in
Malaysia. Due to these factors, F&N appears to be the market leader in Malaysia’s soft
drink industry. As a result, the company was awarded the Reader’s Digest Trusted Brand
in a sequence from the year 2006 to 2008. Besides, the company was also awarded the
Superbrands Asia in 2006 (F&N, 2011).
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6. Content
6.1Types of Inventories
Inventories are the asset needed by the company in running the producing,
distributing and trading activities. There are many types of inventories owned by F&N
Group such as raw materials, work-in-progress (WIP) and finished goods (R.
Anthony Inman, 2011)
Raw Materials
The items that are needed by the company to produce finished goods are
considered as raw materials. Without raw materials, a company is unable to
produce any goods. Thus, the amount of raw materials left in a manufacturing
company should be monitored and maintained in large quantity to prevent the
production lines break down. For F&N Beverages Marketing Sdn. Bhd, the raw
materials needed to produce soft drinks are carbonated water, sugar, additives
(citric acids and emulsions), preservatives and flavourings.
Work-In-Progress (WIP)
Work-In-Progress refers to the goods that are being processed and not completed
yet in the end of an accounting period (Andrew Thomas, 2006). During
production, some of the goods has been processed but have not passed the
inspection to be finished goods are also considered as work-in-progress. The
examples of Work-In-Progress are uncapped soft drinks, soft drinks being
processed and unlabelled soft drinks.
Finished Goods
Finished goods are the goods that are completely produced and ready for sale.
They are the goods that passed all the processes from raw materials into finished
goods. For the manufacturing enterprises such as F&N, the finished goods will be
sold either directly or indirectly to the customers, retailers and wholesalers to
make profits. Soft drinks are the main product manufactured by F&N Group in
Malaysia. F&N Beverages Marketing Sdn. Bhd is the largest soft drink
distributors in Malaysia as there are many brands of soft drinks produced by the
company. F&N Flavours, 100 PLUS, Fruit Tree, SEASONS and Red Bull are the
famous brands of product manufactured by F&N in Malaysia (refer to Appendix
9
8.2). They are produced and bottled in different sizes such as cans (325ml),
regular bottle (500ml) and large bottle (1.5l). Once they are produced, these
products will be sold to retailers, wholesaler or directly to the consumers. The
remaining products will be stored in the factory, waiting for customers’ orders.
6.2 Manufacturing Process of Soft Drinks
Every product manufactured has its own production process. The manufacturing process
of soft drink is stated as below:
F&N Beverages Marketing Sdn. Bhd has four soft drinks production plants,
including its headquarter in Shah Alam, Malaysia refer to (Appendix 8.6). The raw
materials needed for production are carbonated water, sugar, additives (citric acids and
emulsions), preservatives and flavourings. To produce soft drinks, water has to be
clarified first to remove impurities in water and adjust the pH value. Without
clarification, some impurities in the water such as bacteria and other organic matter will
affect the taste and colour. During the process, a certain amount of lime water will be
added to obtain the preferred pH value (Audra Avizienis, 2011).
Then, the water will be filtered by sand filter to remove some small particles of
impurities. It will be sterilized and added with some chlorine to kill bacteria. It then
will be dechlorinated by using carbon filter to remove any unwanted substances such as
sand before it is pumped into a dosing station (refer to appendix 8.3).
Next, a certain quantity of dissolved sugar and flavourings will be added into
the dosing station. They will be mixed with the water in a batch tank. In the tank, the
syrup (mixture of sugar and flavourings) will be sterilised by using ultraviolet radiation or
any other methods. The water and syrup are mixed carefully by the sophisticated
machines (proportioners).
Then, the beverages will be carbonated by adding a right amount of carbon
dioxides. The amount of carbon dioxides added depends on types of beverages. Usually
fruit drinks have lesser carbon dioxides than isotonic drinks. After that, the completed
products will be filled into the bottles or cans with a high flow rate. The bottles and
10
cans will then be sealed quickly to prevent any unwanted substances from entering the
containers (Audra Avizienis, 2011).
Later, the products will be labelled with the soft drinks brand and other
information. Finally, the beverages will be packed into cartons before they are
distributed to the wholesalers and other retailers.
6.3 Valuation of Inventories Used by Company
There are many valuation methods being used to calculate the cost and the value
of inventories of a company such as FIFO (First in, First out) method, LIFO (Last in,
First out) method and WAC (Weighted Average Cost) Method. Basically, most of the
companies including F&N Holdings Berhad value the inventories based on LCM (Lower
of Cost and Market value) rule. LCM rule states that every type of inventories should be
recorded and valued at net realisable value or lower of cost according to the prudence
concept. Thus, closing inventories should not be overstated; otherwise profit and assets of
a business will be overstated in Statement of Financial Statement.
In F&N Holdings Berhad, cost of inventories is calculated by using WAC
(Weighted Average Cost) method (refer to appendix 8.5). In WAC method, the average
unit cost will be calculated by totalling the cost of old inventories and the cost of new
purchased inventories by the total units of inventories hold after the purchases (Frank
Wood et al, 2008). It gives out a lower of cost of inventories, thus the net profit
calculated will be lower than the result of using other method such as FIFO method.
Thus, the profit earned and the assets will not be overstated. Raw materials (including
packaging materials), work-in-progress and finished goods are included in the cost of
inventories. Referring to Statement of Financial Statement as at 30 September 2010, the
amount of closing inventories is RM343,717 (‘000).
6.4 Amount of Closing Inventories
Closing inventories are the goods that left in a business at the end of an
accounting period. They include raw materials, packaging materials, work-in-progress,
and finished goods. For F&N Holdings Berhad, the amount of closing inventories at the
end of financial year 2010 is RM 343,717 (‘000) as be shown in diagram below. It is
11
valued at the lower of cost and net realisable value (estimated selling price - cost of
completion - selling expenses). Cost of the inventories are calculated based on WAC
(Weighted Average Cost) basis (refer to Appendix 8.5).
Source: F&N Holdings Berhad Annual Report 2010 (Refer to Appendix 8.4)
6.5 Definition of Relevant Information Relating to Inventories
Consignment:
As Frank Word (1996) said, when a seller or supplier sells his goods directly to
customers or consumers, it is called ordinary sale. By the way, they can also sell goods to
customers through an agent or intermediary. For example, F&N soft drinks manufacturer
sells his drinks to customers through his agents such as Supermarket operators
(Carrefour, Tesco and Jusco) and small retailers. These goods are said to be on
consignment. Under consignment, a supplier (consignor) will send the goods to an
agent (consignee). The agent will keep the goods in his store, shop or warehouse until
they are sold. Some expenses will incur in selling the goods to customers but it will be
paid by the supplier later. After the end of a period (week, month, year, quarter), the
agent will receive commission from the supplier for his work in selling the goods. By the
way, the agent will give the supplier the money he gets from selling the goods. This is
known as account sales. A consignor or a consignee account will be opened to record the
transactions. In this case, the inventories stored in the agent’s (consignee) place belongs
to the supplier (consignor), not the agent. The agent is the person who in charge of
selling the goods for the supplier. Therefore, the inventories left in the agent’s place are
part of the closing inventories at the end of an accounting period.
Types of Tax Charged on Inventories
Tax is a fee charged by the government on goods and services, income, activity, or
property. There are two types of tax imposed in Malaysia: direct tax and indirect tax. If
12
the tax or duty is charged directly on the consumers are called direct tax. Indirect tax
refers to the tax or duty collected indirectly from consumers.
There are many taxes charged on inventories such as export duty, import duty, and
sales tax. Firstly, export duty is charged on a particular type of goods to be exported.
However, the rate of export duty charged depends on the types of goods. It is referred to
Column 5 of the "First Schedule to the Customs Duties Order of 1988". (ASEAN, 2011)
Besides, import duty is charged on a particular type of imported goods such as
vehicles and electronic products under Custom Duties Order 1996. The rates of import
duty charged vary from 2% to 300% based on the types of goods being charged. Over the
last few years, raw materials, components and machinery are exempted from import duty
charges.
Sales tax is an ad valorem single stage tax charged on local products or imported
goods. Manufacturers are required to be licensed under Sales Tax Act 1972. The general
rate charged on all goods are 10% while some particular types of goods such as cigarette
and alcoholic drinks are charged on 15%. Books, sports equipment, newspaper and tourist
products are exempted from sales tax. (E-directory, 2011)
7. Conclusion
By completing this coursework, we have learned a lot of knowledge and information
about Accounting for Inventories and F&N Group. By referring to the annual reports, we
learned how to search for its closing inventories, valuation of inventories and also the
history of a company. From this research, we know what kind of products that are
manufactured by F&N Group and their manufacturing process. We also learned about
how the manufacturing companies such as F&N Group record and value their inventories.
This improves our understanding about the company and how to work as an excellent
accountant. Besides, it gives us a preview that as an accountant in public listed company,
we have to be prudent and more careful in recording every business transaction. Perhaps
in future, we will be working as an accountant in public listed company. Through this
coursework, we understand the importance of teamwork in order to complete a task. We
also learned how to complete a task within tight deadlines and avoid procrastination. It is
important and useful for our future. In short, we enjoy doing the coursework as its
benefits are aplenty.
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8. APPENDIX
Appendix 8.1: F&N Holdings Berhad Logo & Group Structures
F&N Logo
F&N Holdings Berhad Group Structure
Source: http://www.fn.com.my/groupstructure.aspx
14
Appendix 8.2: Products Manufactured by F&N Holdings Berhad
100 Plus
F&N Flavours
Fruit Tree
SEASONS
Source: http://www.fn.com.my/food.aspx
15
Appendix 8.3: Part of Soft Drinks Manufacturing Process
Filtration, Sterilization and Dechlorination of Water
Mixing and Filling Process of carbonated water
Source: http://www.madehow.com/Volume-2/Soft-Drink.html
16
Appendix 8.4: Fraser & Neave Holdings Berhad (F&N) Statement of Financial
Position 2010
Part 1 of Balance Sheet
17
Appendix 8.4: Fraser & Neave Holdings Berhad (F&N) Statement of Financial
Position 2010 (cont’d)
Part 2 of Balance Sheet
Source:
1. http://klse.com.my
2. http://announcements.bursamalaysia.com/EDMS/subweb.nsf/
7f04516f8098680348256c6f0017a6bf/
18
88aa879bcd0b8e4848257803003cdb88/$FILE/F&N-Page%2043%20to
%20ProxyForm%20(3MB).pdf
Appendix 8.5: Valuation of Inventories used by F&N Holdings Berhad as stated in
Accounting Policies
Source: F&N Holdings Berhad Annual Report 2010
Appendix 8.6: F&N Holdings Berhad Factory in Shah Alam, Malaysia
Soft Drink Production Plant
Source: http://www.panoramio.com/photo/16900924
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9. Reference
1. Frank Wood and Alan Sangster. 2010. Business Accounting 1 11th Edition.
Harlow: Pearson Education Limited.
2. Andrew Thomas, 2005. Introduction to Financial Accounting, 5th Edition. United
Kingdom: McGraw-Hill Education (UK) Limited.
3. Curtis L. Norton and Gary A. Porter, 2009. Introduction to Financial Accounting,
7th Edition. United States: South-Western, Cengage Learning.
4. Andrew Leong Fook Chee and Wong Sei Yan. 2010. Business Accounting, 3rd
Edition. Malaysia: Pearson/Prentice Hall.
5. Jerry J. Weygandt, Donald E. Kieso and Paul D. Kimmel. 2008. United Kingdom:
John Wiley & Sons Inc.
6. Betsy Li, Tan Sai Kim, and Goh, Ling Chin. 2006. Principle of Accounting, 22nd
Edition. Canada: Thomson South Western.
7. Monger, Rod F. 2010. Financial Accounting: A Global Approach. United
Kingdom: John Wiley & Sons Limited.
8. Clave Finch, 2007. A Student’s Guide to International Financial Reporting
Standards. Great Britain: Kaplan Publishing UK.
9. R. Anthony Inman, 2011. Inventory Types. Viewed on 1 October 2011. Available
from: < http://www.enotes.com/management-encyclopedia/inventory-types>
10. F&N, 2011. About Us. Viewed on 1 October 2011. Available from: <
http://www.fn.com.my/aboutusoverview.aspx >
11. F&N, 2011. Business & Brands: Soft Drinks. Viewed on 1 October 2011.
Available from: < http://www.fn.com.my/food.aspx>
12. F&N, 2011. Annual Report 2010. Viewed on 28 September 2011. Available from:
<http://announcements.bursamalaysia.com/EDMS%5Csubweb.nsf/LsvAllByID/
88AA879BCD0B8E4848257803003CDB88?OpenDocument)
13. F&N, 2011. Awards. Viewed on 28 September 2011. Available from: <
http://www.fn.com.my/awards.aspx>
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14. Audra Avizienis, 2011. Soft Drink. Viewed on 28 September 2011. Available
from: < http://www.madehow.com/Volume-2/Soft-Drink.html>
15. Larry Walther, 2011. Chapter 8: Inventory. Viewed on 28 September 2011.
Available from: < http://www.principlesofaccounting.com/chapter%208.htm>
16. William H. Coyle, 2011. Inventory Accounting. Viewed on 29 September 2011.
Available from: <
http://www.referenceforbusiness.com/encyclopedia/Int-Jun/Inventory-
Accounting.html>
17. Wikipedia, 2011. Inventory. Viewed on 3 October 2011. Available from: <
http://en.wikipedia.org/wiki/Inventory>
18. ASEAN, 2011. Malaysia: Tariff and Duty Rates. Viewed on 3 October 2011.
Available from: <http://www.asean.org/14296.htm>
19. E-directory, 2011. Taxation. Viewed on 3 October 2011. Available from:
<http://e-directory.com.my/doc/taxation.htm>
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