TAFI INDUSTRIES BERHAD () (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES REPORT OF THE DIRECTORS AND FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2014 (In Ringgit Malaysia)
TAFI INDUSTRIES BERHAD (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES FINANCIAL STATEMENTS CONTENTS PAGE(S) Report of the Directors 1-5 Independent auditors report 6-8 Statements of profit or loss and other comprehensive income 9-10 Statements of financial position 11-12 Statements of changes in equity 13-16 Statements of cash flows 17-19 Notes to the financial statements 20-65 Supplementary information 66 Statement by directors 67 Declaration by the director primarily responsible for the financial management of the Company 67
TAFI INDUSTRIES BERHAD (Incorporated in Malaysia) REPORT OF THE DIRECTORS The directors of TAFI INDUSTRIES BERHAD have pleasure in submitting their report and the audited financial statements of the Group and of the Company for the financial year ended December 31, 2014. PRINCIPAL ACTIVITIES The Company is principally involved in investment holding and provision of management services. The principal activities of the subsidiary companies are as disclosed in Note 14 to the Financial Statements. There have been no significant changes in the nature of the activities of the Company and of its subsidiary companies during the financial year. RESULTS OF OPERATIONS The results of operations of the Group and of the Company for the financial year are as follows: RM The Company RM Profit before tax 1,382,954 169,862 Income tax expense (274,329) (96,374) Profit for the year 1,108,625 73,488 In the opinion of the directors, the results of operations of the Group and of the Company during the financial year have not been substantially affected by any item, transaction or event of a material and unusual nature. 1
DIVIDENDS No dividend has been paid or declared by the Company since the end of the previous financial year. The directors also do not recommend any dividend payment in respect of the current financial year. RESERVES AND PROVISIONS There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements. ISSUE OF SHARES AND DEBENTURES The Company has not issued any new shares or debentures during the financial year. SHARE OPTIONS No options have been granted by the Company to any parties during the financial year to take up unissued shares of the Company. No shares have been issued during the financial year by virtue of the exercise of any option to take up unissued shares of the Company. As of the end of the financial year, there were no unissued shares of the Company under options. OTHER STATUTORY INFORMATION Before the statements of profit or loss and other comprehensive income and statements of financial position of the Group and of the Company were made out, the directors took reasonable steps: (a) (b) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts, and had satisfied themselves that there were no known bad debts to be written off and that no allowance for doubtful debts was necessary; and to ensure that any current assets which were unlikely to realise their book values in the ordinary course of business had been written down to their estimated realisable values. 2
At the date of this report, the directors are not aware of any circumstances: (a) (b) (c) (d) which would require the writing off of bad debts or the setting up of allowance for doubtful debts in the financial statements of the Group and of the Company; or which would render the values attributed to current assets in the financial statements of the Group and of the Company misleading; or which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate; or not otherwise dealt with in this report or financial statements which would render any amount stated in the financial statements of the Group and of the Company misleading. At the date of this report, there does not exist: (a) (b) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year which secures the liability of any other person; or any contingent liability of the Group and of the Company which has arisen since the end of the financial year. No contingent or other liability has become enforceable, or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations as and when they fall due. In the opinion of the directors, no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of operations of the Group and of the Company for the succeeding financial year. DIRECTORS The following directors served on the Board of the Company since the date of the last report: Dato Saw Eng Guan (Executive Chairman) Tan Chuan Yong Ng Siew Thong Siew Chee Choong In accordance with Article 84 of the Company s Articles of Association, Mr. Siew Chee Choong retires by rotation at the forthcoming Annual General Meeting of the Company and, being eligible, offers himself for re-election. 3
DIRECTORS INTERESTS The shareholdings in the Company of those who were directors at the end of the financial year, as recorded in the Register of Directors Shareholdings kept by the Company under Section 134 of the Companies Act, 1965, are as follows: Shares in the Company No. of shares of RM0.50 each Balance at 1.1.2014 Bought Sold Balance at 31.12.2014 Registered in name of directors Dato Saw Eng Guan (Executive Chairman) 3,112,500 3,000,000-6,112,500 Deemed interest Dato Saw Eng Guan (Executive Chairman) 18,002,200* - - 18,002,200* * Registered in the name of director s family member. By virtue of his interests in the shares of the Company, the abovementioned director is deemed to have an interest in the shares of the subsidiary companies to the extent the director has his interest. Other than as disclosed above, none of the other directors in office at the end of the financial year held shares or had beneficial interests in the shares of the Company or its related companies during and at the end of the financial year. DIRECTORS BENEFITS Since the end of the previous financial year, none of the directors of the Company has received or become entitled to receive any benefit (other than those disclosed as directors remuneration in the financial statements) by reason of a contract made by the Company with the director or a related corporation of which the director is a member, or with a company in which the director has a substantial financial interest except for any benefit which may be deemed to have arisen by virtue of the transactions as disclosed in Note 21 to the Financial Statements. During and at the end of the financial year, no arrangement subsisted to which the Company was a party whereby directors of the Company might acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. SIGNIFICANT EVENT During the financial year, the Group, through its wholly owned subsidiary, Gerak Mahir Sdn. Bhd., acquired 140,000 shares in Sachi Developments Sendirian Berhad ( SDSB ) which represent 28% equity interest in SDSB, for a cash consideration of RM1,300,000. 4
AUDITORS The auditors, Messrs. Deloitte, have indicated their willingness to continue in office. Signed on behalf of the Board in accordance with a resolution of the Directors, DATO SAW ENG GUAN SIEW CHEE CHOONG Muar April 8, 2015 5
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF TAFI INDUSTRIES BERHAD (Incorporated in Malaysia) Report on the Financial Statements We have audited the financial statements of TAFI INDUSTRIES BERHAD, which comprise the statements of financial position of the Group and of the Company as of December 31, 2014 and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 9 to 65. Directors Responsibility for the Financial Statements The directors of the Company are responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. (Forward) 6
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Group and of the Company as of December 31, 2014 and of their financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. Report on Other Legal and Regulatory Requirements In accordance with the requirements of the Companies Act 1965 in Malaysia, we also report the following: (a) (b) (c) (d) in our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and by the subsidiary companies of which we have acted as auditors, have been properly kept in accordance with the provisions of the Act; we have considered the accounts and auditors report of the subsidiary company, of which we have not acted as auditors, as disclosed in Note 14 to the Financial Statements, being accounts that have been included in the financial statements of the Group; we are satisfied that the accounts of the subsidiary companies that have been consolidated with the Company s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group, and we have received satisfactory information and explanations required by us for those purposes; and the auditors reports on the accounts of the subsidiary companies were not subject to any qualification and did not include any comment made under Section 174(3) of the Act. (Forward) 7
Other Reporting Responsibilities The supplementary information set out in Note 33 on page 66 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1 Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements as issued by the Malaysian Institute of Accountants ( MIA Guidance ) and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad. Other Matters This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility towards any other person for the contents of this report. DELOITTE AF 0080 Chartered Accountants HUANG KHEAN YEONG Partner - 2993/05/16(J) Chartered Accountant April 8, 2015 8
TAFI INDUSTRIES BERHAD (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2014 The Company Note 2014 2013 2014 2013 RM RM RM RM Revenue 5 27,941,871 30,680,639 180,000 180,000 Other operating income 3,813,670 2,462,859 310,994 452,330 Changes in inventories of finished goods and work-in-progress 250,360 (502,552) - - Raw materials and consumables used (14,221,824) (16,795,523) - - Directors remuneration 7 (533,400) (533,400) (102,000) (102,000) Staff costs 8 (7,813,415) (7,224,951) - - Depreciation of property, plant and equipment 13 (2,072,743) (2,150,801) - - Other operating expenses (5,968,607) (5,701,186) (219,132) (109,161) Finance costs 9 (10,921) (8,091) - - Share of loss of associated company (2,037) - - - Profit before tax 10 1,382,954 226,994 169,862 421,169 Income tax expense 11 (274,329) (167,339) (96,374) (65,003) Profit for the year attributable to the owners of the Company 1,108,625 59,655 73,488 356,166 (Forward) 9
The Company Note 2014 2013 2014 2013 RM RM RM RM Other comprehensive loss, net of tax: Items that may be reclassified subsequently to profit or loss: Reclassification adjustments on available-for-sale financial assets disposed off - (37,628) - (37,628) Items that will not be reclassified subsequently to profit or loss - - - - Other comprehensive loss, net of tax - (37,628) - (37,628) Total comprehensive income for the year attributable to the owners of the Company 1,108,625 22,027 73,488 318,538 Basic earnings per ordinary share attributable to owners of the Company - basic (sen) 12 1.43 0.08 The accompanying Notes form an integral part of the Financial Statements. 10
TAFI INDUSTRIES BERHAD (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2014 ASSETS The Company 2014 2013 2014 2013 Note RM RM RM RM Non-current assets Property, plant and equipment 13 27,104,082 24,308,134 - - Investment in subsidiary companies 14 - - 27,013,779 27,013,779 Investment in associated company 15 1,297,963 - - - Investment properties 16 4,499,707 4,499,707 2,974,707 2,974,707 Prepaid lease payments 17 1,027,241 1,872,673 - - Total non-current assets 33,928,993 30,680,514 29,988,486 29,988,486 Current assets Inventories 18 8,167,027 6,836,754 - - Trade receivables 19 3,902,007 2,808,379 - - Other receivables and prepaid expenses 20 3,130,005 1,430,623 1,500 1,500 Tax recoverable 96,747 114,392-7,125 Amount due from subsidiary companies 21 - - 11,908,076 8,173,091 Fixed deposits, cash and bank balances 22 16,130,683 21,203,362 5,091,596 8,721,424 Total current assets 31,426,469 32,393,510 17,001,172 16,903,140 TOTAL ASSETS 65,355,462 63,074,024 46,989,658 46,891,626 (Forward) 11
The Company 2014 2013 2014 2013 Note RM RM RM RM EQUITY AND LIABILITIES Capital and reserves Issued capital 23 40,000,000 40,000,000 40,000,000 40,000,000 Treasury shares 23 (1,040,934) (1,040,934) (1,040,934) (1,040,934) Reserves 24 20,066,725 18,958,100 7,885,548 7,812,060 Total equity 59,025,791 57,917,166 46,844,614 46,771,126 Non-current liability Deferred tax liability 25 201,571 121,636 - - Current liabilities Derivative financial liability 26 271,000 26,500 - - Trade payables 27 2,737,318 2,581,772 - - Other payables and accrued expenses 28 3,098,570 2,426,950 129,151 120,500 Tax liabilities 21,212-15,893 - Total current liabilities 6,128,100 5,035,222 145,044 120,500 Total liabilities 6,329,671 5,156,858 145,044 120,500 TOTAL EQUITY AND LIABILITIES 65,355,462 63,074,024 46,989,658 46,891,626 The accompanying Notes form an integral part of the Financial Statements. 12
TAFI INDUSTRIES BERHAD (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2014 Attributable to Owners of the Company Non-Distributable Reserves Distributable Investment Reserve- Issued Share revaluation Treasury Retained Total Note capital premium reserve shares earnings equity RM RM RM RM RM RM Balance as of January 1, 2013 40,000,000 2,809,166 37,628 (1,038,024) 16,089,279 57,898,049 Profit for the year - - - - 59,655 59,655 Other comprehensive income for the year - - (37,628) - - (37,628) Total comprehensive (loss)/income for the year - - (37,628) - 59,655 22,027 Shares buy-back 23 - - - (2,910) - (2,910) Balance as of December 31, 2013 40,000,000 2,809,166 - (1,040,934) 16,148,934 57,917,166 (Forward) 13
Attributable to Owners of the Company Non-Distributable Reserves Distributable Investment Reserve- Issued Share revaluation Treasury Retained Total Note capital premium reserve shares earnings equity RM RM RM RM RM RM Balance as of January 1, 2014 40,000,000 2,809,166 - (1,040,934) 16,148,934 57,917,166 Total comprehensive income for the year - - - - 1,108,625 1,108,625 Balance as of December 31, 2014 40,000,000 2,809,166 - (1,040,934) 17,257,559 59,025,791 (Forward) 14
The Company Note Non-Distributable Reserves Distributable Investment Reserve- Issued Share revaluation Treasury Retained capital premium reserve shares earnings Total RM RM RM RM RM RM Balance as of January 1, 2013 40,000,000 2,809,166 37,628 (1,038,024) 4,646,728 46,455,498 Profit for the year - - - - 356,166 356,166 Other comprehensive loss for the year - - (37,628) - - (37,628) Total comprehensive income for the year - - (37,628) - 356,166 318,538 Shares buy-back 23 - - - (2,910) - (2,910) Balance as of December 31, 2013 40,000,000 2,809,166 - (1,040,934) 5,002,894 46,771,126 (Forward) 15
The Company Note Non-Distributable Reserves Distributable Investment Reserve- Issued Share revaluation Treasury Retained capital premium reserve shares earnings Total RM RM RM RM RM RM Balance as of January 1, 2014 40,000,000 2,809,166 - (1,040,934) 5,002,894 46,771,126 Total comprehensive income for the year - - - - 73,488 73,488 Balance as of December 31, 2014 40,000,000 2,809,166 - (1,040,934) 5,076,382 46,844,614 The accompanying Notes form an integral part of the Financial Statements. 16
TAFI INDUSTRIES BERHAD (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2014 The Company 2014 2013 2014 2013 RM RM RM RM CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES Profit for the year 1,108,625 59,655 73,488 356,166 Adjustments for: Depreciation of property, plant and equipment 2,072,743 2,150,801 - - Income tax expense recognised in profit or loss 274,329 167,339 96,374 65,003 Change in fair value of derivative financial instrument 244,500 48,500 - - Amortisation of prepaid lease payments 29,814 38,159 - - Allowance for slow-moving inventories 20,468 64,741 - - Finance costs 10,921 8,091 - - Share of loss of associated company 2,037 - - - (Gain)/Loss on disposal of: Property, plant and equipment (1,606,521) 71,683 - - Leasehold land classified as prepaid lease payment (328,857) - - - Interest income (499,158) (561,761) (277,262) (377,791) Unrealised gain on foreign exchange (425,316) (617,278) - - Reversal of allowance for slowmoving inventories (29,971) (1,907) - - Gain on disposal of available-forsale financial asset - (74,539) - (74,539) Change in fair value of investment property - (145,000) - - Reversal of impairment loss on trade receivables - (8,198) - - Property, plant and equipment written off - 4,159 - - (Forward) 17
The Company 2014 2013 2014 2013 RM RM RM RM Operating Profit/(Loss) Before Working Capital Changes 873,614 1,204,445 (107,400) (31,161) (Increase)/Decrease in: Inventories (1,320,770) 2,492,555 - - Trade receivables (913,525) 1,396,253 - - Other receivables and prepaid expenses 34,494 15,352 - - Increase/(Decrease) in: Trade payables 136,546 (580,267) - - Other payables and accrued expenses 625,220 (685,240) 8,651 (71,380) Cash (Used In)/Generated From Operations (564,421) 3,843,098 (98,749) (102,541) Finance costs paid (10,921) (8,091) - - Income tax (paid)/refunded (155,537) 40,619 (73,356) (60,212) Net Cash (Used In)/From Operating Activities (730,879) 3,875,626 (172,105) (162,753) CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES Interest received 499,158 561,761 277,262 377,791 Proceeds from disposal of: Property, plant and equipment 6,233,448 68,911 - - Leasehold land classified as prepaid lease payment 1,144,475 - - - Proceeds from disposal of available-for-sale financial asset - 992,425-992,425 Acquisition of investment properties - (2,974,707) - (2,974,707) Purchase of property, plant and equipment* (9,495,618) (674,067) - - Advance payment for purchase of property, plant and equipment (1,686,842) (86,975) - - Acquisition of associated company (1,300,000) - - - Decrease/(Increase) in amount due from subsidiary companies - - (3,734,985) 3,142,816 Net Cash (Used In)/From Investing Activities (4,605,379) (2,112,652) (3,457,723) 1,538,325 (Forward) 18
The Company Note 2014 2013 2014 2013 RM RM RM RM CASH FLOWS USED IN FINANCING ACTIVITY Shares buy-back - (2,910) - (2,910) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (5,336,258) 1,760,064 (3,629,828) 1,372,662 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,187,591 17,911,896 8,721,424 7,348,762 Effect of exchange rate differences 263,579 515,631 - - CASH AND CASH EQUIVALENTS AT END OF YEAR 31 15,114,912 20,187,591 5,091,596 8,721,424 * s additions to property, plant and equipment amounted to RM9,495,618 (2013: RM645,467). In 2013, a total of RM674,067, which include prior year s balance of RM28,600 was paid in cash. The accompanying Notes form an integral part of the Financial Statements. 19
TAFI INDUSTRIES BERHAD (Incorporated in Malaysia) AND ITS SUBSIDIARY COMPANIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2014 1. GENERAL INFORMATION The Company is a public limited liability company, incorporated and domiciled in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad. The Company is principally involved in investment holding and provision of management services. The principal activities of the subsidiary companies are as disclosed in Note 14. There have been no significant changes in the nature of the activities of the Company and its subsidiary companies during the financial year. The registered office of the Company is located at 35-1 (Room A), Jalan Dato Hj. Hassan, 84000 Muar, Johor, Malaysia. The principal place of business of the Company is located at PLO 3, Kawasan Perindustrian Bukit Pasir, Mukim Sungai Raya, Bukit Pasir, 84300 Muar, Johor, Malaysia. The financial statements of the Group and of the Company were authorised for issue by the Board of Directors in accordance with a resolution of the directors dated April 8, 2015. 2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS The financial statements of the Group and the Company have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRSs ), International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. 20
Adoption of revised MFRSs and Amendments to MFRSs In the current financial year, the Group and the Company adopted the following revised MFRSs and amendments to MFRSs issued by Malaysian Accounting Standards Board that are relevant to their operations and mandatory for financial periods beginning on or after January 1, 2014: Amendments to MFRS 10, Investment Entities: Applying the MFRS 12 and MFRS 128 Consolidation Exception Amendments to MFRS 132 Financial Instruments: Presentation (Amendments relating to Offsetting Financial Assets and Financial Liabilities) Amendments to MFRS 136 Impairment of Assets (Amendments relating to Recoverable Amounts Disclosures for Non-Financial Assets) Amendments to MFRS 139 Financial Instruments: Recognition and Measurement (Amendments relating to Novation of Derivatives and Continuation of Hedge Accounting) The adoption of these revised MFRSs and amendments to MFRSs has not had any significant impact on the financial statements of the Group and the Company for the current and prior financial years. Standards and Amendments in issue but not yet effective At the date of authorisation for issue of these financial statements, the new and revised Standards and Amendments which were in issue but not yet effective and not early adopted by the Group and the Company are as listed below. MFRS 9 Financial Instruments 1 MFRS 15 Revenue from Contracts with Customers 2 Amendments to MFRS 10, MFRS 12 and MFRS 128 Investment Entities: Applying the Consolidation Exception 3 Amendments to MFRS 11 Accounting for Acquisitions of Interests In Joint Operations 3 Amendments to MFRS 101 Disclosure Initiative 3 Amendments to MFRS 116 and MFRS 138 Clarification of Acceptable Methods of Depreciation and Amortisation 3 Amendments to MFRS 116 Agriculture: Bearer Plants 3 and MFRS 141 Amendments to MFRS 119 Defined Benefit Plans: Employee Contributions 4 Amendments to MFRS 127 Equity Method in Separate Financial Statements 3 Amendments to MFRSs Annual Improvements to MFRSs 2010-2012 Cycle 4 Amendments to MFRSs Annual Improvements to MFRSs 2011-2013 Cycle 4 Amendments to MFRSs Annual Improvements to MFRSs 2012-2014 Cycle 3 1 2 3 4 Effective for annual periods beginning on or after January 1, 2018 Effective for annual periods beginning on or after January 1, 2017 Effective for annual periods beginning on or after January 1, 2016 Effective for annual periods beginning on or after July 1, 2014 21
The directors anticipate that abovementioned Standards and Amendments will be adopted in the annual financial statements of the Group and the Company when they become effective and that the adoption of these Standards will have no material impact on the financial statements of the Group and the Company in the period of initial application. 3. SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements of the Group and of the Company have been prepared on the historical cost basis except as disclosed in the summary of significant accounting policies. Historical cost is generally based on the fair value of the consideration given in exchange for assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group and the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of MFRS 2, leasing transactions that are within the scope of MFRS 117, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in MFRS 102 or value in use in MFRS 136. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability. 22
Revenue and Income Recognition Revenue from sales of goods is recognised upon delivery of products and when the risks and rewards of ownership have passed to the customers. Sales represent gross invoiced value of goods sold net of sales tax, trade discounts and allowances. Management fee is accrued on a time basis. Interest income is recognised on a time proportion basis that reflects the effective yield on the asset. Foreign Currencies The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For purpose of consolidated financial statements, the results and financial position of each group entity are expressed in Ringgit Malaysia, which is the functional currency of the Company and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entity, transactions in currencies other than the functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the profit or loss for the year. Exchange differences arising on retranslation of non-monetary items carried at fair value, in respect of which gains or losses are recognised in other comprehensive income, are also recognised in other comprehensive income. Employee Benefits (i) Short-term employee benefits Wages, salaries, paid annual leave, bonuses and social contributions are recognised in the period in which the associated services are rendered by employees of the Group and of the Company. Short-term accumulating compensated absences such as paid annual leave are recognised when services are rendered by employees that increase their entitlement to future compensated absences. Short-term non-accumulating compensated absences such as sick leave are recognised when the absences occur. 23
(ii) Defined contribution plan Taxation and the Company are required by law to make monthly contributions to the Employees Provident Funds ( EPF ), a statutory defined contribution plan for all their eligible employees based on certain prescribed rates of the employees salaries. Once the contributions have been paid, the Group and the Company have no further payment obligations. s and the Company s contributions to EPF are disclosed separately. The employees contributions to EPF are included in staff costs. Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. s and the Company s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that future taxable profits will be available against which those deductible temporary differences, unused tax losses and unused tax credits can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets, if any, is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to the profit or loss, except when they relate to items that are recognised outside profit or loss (whether in other comprehensive income or directly in equity), in which case the deferred tax is also recognised outside profit or loss. The tax effects of unutilised reinvestment allowances are only recognised upon actual realisation. 24
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group and the Company intend to settle their current tax assets and liabilities on a net basis. For the purposes of measuring deferred tax liabilities and deferred tax assets for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. The directors of the Group and the Company reviewed the Group s and the Company s investment property portfolios and concluded that none of the Group s and the Company s investment properties are held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sale. Therefore, the directors have determined that the sale presumption set out in the amendments to MFRS 112 is not rebutted. As a result, the Group and the Company has not recognised any deferred taxes on changes in fair value of the investment properties as the Group and the Company is not subject to any income taxes on the fair value changes of the investment properties on disposal. Investment Properties Investment properties which consist of long-term leasehold and freehold land are held to earn rentals and/or for capital appreciation and are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. Gains or losses arising from changes in the fair value of investment properties are included in the profit or loss for the period in which they arise. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Freehold land and construction in progress are not depreciated. Depreciation of other property, plant and equipment is computed on the straight-line method at the following annual rates based on the estimated useful lives of the various assets. The annual depreciation rates are as follows: Buildings 2% - 10% Plant and machinery 10% Motor vehicles 10% - 20% Tools, equipment and electrical installation 10% - 20% Furniture, fixtures and fittings 10% 25
The residual value, useful lives and depreciation method of property, plant and equipment are reviewed at the end of each reporting period to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefit embodied in the property, plant and equipment. A gain or loss arising from the disposal of an asset is determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset, and is recognised in profit or loss. Prepaid Lease Payments on Leasehold Land Leases of land where title is not expected to pass to the lessee at the end of the lease term are classified as operating leases as land normally has an indefinite useful life. The upfront payments made on entering into or acquiring a leasehold land that is an operating lease represents prepaid lease payments which are amortised on a straight line basis over the lease term except for leasehold land classified as investment property. Impairment of Non-Financial Assets At the end of each reporting period, the Group and the Company review the carrying amounts of their assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group and the Company estimate the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the profit or loss, unless the relevant asset is carried at revalued amount, in which case the impairment loss is treated as revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as revaluation increase. 26
Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and all the subsidiary companies controlled by the Company made up to December 31, 2014. Control is achieved when the Company: has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns. The results of subsidiary companies acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiary companies to bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Investment in Subsidiary Companies A subsidiary company is a company where the Group has control through the power to govern the financial and operating policies of the group so as to obtain benefits therefrom. Investments in unquoted shares of subsidiary companies, which are eliminated on consolidation, are stated in the Company s financial statements at cost less any impairment losses. Investment in Associated Company An associated company is an entity over which the Group has significant influence and that is neither a subsidiary company nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating decisions of the investee but is not control or joint control over those policies. 27
The results and assets and liabilities of associated company are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with MFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investment in associated company are initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group s share of the profit or loss and other comprehensive income of the associated company, less any impairment in the value of individual investments. When the Group s share of losses of an associated company exceeds the Group s interest in that associated company (which includes any long-term interests that, in substance, form part of the Group s net investment in the associated company), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associated company. Any excess of the cost of acquisition over the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associated company recognised at the date of acquisition is recognised as goodwill which is included within the carrying amount of the investment. Any excess of the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. The requirements of MFRS 139 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group s investment in an associated company. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with MFRS 136 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with MFRS 136 to the extent that the recoverable amount of the investment subsequently increases. Upon disposal of an associated company that results in the Group losing significant influence over that associated company, any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset in accordance with MFRS 139. The difference between the previous carrying amount of the associated company attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as that would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in the other comprehensive income by that associated company would be reclassified to profit or loss on disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses significant influence over that associated company. 28
Where a group entity transacts with its associated company, profits and losses resulting from the transactions with the associated company are recognised in the Group s consolidated financial statements only to the extent of the Group s interest in the associated company that are not related to the Group. Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined on the first-in first-out method. The cost of raw materials comprises the original purchase price plus the cost of bringing the inventories to their present location and condition. The cost of work-in-progress and finished goods includes the cost of raw materials, direct labour and a proportion of the manufacturing overheads. Net realisable value represents the estimated selling price in the ordinary course of business less selling and distribution costs and all other estimated costs to completion. Provisions Provisions are made when the Group and the Company have a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation, and when a realisable estimate of the amount can be made. At the end of each reporting period, the provisions are reviewed by the directors and adjusted to reflect the current best estimate. The provisions are reversed if it is no longer probable that the Group and the Company will be required to settle the obligation. Financial Instruments (i) Initial recognition and measurement Financial assets and financial liabilities are recognised when, and only when, the Group and the Company become a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of the financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs that are directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. 29
(ii) Financial instrument categories and subsequent measurement Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL. Financial assets Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss (FVTPL), held-to-maturity investments, available-for-sale (AFS) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise. The Group s and the Company s principal financial assets are trade and other receivables, fixed deposits, cash and bank balances and amount owing by subsidiary companies. (a) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market (including fixed deposits with financial institutions). Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. 30
(b) AFS financial assets AFS financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, heldto-maturity investments or financial assets at fair value through profit or loss. All AFS assets are measured at fair value at the end of the reporting period. Fair value is measured and derived from quoted prices (unadjusted) in active markets. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets, which are recognised in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. The foreign exchange gains and losses that are recognised in profit or loss are determined based on the amortised cost of the monetary asset. Other foreign exchange gains and losses are recognised in other comprehensive income. (c) Financial assets of FVTPL Fair value through profit or loss category comprises financial assets that are held for trading, derivatives or financial assets that are specifically designated into this category upon initial recognition. Derivatives that are linked to and must be settled by delivery of unquoted equity instruments whose fair values cannot be reliably measured are measured at cost. Financial assets categorised as fair value through profit or loss are subsequently measured at their fair values with the gain or loss recognised in profit or loss. All financial assets, except for those measured at fair value through profit or loss, are subject to review for impairment. Equity Instruments (a) Classification as Debt or Equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. 31