Nestlé - MFRS134 & MFRS9 PDF

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NESTLÉ (MALAYSIA) BERHADFINANCIAL ACCOUNTING AND REPORTING (FAR570)BACHELOR OF ACCOUNTANCY (HONS)SEGMENTAL REPORTINGPREPARED FOR: MS DAYANG NAZARI BINTI AWANG DRAHMANGROUP: AC2204BBIL NAME STUDENT ID 1. FARAH NUR IMAN BINTI MANTAIB 2020461722 2. VALERIE JOHNNY 2020608776 3. ADELINE IVY LOIMON 202061...

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NESTLÉ (MALAYSIA) BERHAD FINANCIAL ACCOUNTING AND REPORTING (FAR570) BACHELOR OF ACCOUNTANCY (HONS)

SEGMENTAL REPORTING

PREPARED FOR: MS DAYANG NAZARI BINTI AWANG DRAHMAN

GROUP: AC2204B BIL NAME

STUDENT ID

1.

FARAH NUR IMAN BINTI MANTAIB

2020461722

2.

VALERIE JOHNNY

2020608776

3.

ADELINE IVY LOIMON

2020614904

ACKNOWLEDGEMENT

First, we are grateful to Allah, God the Almighty and Most Merciful as it is that we are able to produce report. We would like to show our gratitude to our supportive lecturer, Ms Dayang Nazari Binti Awang Drahman for giving us a good guideline. Special thanks also to our family and friends who are support and helping us to complete this FAR570 report. We also would like to extend our appreciation to all parties that helping us in collecting the information and encouragement that were beneficial for us to complete the tasks. Last but not least, we hope that by doing this case study assignment we will be able to understand the importance of accounting in the real world. For the preparation of this report, we encountered various obstacles during the proceeds to gathered information. However, there were many kind people who were cooperative and give us guidance in making our pursuit for the extra information a success. They have been generously helpful, and therefore there really help us a lot in making our case study assignment. Thank you.

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TABLE OF CONTENTS ACKNOWLEDGEMENT ................................................................................................. 2 1.0 INTRODUCTION ......................................................................................................... 4 2.0 CONTENT ....................................................................................................................... 2.1 COMPANY BACKGROUND ..................................................................................... 4 2.2 MANAGEMENT APPROACH ................................................................................... 6 2.3 SEGMENTAL REPORT ........................................................................................... 10 3.0 CONCLUSION ............................................................................................................ 11 4.0 REFERENCE .............................................................................................................. 12 5.0 APPENDIX .................................................................................................................. 13

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1.0 INTRODUCTION Segment reporting is important in terms of providing useful information to investors and creditors in appraising the investment potential of diversifies firms. Although the data is not always consistent, studies shows that segment reporting data is more accurate than the prediction based data on consolidated data. Thus, this proves that it assists users to have a better understanding of the entity’s past performance, better assessment on the entity’s risks and rewards and make a more informed judgements of the entity as a whole.

2.0 CONTENT 2.1 COMPANY’S BACKGROUND

Figure 1 Nestlé (Malaysia) Berhad’s company logo Nestlé (Malaysia) Berhad is a Malaysian-based company that produces products related to nutrition, health and wellness. It is a public limited company by shares (investment holding company) that is incorporated and domiciled in Malaysia. It is listed on Bursa Malaysia Securities Sdn Bhd. The company is categorized in the industrial sector whose activities includes the manufacturing, marketing and selling of nutrition, health and wellness products such as powdered milk and drinks, liquid milk and juices, ice-cream, instant coffee and other beverages, instant noodles etc. It has three subsidiaries, Nestlé Products Sdn Bhd, Nestlé Manufacturing (Malaysia) Sdn Bhd and Nestlé Asean (Malaysia) Sdn Bhd. Nestlé Products Sdn Bhd is in charge of the marketing and sales of their products such as powdered milk and drinks, liquid milk and juices, ice-cream, instant coffee and other beverages, instant noodles, chocolate confectionary products, cereals, yogurt, culinary products and related products. Nestlé Manufacturing (Malaysia) Sdn Bhd handles the manufacturing and sales of the products mentioned while Nestlé Asean (Malaysia) Sdn Bhd takes care of the manufacturing and sale of chocolate confectionary products.

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Nestlé originally started with the foundation of the Anglo-Swiss Condensed Milk Company, a Swiss company in Switzerland, in 1866. It was established by brothers from the United States of America, Charles and George Page where they used their knowledge from their hometown and became Europe’s first production facility for condensed milk. They then started supplying their product across Europe’s industrial towns under Milkmaid brand where it is marketed as safe and long-life alternative to fresh milk. Later in 1867, Henri Nestlé, Nestlé’s founder who is a German-born pharmacist, launched ‘farine lactée’ which translates to flour with milk for consumption of infants who cannot be breastfed to overcome high mortality rates. This creates a fierce competition with Anglo-Swiss when both started selling rival versions of other’s original products, condensed milk and infant cereal and both of the company eventually expanded abroad. However, when George Page died in 1902, Anglo-Swiss eventually merged with Nestlé. In 1912, Nestlé then started in Malaysia in 1912 as the Anglo-Swiss Condensed-Milk Company in Penang and due to the growth and expansion of the company, they made a move to Kuala Lumpur in 1939. As of today, Nestlé Malaysia is an essential brand that every Malaysian has in their list of household items such as Maggi, Nescafé, Milo and Kit Kat. With over 6 factories, more than 5.000 employees across the country and producing over 500 Halalcertified products, there is no doubt that the nation has a special place for Nestlé Malaysia that has captured their hearts for over a century.

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2.2 MANAGEMENT APPROACH Factors to Consider Having a Segment Reporting: 1. The nature of the business activities The nature of business for Nestle (Malaysia) Berhad is of investment activities whereas for its subsidiary companies such as Nestle Products Sdn Bhd, they are involved in the marketing and sales of food and beverage and for Nestle Manufacturing (Malaysia) Sdn Bhd, they are involved in the manufacturing and sales of food and beverage.

2. The existence of managers responsible for the activities An operating segment will usually have a segment manager who is directly accountable for and they are to maintain regular contacts with the chief operating decision maker (CODM) in discussing the operating activities, financial results, forecasts or plans for the segment.

3. Information presented to the Board of Directors The chief operating decision maker (CODM) shall review the operating results of both sets of the components and the financial information which is available on a regular basis. The Board of Directors for Nestle (Malaysia) Berhad has access to any information that they require and has an unrestricted access to information of the Group’s businesses.

Type of Segment An operating segment can be divided into two types of segments which are business or geographical segment. In Nestle Malaysia Berhad’s Annual Report 2019, the company has two reportable operating segments such as based on their products which is categorized under the food and beverage segment. Next, the geographical segment is grouped under others segment as it is considered as a regionally and globally managed business. Hence, there are five business activities that can be assumed to be used as segments for the segmental reporting after examining the company’s annual report. Below are the following business activities:

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1. Manufacturing activities 2. Agriculture activities 3. Transportation activities 4. Investment activities 5. Marketing and advertising activities

The Chief of Decision Making (CODM) and Its Responsibilities The Chief of Decision Maker (CODM) is not necessarily a manager with a specific title but it identifies as a function. That function is to distribute the resources and evaluate the performance of the entity’s operating segments. It is often that an entity’s CODM is its chief executive officer or the chief operating officer however it may also be a group of executive directors or others. (Malaysian Accounting Standards Board) In the case of Nestle (Malaysia) Berhad, the CODM of the company is the Group’s Executive Board. They are responsible to make decisions regarding the allocation of resources to the segment and to evaluate its performance and for which discrete financial information is available.

Process to Identify The Reportable Segment and Non-Reportable Segment In accordance with MFRS 8 Operating Segments, a reportable segment and a non-reportable segment are recognized if it meets any one of these following thresholds: 1. Revenue The reported revenues of segments from sales to the external customers and inter-segment sales is 10% or more of the combined revenues from both internal and external of all the operating segments. 2. Results The absolute amount of the segment’s reported profit or loss is 10% or more of the greater of combined profit of all the reporting segments profits or the combined loss of all the reporting segments losses. Page | 7

3. Assets The segment assets are 10% or more of the total assets of all the operating segments.

10% Threshold Test Inter-segment sales: 25% = RM1,379,519 External sales: 75% = RM4,138,557 Operating Segments

Manufacturing Agriculture Investment Activities

Activities

Activities

Marketing

Transportation

&

Activities

Total

Advertising Activities RM

RM

RM

RM

RM

RM

1,179,489

1,104,995

877,374

641,476

335,223

4,138,557

389,024

353,157

277,283

222,103

137,952

1,379,519

1,568,513

1,458,152

1,154,657

863,579

473,175

5,518,076

1,568,513 5,518,076

1,458,152 5,518,076

1,154,657 5,518,076

863,579 5,518,076

473,175 5,518,076

× 100%

× 100%

× 100%

× 100%

× 100%

= 15.650%

= 8.575%

Revenue: External Sales Intersegment Sales Total Revenue

Percentage of Revenue

Conclusion

= 28.423%

= 26.425% = 20.923%

Reportable

Reportable

Reportable Reportable

Not Reportable

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In accordance with the table above, only the manufacturing activities, agriculture activities, investment activities and marketing and advertising activities are qualified as reportable segments since these segments have exceeded the 10% threshold test. However, the transportation activities have only 8.575% of the combined revenue of the segment therefore it is not qualified as a reportable segment as it has not exceeded the 10% threshold test.

75% Threshold Test The total of the combined external revenue which is attributable to the reportable segments deriving from the 10% threshold test should also be at least 75% of Nestle (Malaysia) Berhad’s total external revenue. However, if the total does not meet the 75% threshold test, then additional reportable segments should be identified until it has met at least 75% of the total external revenue which is included in the entity’s reportable segments.

External revenue of reportable segment = RM1,179,489 + RM1,104,995 + RM877,374 + RM641,476 = RM3,803,334

External revenue of reportable segment = RM3,803,334 Total external revenue

RM4,138,557 = 91.9%

The amount is more than 75%. The segments chosen will remain as reportable segments. Therefore, additional reportable segments will not be needed.

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2.3 SEGMENTAL REPORT Nestle (Malaysia) Berhad Segmental Report as at 31 December 2019

Reportable Operating Segments

Manufactu Agricultur ring e Activities Activities Revenue: External Sales Inter-segment Sales Total Revenue Results: Operating segments Less: Finance Cost Finance Income Other unallocated expenses Share of profit Profit before tax Less: Taxation Profit after tax Other Information: Depreciation of Property, plant and equipment

RM 1,179,489

Investmen Marketing t Activities & Advertisin g Activities RM RM RM 1,104,995 877,374 641,476

Other Reportabl e Operating Segments Transporta tion Activities

Total

RM 335,223

RM 4,138,557

389,024

353,157

277,283

222,103

137,952

1,379,519

1,568,513

1,458,152

1,154,657

863,579

473,175

5,518,076

913,935,000 (40,663,000)

3,662,000 (1,942,000)

733,000 875,725,000 (202,812,00 0) 672,913,000

133,506,000

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3.0 CONCLUSION In conclusion, the segmental report is very important for a company as it has few advantages. First and foremost, it will help investors and creditors to see the full picture of the company. Whereby, they can see each of the segment's profitability, risk, growth and monitor the performance of the company. Investors also would be able to determine which segment contributed to the rise in earnings if the company posted higher earnings than the previous era. Next, the segmental report would then assist the organization in more efficiently allocating resources. The organization will determine which segments need additional investment in order to increase efficiency or meet operational requirements. This can avoid the company from giving too much attention only to a certain segment. However, it has the potential to reveal details about a company's operations to a competitor. This is because the study would make the viability of individual segments available to the general public. Since the competitor can concentrate more on the segments that aren't doing well, the business will lose its competitive advantage.

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4.0 REFERENCES 1. The

Nestlé

company

history.

Nestlé

Global.

(n.d.).

Retrieved

from

https://www.nestle.com/aboutus/history/nestle-company-history 2. Nestlé

in

Malaysia.

Nestlé

Malaysia.

(n.d.).

Retrieved

from

https://www.nestle.com.my/aboutus/nestle-my 3. Thomson Reuters. (n.d.). NESM.KL - Nestle (Malaysia) Berhad Profile. Reuters. Retrieved from https://www.reuters.com/companies/NESM.KL 4. The

Nestlé

company

history.

Nestlé

Global.

(n.d.).

Retrieved

from

https://www.nestle.com/aboutus/history/nestle-company-history 5. Malaysian Accounting Standards Board. (n.d.). MFRS8 Operating Segments. Retrieved from

Malaysian

Accounting

Standards

Board:

https://www.masb.org.my/pdf.php?pdf=BV2018_MFRS%208.pdf&file_path=pdf_fil e 6. Tan, L. T. (2020). Chapter 15 Segment Reporting. In Financial Accounting and Reporting in Malaysia (7th ed., Vol. 2, pp. 771–787). story, Commerce Clearing House (Malaysia) Sdn. Bhd. (Wolters Kluwer). 7. Admin. (2013, February 5). Advantages and Disadvantages Of Segment Reporting. Public

relations.

Retrieved

from

http://public-relations.hol.es/advantages-and-

disadvantages-of-segment-reporting/ 8. Advantages and Disadvantages of Segment Reporting. Bizfluent. (2019, February 11). Retrieved

from

https://bizfluent.com/info-8548796-advantages-disadvantages-

segment-reporting.html 9. Malaysian Accounting Standard Board. (n.d.). MFRS134 Interim Financial Reporting. Retrieved

from

Malaysian

Accounting

Standard

Board:

https://www.masb.org.my/pdf.php?pdf=BV2018_MFRS%20134.pdf&file_path=pdf_ file 10. Accounting Tools. (2021, April 16). Interim of Reporting Definition. Retrieved from Accounting

Tools:

https://www.accountingtools.com/articles/what-is-interim-

reporting.html

11. Accounting Tools. (2021, April 15). Segment reporting definition. Retrieved from Accounting

Tools:

https://www.accountingtools.com/articles/what-is-segment-

reporting.html

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5.0 APPENDIX

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CORPORATE GOVERNANCE & FINANCIAL REPORT

2019

2 - 32 CORPORATE GOVERNANCE OVERVIEW STATEMENT A View from the Chairman Governance at a Glance Leadership and Effectiveness Accountability Engagement Additional Disclosure Audit Committee Report Nomination and Compensation Committee Report 33 - 38 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL 39 - 42 FINANCIAL PERFORMANCE Key Highlights Financial Calendar Group Financial Highlights 5 Years’ Statistics

INSIDE THIS REPORT ENHANCING QUALITY OF LIFE AND CONTRIBUTING TO A HEALTHIER FUTURE As we pursue our aspirations, we are ever-mindful of our purpose. This is intrinsic to our commitments, inspiring us as individuals, sustaining us as a company, and allowing us to contribute to society in meaningful ways. This subsequently propels the long-term growth of the business.

43 - 129 FINANCIAL STATEMENTS Directors’ Report Statements of Financial Position Statements of Profit or Loss and Other Comprehensive Income Consolidated Statement of Changes in Equity Statement of Changes in Equity Statements of Cash Flows Notes to the Financial Statements Statement by Directors Statutory Declaration Independent Auditors’ Report 130 - 133 OTHER INFORMATION Shareholdings Statistics List of Properties Held

Nestlé (Malaysia) Berhad

CORPORATE GOVERNANCE OVERVIEW STATEMENT A VIEW FROM THE CHAIRMAN Our good corporate governance standards create value for our business in various ways, specifically by supporting our: • sustained financial performance; • high quality and nutritious products for our consumers; and • talent attraction and retention. A CULTURE ROOTED IN ETHICS AND VALUES Nestlé has a groupwide culture that aligns productivity and performance with ethical practices and social consciousness. The Group operates within a clear ethics framework, aligned to its values, and we take a zero-tolerance approach to corruption and collusion. The Nestlé Code of Business Conduct guides the way we go about discharging our responsibilities. Ongoing ethics training among employees and the signing of an Integrity Pledge by all Directors and employees provide constant reinforcement.

Dear Shareholders, Good corporate governance is central to our approach to enhance the creation of value in the short, medium and long term for the benefit of all stakeholders of Nestlé (Malaysia) Berhad (“Company”). The Board of Directors (“Board”) and the Management Team are committed to policies and practices that meet high levels of compliance and transparency in disclosure. Nestlé has a rich and proud history of success ...