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PwC Alert

Issue 124

November 2015

PP 9741/10/2012 (031262)

www.pwc.com/my

Malaysian PrivateEntities ReportingStandards (MPERS)

A new reportingframework for Private

Entities

Page 3

MPERS at a glance Page 5Comparing MPERS withMFRS

Page 7Comparing MPERS withPERS

6First-time adoption ofMPERS



The Malaysian Accounting Standards Board

launched the Malaysian Private Entities ReportingStandards (“MPERS”) on 27 October 2015. The

MPERS is a new financial reporting framework for

private entities in Malaysia.

In this article, we give an overview of the MPERS,

highlight some key differences with the Malaysian

Financial Reporting Standards (“MFRS”) and the

Private Entities Reporting Standards (“PERS”);

and analyse the key principles upon first-time

adoption of the MPERS.

MPERS2 PwC Alert Issue 124, November 2015



MPERS – at a glance

What is MPERS?

The Malaysian Private Entities Reporting Standards ("MPERS") is the newfinancial reporting framework for private entities issued by the Malaysian Accounting Standards Board (“MASB”). It replaces the current Private EntitiesReporting Standards (“PERS”) framework. MPERS is a self-contained

standard with 35 sections covering all relevant areas for financial reporting byprivate entities.

When is MPERS effective?

The MPERS is effective for financial statements with annual periods beginningon or after 1 January 2016. Early application is permitted.

MPERSPwC Alert Issue 124, November 2015 3

Who should apply MPERS?

The MPERS is only applicable to private entities. A private entity is a privatecompany, incorporated under the Companies Act 1965, that:

• is not itself required to prepare or lodge any financial statements under

any law administered by the Securities Commission or Bank NegaraMalaysia; and

• is not a subsidiary or associate of, or jointly controlled by, an entity whichis required to prepare or lodge any financial statements under any lawadministered by the Securities Commission or Bank Negara Malaysia.

A private entity could also opt to adopt the MFRS framework. All privateentities which adopt either the MPERS framework or the MFRS framework,must adopt the framework in its entirety.

2006

PERSFramework

2016

MFRS Framework

2016

MPERS Framework

Must migrate

Can opt to adopt

PrivateEntity



MPERS – at a glance

How different is MPERScompared to IFRS for Smalland Medium-Sized Entities?

The MPERS is based on theInternational Financial Reporting

Standards for Small and Medium-Sized Entities (“IFRS for SMEs”)issued by the International Accounting Standards Board (“IASB”)in July 2009. However, there aredifferences made by the MASB ashighlighted in Panel 1.


MPERS IFRS for SMEs

1) Scope Applicable to Private Entities Applicable to SMEs withoutpublic accountability

2) Exemptionfromconsolidation

Ultimate Malaysian parent isrequired to prepare consolidatedfinancial statements, regardless of

whether its ultimate parent (notincorporated in Malaysia)prepares consolidated financialstatements.

A parent entity is exempted frompresenting consolidated financialstatements if it is a subsidiary andits ultimate parent producesconsolidated financial statementsthat comply with full IFRS orIFRS for SMEs.

3) Revenuefromproperty

developmentactivities

Guidance is based on theMalaysian-specific requirementsin MASB 32 “Property

Development Activities”.

Guidance is based on IFRIC 15“Agreements for the Constructionof Real Estates”.

4) Income tax Accounting for income taxes areconsistent with the requirementsof MFRS 112 “Income Taxes”.

The requirements are based onthe IASB’s 2009 Exposure Drafton income taxes.

The 2015 amendments to the IFRS for SMEs The 2015 Am endm en t s t o t he

M PERS

On 28 October 2015, the MASB published the Amendments to the MPERS (“2015 Amendments”). The2015 Amendments are consistentwith the 2015 Amendments to the IFRS for SMEs published by the IASB. With this amendments, theaccounting requirements for incometaxes in the MPERS are now aligned

with the IFRS for SMEs.

There were 63 amendments madeand the key amendments aresummarised in the table included in Appendix 1 (refer to Page 21) .

The 2015 Amendments is effective for annual periods beginning on orafter 1 January 2017, with early

application permitted.

Panel 1: Differences between MPERS and IFRS for SMEs

On 21 May 2015 the IASB issuedlimited amendments to the IFRSfor SMEs. Most of theamendments clarified existingrequirements or add supportingguidance, instead of changing theunderlying requirements in theIFRS for SMEs. The mostsignificant changes, which relate

to transactions commonlyencountered by SMEs, are:

• permitting SMEs to revalueproperty, plant andequipment; and

• aligning the main recognitionand measurementrequirements for income taxes

with IFRS.

When the IFRS for SMEs was issuedin 2009, the IASB stated that itplanned to undertake an initialcomprehensive review of the standardafter two years of use by SMEs.Specifically, the IASB said it wouldconsider whether to amend the IFRSfor SMEs to address anyimplementation issues identified and

also to consider any changes made toInternational Financial ReportingStandards (“IFRS”) since the IFRS forSMEs was issued.



Comparing MPERS with MFRS

The MFRS, applied by non private entities except for transitioning entities,is fully converged with the IFRS issued by the IASB.

The MFRS and MPERS were developed based on the same framework. Theprinciples were derived from the IASB’s Framework for the Preparation andPresentation of Financial Statements except that the MPERS is a simplified version of the MFRS. MPERS attempts to meet the users’ needs while balancing the costs and benefits to preparers.




The Panel 2 below provides an overview of some key differences between the requirements in the MPERS and MFRS.

Control of subsidiaries • Different concept for “control”. In MPERS, control over an investee means the investor has “thepower to govern the financial and operating policies of the investee so as to obtain benefits from

its activities” while in MFRS, control must be demonstrated through 3 elements: power, exposureto variable returns and an investor’s ability to use its power to affect its variable returns.

Goodwill • In MPERS, after initial recognition, goodwill is subsequently measured at cost less accumulatedamortisation and any accumulated impairment losses. Goodwill is amortised over its useful life, ora maximum of 10 years if its useful life cannot be reliably estimated. In MFRS, goodwill has anindefinite life, hence, it is not amortised. However it is subject to annual impairment testing.

Investments in associates/ joint ventures

• MPERS permits 3 different measurement models – equity method, cost model and fair valuemodel while MFRS requires these investments to be accounted for using the equity method.

Financial instruments • MFRS has 4 measurement models for financial assets as compared to MPERS which has only 2.The available-for-sale and held-to-maturity classifications in MFRS are not available in MPERS.

• MPERS establishes a simpler principle for de-recognition of assets compared to MFRS 139“Financial Instruments: Recognition and Measurement”, both are based on a “risks and rewards”analysis.

Investment property • MFRS allows accounting policy choice of either fair value through profit or loss or a cost-depreciation-impairment model. In MPERS, entity must use the fair value model unless fair valuecould not be measured reliably without undue cost or effort.

Borrowing costs • MPERS requires all borrowing costs to be recognised as an expense in profit or loss while MFRSrequires borrowing costs directly attributable to the acquisition, construction or production of aqualifying asset to be capitalised as part of the cost of asset.

Intangible assets otherthan goodwill

• MPERS requires all research and development costs to be recognised as expenses whiledevelopment costs are capitalised as an assets if criteria are met under MFRS.

• MPERS considers all intangible assets to have a finite useful life and therefore, must be amortisedover the useful life. It does not allowed the use of revaluation model for measuring intangible

assets after initial recognition.

Recycling of foreigncurrency reserve

• On disposal of a foreign operation, MPERS does not allow the cumulative exchange differencesthat relate to the foreign operation to be reclassified from equity to profit or loss.

Comparing MPERS with MFRS


Panel 2: Differences between MPERS and MFRS



Comparing MPERS with PERS

The PERS issued by the MASB were based on accounting standardsissued by the International Accounting Standards Committeeup to 2003. No new PERS wasissued subsequent to 1 January

2006.

Illustration 2: Two-statement of comprehensive income


Presentation of statement of comprehensive income

The MPERS introduces statement of comprehensive income that presents allitems of income and expense recognised in a period, comprising:

• items recognised as profit or loss and

• items of other comprehensive income (“OCI”)

Under MPERS, these items form part of OCI:

• gains and losses arising on translating the financial statements of a foreignoperations;

• actuarial gains and losses;

• changes in fair values of hedging instruments; and

• changes in revaluation surplus for property, plant and equipment (2015 Amendments).

Under the 2015 Amendments, OCI are now grouped into 2 categories, namely:

• items that will not be reclassified to profit or loss and

• items that may be subsequently reclassified to profit or loss.

Illustration 1: Single-statement of comprehensive income

The statement of comprehensive income can be presented using a single-statement approach or a two-statementapproach. See illustrations 1 and 2.

Statement of Comprehensiv e Income for t he year ended 31 December 2016

2016 2015RM’000 RM’000

Revenue 183,052 192,632Cost of sales (158,688) (169,144)Selling and distribution expenses (1,877) (2,343)

Administrative expenses (3,645) (3,237)Finance cost (420) (630)

──────── ────────

Profit before tax 18,422 17,278

Income tax expense (4,605) (4,319)──────── ────────

Profit for the year 13,817 12,959 ──────── ────────

Other comprehensive income:

Items that will not be reclassified to profit or loss:Exchange differences on translatingforeign operations, net of tax 10,200 (2,360)

Actuarial gains on defined benefitpension obligations, net of tax 450 349

Changes in revaluation surplus for property,plant and equipment (150) 200

Items that may be subsequently reclassifiedto profit or loss:Change in the fair value of hedginginstruments, net of tax 729 (534)

──────── ──────────

Other comprehensive income/(expense)for the year, net of tax 11,229 (2,345)

──────── ────────

Total comprehensive income for the year 25,046 10,614 ════════ ════════

Income Statement fo r the year end ed 31 December 20162016 2015

RM’000 RM’000

Revenue 183,052 192,632Cost of sales (158,688) (169,144)Selling and distribution expenses (1,877) (2,343)

Administrative expenses (3,645) (3,237)Finance cost (420) (630)

──────── ────────



PROFIT FOR THE YEAR 13,817 12,959 ════════ ════════

Statement of Comprehens ive Income for the year ended 31 December 20162016 2015

RM’000 RM’000

Profit for the year 13,817 12,959

Other comprehensive income:Items that will not be reclassified to profit or loss :

Exchange differences on translatingforeign operations, net of tax 10,200 (2,360)

Actuarial gains on defined benefitpension obligations, net of tax 450 349

Changes in revaluation surplus for property,plant and equipment (150) 200

Items that may be s ubsequently reclassifiedto profit or loss:

Change in the fair value of hedginginstruments, net of tax 729 (534)

──────── ──────────

Other comprehensive income/(expense)for the year, net of tax 11,229 (2,345)

──────── ──────── Total comprehensive income for the year 25,046 10,614

════════ ════════



Illustration 3:

Presentation of NCI in a single-statement of comprehensive income

Presentation of non-controlling interest

Non-controlling interest (“NCI”) is no longer treated as an expense in profit or loss or a liability on balance sheet butrather it is now an allocation of resources to equity participants.

Illustration 4:

Presentation of NCI in a two-statement of comprehensive income



Statement of Comprehensive Income for the year ended 31 December 2016

2016 2015RM’000 RM’000

Revenue 183,052 192,632Cost of sales (158,688) (169,144)Selling and distribution expenses (1,877) (2,343) Administrative expenses (3,645) (3,237)Finance cost (420) (630)

──────── ────────



Profit for the year 13,817 12,959 ──────── ────────

Other comprehensive income:Items that will not be reclassified to profit or loss:


Actuarial gains on defined benefitpension obligations, net of tax 450 349Changes in revaluation surplus for property,plant and equipment (150) 200

Items that may be subsequently reclassified

to profit or loss:Change in the fair value of hedginginstruments, net of tax 729 (534)

──────── ──────────

Other compr ehensive income/(expense)for the year, net of tax 11,229 (2,345)

──────── ────────

Total comprehensive income for t he year 25,046 10,614 ════════ ════════

Profit attributable to:Owners of the parent 10,817 10,459Non-controlling interest 3,000 2,500

──────── ────────

13,817 12,959════════ ════════

Total comprehensive income attributable to:Owners of the parent 22,546 8,614Non-controlling interest 2,500 2,000

──────── ────────

25,046 10,614════════ ════════

Income Statement for the year ended 31 December 20162016 2015

RM’000 RM’000

Revenue 183,052 192,632Cost of sales (158,688) (169,144)Selling and distribution expenses (1,877) (2,343) Administrative expenses (3,645) (3,237)Finance cost (420) (630)

──────── ────────


Income tax expense (4,605) (4,319)────────

────────

PROFIT FOR THE YEAR 13,817 12,959

════════ ════════

Profit attributable to:Owners of the parent 10,817 10,459Non-controlling interest 3,000 2,500

──────── ────────

13,817 12,959════════ ════════

Statement of Comprehensive Income for the year ended 31 December 20162016 2015

RM’000 RM’000

Profit for the year 13,817 12,959

Other comprehensive income:Items that will not be reclassified to profit or loss:


Actuarial gains on defined benefitpension obligations, net of tax 450 349Changes in revaluation surplus for property,plant and equipment (150) 200

Items that may be subsequently reclassifiedto profit or loss:Change in the fair value of hedging

instruments, net of tax 729 (534)──────── ──────────

Other comprehensive i ncome/(expense)for the year, net of tax 11,229 (2,345)

──────── ────────

Total comprehensive income for the year 25,046 10,614 ════════ ════════

Total comprehensive income attributable to:Owners of the parent 22,546 8,614Non-controlling interest 2,500 2,000

──────── ────────

25,046 10,614════════ ════════




Changes in accounting policies and corrections of errors

• For changes in accounting policies, MPERS requires these changes to beaccounted for in accordance with the transitional provisions as specified

in the new or amended standards. Other changes shall be accounted forretrospectively. This differs from PERS, which allows adjustmentsarising from changes in accounting policies to be included in current year’s profit or loss without restating comparatives.

• MPERS does not distinguish material and fundamental errors. Allerrors should be corrected retrospectively. PERS permits correction of afundamental error to be included in the current year’s profit or loss.

Illustration 5: Statement of income and retained earningsPresentation of statement ofincome and retained earnings

The MPERS allows entity to present asimplified version of statement ofincome and retained earnings in place

of a statement of comprehensiveincome and a statement of changes inequity if the only changes to theequity arise from the following:

• profit or loss;• payment of dividends;• corrections of prior period errors;

and• changes in accounting policy.


Statement of income and retained earnings for the year ended 31 December 2016

2016 2015

RM’000 RM’000

Revenue 750,000 621,000

Other income 45,000 32,250

Changes in inventories of finished goods and

work-in-progress 37,000 22,000

Raw materials and consumables used (561,000) (442,000)

Employee benefits expense (120,000) (97,000)

Depreciation and amortisation expense (43,000) (41,000)

Other expenses (8,500) (8,800)

Finance cost (420) (630)──────── ────────

Prof it before tax 99,080 85,820


Prof it for the year 74,310 64,065 ──────── ────────

Retained earnings at the beginning of the year 277,065 254,000

- As previously stated 319,315 284,000

- Correction of a prior period error (42,250) (30,000)

Profit for the year attributable to the owners

of the parents 69,310 61,065

Dividends declared and paid (47,500) (38,000)──────── ────────

Retained earnings at the end of the year 298,875 277,065 ════════ ════════

Non-controlling interest at the beginning of the year 11,000 10,000

Profit for the year attributable to the non-controlling

interest 5,000 3,000

Share of dividends declared and paid (2,500) (2,000)──────── ────────

Non-controlling interest at the end of the year 13,500 11,000 ════════ ════════



Financial instruments

There are no equivalent standards underPERS on recognition and measurement offinancial assets and financial liabilities.

Section 11 of MPERS deals with basic

financial instruments (“FI”) while derivativesand complex financial instruments falls within the scope of Section 12. An accountingpolicy choice is provided for private entitiesto either apply the requirements of bothSections 11 and 12 in full, or use therecognition and measurement requirementsof MFRS 139 “Financial instruments:Recognition and Measurement” and the

disclosure requirements of Section 11 and 12. Panel 3 summarises the measurementmodels in MPERS.

Impairment of financial assets

Assessment is done at the end of eachreporting period whether there is an objectiveevidence of impairment for financial assetsmeasured at cost (e.g. equity instrument andloan commitment)/amortised cost (e.g. debtinstrument). Impairment loss is recognisedimmediately to profit or loss.

De-recognition

A financial asset is de-recognisd when:

(a) the contractual rights to the cash flowsexpire or are settled, or

(b) the entity transfers substantially all of therisks and rewards of ownership of thefinancial asset to another party, or

(c) despite having retained some significantrisks and rewards, the entity hastransferred control of the asset toanother party.

De-recognition of a financial liability is basedon a legal discharge i.e. when it is

extinguished, cancelled or expired.

Initial measurementSubsequentmeasurement

Debt instruments(financial assets)

(a) Basic FI At transaction priceunless the arrangementconstitutes a financingtransaction, in whichcase, the FI is measuredat the present value ofthe future cash flowdiscounted at a marketrate of interest.

At amortised cost usingeffective interestmethod

(b) Other than basic FI At fair value, normallythe transaction price

At fair value withchanges in fair valuerecognised in profit orloss.

Equity instruments(financial assets)

At fair value, normallythe transaction price

At fair value if fair value can be measuredreliably without unduecost or effort withchanges in fair value

recognised in profit orloss, otherwise theassets are measured atcost less impairment.

Hedginginstruments

At fair value, normallythe transaction price

At fair value withchanges in fair valuerecognised in othercomprehensive income.


Hedge accounting

The criteria for hedge accounting are similar to those in MFRS 139.However, MPERS limits the application of hedge accounting to:

(a) interest rate risk of debt instruments measured at amortised cost,

(b) foreign exchange or interest rate risk in a firm commitment or ahighly probable forecast transaction,

(c) price risk of a commodity or in a firm commitment or highlyprobable forecast transaction to purchase or sell a commodity,and

(d) foreign exchange risk in a net investment in a foreign operation.

Panel 3: Financial instruments measurement models




Leases

• PERS dictated that a lease is classified as a finance lease when (a) the lease term is for75% or more of the economic life of the asset or (b) the present value of the minimumlease payments amounts to at least 90% of the fair value of the asset. No more bright-line threshold for lease classification under MPERS.

• PERS specifically requires a leasehold land in Malaysia to be treated as property, plantand equipment. There is no equivalent requirement in MPERS.

• Straight-line recognition for operating lease expense is not required in MPERS if thelease payments are structured to compensate the lessor for general inflation.

• Certain outsourcing arrangements that do not take the legal form of a lease but conveyrights to use assets in return for payments, shall be accounted for as leases in MPERS.

FunctionalCurrency

• Similar to MFRS, MPERS uses functional currency to measure all components of thefinancial statements as opposed to the reporting currency approach adopted in PERS.

• The functional currency is the currency of the primary economic environment in which the entity operates. It is not necessarily the Ringgit, which is the reportingcurrency for all entities incorporated in Malaysia.

• Unlike PERS, MPERS does not permit foreign exchange difference to be capitalised aspart of an asset’s cost.

• There is only one classification of foreign operations under MPERS and the closingrate translation method is used.

• MPERS does not allow unsettled monetary items to be translated using the forwardrate. This must be translated at the closing rate at the end of the reporting period.

• The new MFRS 15 “Revenue from Contracts with Customers” principle was notincorporated in MPERS.

• The revenue recognition principle in MPERS is consistent with the risk and rewardconcept in MFRS 118 “Revenue”.

• MPERS has also incorporated the principle in IC 13 “Customer Loyalty Programmes” which requires entity to allocate fair value of consideration received between the awardcredits and other components of the sale when an entity operates a loyalty awardscheme.

• MPERS has no specific guidance on Reinvestment Allowance (“RIA”) while PERSprohibits the recognition of RIA or other similar allowance as deferred tax assets.

Income Taxes


Revenue



Intangibleassets

• All research and development costs are recognised as expenses under MPERS.

• All intangible assets are considered to have a finite useful life. If the useful life of anintangible asset cannot be established reliably, the useful life shall be determined basedon management’s best estimate but shall not exceed 10 years.

Property, plantand equipment

• MPERS (before the 2015 Amendments) requires property, plant and equipment to bemeasured at cost less accumulated depreciation and accumulated impairment. The2015 Amendments allows entity to revalue property, plant and equipment.

Investmentproperty

• Under MPERS, investment property must be measured at fair value with changes infair value recognised in profit or loss when fair value can be measured reliably withoutundue cost or effort. Otherwise, investment property is measured at cost lessaccumulated depreciation and impairment.

• MPERS permits property interest held by a lessee under an operating lease to beclassified and accounted for as investment property if the property meets thedefinition of an investment property and fair value of the property interest can be

measured reliably without undue cost or effort on an ongoing basis. This classificationalternative is available on a property-by-property basis while no such option ispermitted in PERS.

• The allowed alternative of last-in, first out (LIFO) cost formula under PERS is notallowed under MPERS.

• PERS provides for exempt entities not to comply with certain disclosure requirements

of the standard, but there is no such exemption in MPERS.

Inventories





Consolidatedfinancial

statements

• The definition of control in MPERS is consistent with the definition in PERS.

• MPERS requires entity to consolidate a special purpose entity (“SPE”) if the substanceof the relationship indicates that the SPE is controlled by the entity.

• The MPERS exemption criteria from presenting consolidated financial statements aredifferent from PERS.

• A subsidiary acquired with the intention of sale within 1 year from acquisition date isexcluded from consolidation and the investment is measured at fair value with changesin fair value recognised in profit or loss.

• Recycling of foreign exchange reserve to profit or loss is not permitted under MPERSupon disposal of a foreign subsidiary.

Non-controllinginterest

• NCI is an equity component in consolidated financial statements prepared inaccordance with MPERS. Accordingly, the effects (gains or losses) arising fromtransaction with NCI on subsidiary’s shares are recognised in equity but not profit orloss.

• Profits or losses in subsidiary are allocated to the parent and to the NCIproportionately, even if this results in NCI having a negative balance.

Goodwill

• Goodwill acquired in a business combination is subsequently measured at cost lessaccumulated amortisation and accumulated impairment.

• The useful life of goodwill shall be determined based on management’s best estimate.

If an entity cannot reliably estimate the useful life of goodwill, the life shall not exceed10 years.

• If the acquirer’s interest in net fair value of identifiable assets, liabilities and provisionsfor contingent liabilities recognised exceeds the cost of the business combination, thenegative goodwill is recognised immediately to profit or loss.

Ag r i c u l t u r e

• Biological assets must be measured at fair value less cost to sell if fair value is readilydeterminable without undue cost or effort with changes in fair value recognised inprofit or loss. Otherwise, biological assets are measured at cost less accumulateddepreciation and accumulated impairment.

P r o pe r t y d evel o pm en t a c t i v i t i e s

• MPERS retains the requirements in MASB 32 “Property Development Activities”,except for borrowing costs. MPERS requires all borrowing costs incurred to berecognised as an expense in profit or loss.

Specialisedactivities




Share-basedpayments

• There is no equivalent PERS on accounting of share-based payment transactions.GAAPs in practice do not recognise shares or share options of employee benefit plans.

• The scope in MPERS is similar to that of MFRS 2 “Share-based Payments” where itcovers: (a) equity-settled share-based payment transactions, (b) cash-settled share- based payment transactions, and (c) transactions with a choice of settlement in cash or by issuing equity instruments.

• When employee of an entity is rewarded with shares of the parent entity, the entity isrequired to recognise an expense in profit or loss, with the corresponding creditrecognised in equity as an equity-settled share-based payment transaction.

Borrowing costs

• MPERS requires all borrowing costs to be recognised as an expense in profit or loss while under PERS, it is an accounting policy choice to capitalise borrowing costs

directly attributable to the acquisition, construction or production of a qualifyingasset as part of the cost of the asset.

Dividends frominvestments insubsidiaries,

jointlycontrolledentities orassociates

• MPERS removes the requirement to deduct distributions received that arise from pre-acquisition profits from the cost of the investment.

• Instead, an investor will be required to recognise the dividends as income in profit or

loss when its right to receive the dividend is established. The receipt of these dividendsmay give rise to a requirement to assess whether the underlying investment isimpaired.

• MPERS disallows the presentation and description of extraordinary items in thestatement of comprehensive income or in the notes. PERS on the other hand, requirespresentation of extraordinary items in the profit or loss though it can arise only in

extremely rare occasions.• MPERS requires disclosures on accounting judgements and key sources of estimation

uncertainties. There is no equivalent requirement in PERS.

• MPERS also requires disclosures to be made on related party transactions and balances.

Extraordinaryitems and newdisclosures





Section 35 of the MPERS prescribes theaccounting treatment and disclosurerequirements for a first-time adopter of

MPERS.

The purpose of MPERS Section 35 is to

establish guidance and to ease the reportingburden for an entity’s first financial

statements prepared in accordance with the

MPERS. Without the exceptions andexemptions in the MPERS, an entity wouldbe required to apply all the requirements in

the MPERS retrospectively.




• A first-time adopter is an entity that presents its first annual financialstatements that conform to the MPERS, regardless of whether its previousaccounting framework was full IFRSs, MFRS, FRS or PERS or whether it

ever prepared general purpose financial statements at all in the past.

Determine thedate oftransition “DoT”

• Date of transition is the beginning of the earliest period for which an entitypresents full comparative information under MPERS in its first MPERSfinancial statements.

1 January 2015 (DoT) 31 December 20161 January 2016

Financial year for which first

MPERS financial statementsare presented

Comparative information

presented for at least one year

Prepare anopening statementof financialposition as at DoT

• The opening statement of financial position at the DoT is the starting pointfor the entity’s first set of MPERS financial statements.

• The general principles underlying MPERS Section 35 is that a first-timeadopter should apply retrospectively all the requirements in MPERS that

are effective at the end of its first MPERS reporting period. To facilitatetransition, MPERS Section 35 provides optional exemptions andmandatory exceptions to the requirement for retrospective application.

Prepare MPERScompliantfinancialstatements

• Entity is required to make an explicit and unreserved statement ofcompliance with the MPERS in its financial statements. Entity is alsorequired to explain the effect of the transition from the previous financialreporting framework to the MPERS in its first set of MPERS financial

statements.

•

For entities with 31 December year-end, the first set of MPERS financialstatements is effective for financial year beginning 1 January 2016. TheDoT is therefore 1 January 2015 for these financial statements.

First-time adoption of MPERS


1

Entity is a first-time adopter?1

2

3

4

2

34

4 st ep s i n a pp l y i n g M PERS Sec t i o n 35



Mandatory exceptions

There are 6 mandatory exceptions inMPERS which prohibit retrospectiveapplication of MPERS in the followingtransactions:

(i) De-recognition of financial assetsand liabilities;

(ii) Hedge accounting;

(iii) Use of hindsight in accountingestimates;

(iv) Discontinued operations;

(v) Measurement of non-controllinginterest;

(vi) Government loans at below marketinterest rates (2015 Amendments).

Optional exemptions

• To facilitate the transitioning toMPERS, MPERS 35.10 allows a first-time adopter to apply any, all or none

of the 12 exemptions from fullretrospective application of MPERS.The 2015 Amendments has furtheradded another 2 exemptions.

• The 14 optional exemptions aresummarised in Panel 4.

• When a first-time adopter chooses toapply (or not to apply) a specific

exemption, it must then apply (ornot) the specific exemption for allsimilar transactions, other events orconditions to ensure consistency ofaccounting policies.

• The application of 2 of the optionalexemptions has been illustrated inillustrations 6 and 7 on pages 18

and 19.


Panel 4: The 14 optional exemptions in Section 35



Illustration 6: Deemed costexemption for property,plant and equipment,investment property orintangible asset

Entities may elect to measure anitem of property, plant andequipment, investment property orintangible asset on the DoT:

(i) At its fair value on DoT anduse that as the deemed cost;

(ii) At a previous GAAPrevaluation on or before DoT

as deemed cost at the date ofrevaluation.

First-time adoption of MPERS

1 Jan 1993

1 Jan 1998

31 Dec 2014

1 Jan 2015

Company ABC acquired a building for RM200,000. Estimated useful life is 50 years, hence depreciation per year= RM4,000

Company ABC adopted a 5-year revaluation policy andrevalued the building to RM400,000, resulting a revaluationsurplus of RM220,000. Depreciation per year now = RM8,889, with no change in estimated useful life

Carrying amount of the building in PERS financialstatements: RM248,889 (Company ABC had applied the MASB’s IAS 16 transitional provision and had used therevalued amount as deemed cost as at 1 Jan 2001)

Fair value of the building at the DoT is RM500,000

(1) (2) (3)

Fair value onDoT as deemedcost

Revaluedamount atpreviousrevaluation asdeemed cost

Company doesnot apply thedeemed costexemption

Cost/deemedcost

500,000 400,000 200,000

Accumulateddepreciation

Nil 151,111(8,889 x 17 years)

88,000(4,000 x 22 years)

Carryingamount of building onDoT

500,000 248,889 112,000

Adjustment to

carryingamount

+251,111 No impact -136,889




Illustration 7: Investments in subsidiaries, associates and jointly

controlled entities in separate financial statements

If an entity elects the cost less impairment model as its accounting policy forinvestments in subsidiaries, associates and jointly controlled entities in separatefinancial statements [MPERS 9.26], it shall measure the investment at one of

the following on DoT at:• Cost determined based on MPERS Section 9

• Deemed cost based on:

- fair value at DoT; or

- carrying amount based on PERS on DoT

Carrying amount of investment in subsidiary S on 31 December 2014 inaccordance with the PERS = RM450,000 (original cost of RM1,000,000 less pre-acquisition dividends of RM550,000)

Fair value as 1 January 2015 (DoT) = RM400,000 (Note – no impairment)

(1) (2) (3)

Fair value onDoT as deemedcost

Carrying amount based on PERSon DoT

Cost determined based on MPERSSection 9

Cost/Deemedcost

400,000 450,000 1,000,000

Carryingamount at DoT

400,000 450,000 1,000,000

Adjustments tocarryingamount

-50,000 No impact +550,000

Impairmenttesting

There is a need to assess whether the cost of investment in subsidiary S isimpaired under options (2) and (3).




Private entities are required to apply the

MPERS starting from 1 January 2016,hence management needs to identify the gapand analyses the implications to ensure a

smooth transition into the new reporting framework.




Notes



PwC Alert is a digest of topical financial and business information for clients and business associates of PwC Malaysia. Whilst every care has been taken in compiling this newsletter, we makeno representations or warranty (expressed or implied) about the accuracy, suitability, reliability or completeness of the information for any purpose. PwC Associates Sdn Bhd, its employeesand agents accept no liability, and disclaim all responsibility, for the consequences of anyone acting, or refraining to act, in reliance on the information contained in this publication or for anydecision based on it. Recipients should not act upon it without seeking specific professional advice tailored to your circumstances, requirements or needs.

© 2015 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” and/or “PwC” refers to the individual members of the PricewaterhouseCoopers organisation in Malaysia, eachof which is a separate and independent legal entity. Please see www.pwc.com/structure for further details.

Publisher: PricewaterhouseCoopers Malaysia (AF1146) Level 15, 1 Sentral, Jalan Rakyat, Kuala Lumpur Sentral, P O Box 10192, 50706 Kuala Lumpur, Malaysia. Tel: +60 (3) 2173 1188

Fax: +60 (3) 2173 1288 E-mail: [email protected] | Design and printing: PricewaterhouseCoopers. CS08275

Shirley GohPartnerPricewaterhouseCoopers (AF1146)

Tel: +603 2173 [email protected]

L et ’ s t a l k

p w c . c om / m y

Aaron SawSenior ManagerPricewaterhouseCoopers (AF1146)


Tan Hoe PooSenior ManagerPricewaterhouseCoopers (AF1146)


Lim Lee YenSenior ManagerPricewaterhouseCoopers (AF1146)


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