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 :

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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

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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: ___________________

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4

5

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3. Safe Assign Plagiarism Report

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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

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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

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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

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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

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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

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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

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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

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Appendix 8.4: Fraser & Neave Holdings Berhad (F&N) Statement of Financial

Position 2010

Part 1 of Balance Sheet

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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/

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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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