The Conceptual Framework for Financial Reporting and Malaysian Financial Reporting Standards.

The International Financial Reporting Standards Framework (IFRS Framework) states that the going concern assumption is an underlying assumption. The Going Concern is one of the basic assumptions described in IAS 1/ MFRS 101 Presentation of Financial Statements. IAS 1/ MFRS 101 states that all entities have to prepare financial statements on a going concern basis.

Case Study

Dorf Industries Sdn. Bhd. (Dorf) was incorporated in Malaysia under the Company Act 1965 in 2000. Dorf's principal activities include investment holding and manufacturing and selling water taps, showers, and other plumbing fittings. Dorf closes its accounts on 31 December every year. Dorf is listed on the Main Market of Bursa Malaysia Securities Berhad. The financial statements of Dorf have been prepared in accordance with Malaysian Financial Reporting Standards (MFRS) as issued by the Malaysian Accounting Standards Board (MASB), International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board and the requirements of the Companies Act 2016 in Malaysia. The financial statements have also been prepared based on the accounting policies below:

(i)All items of property, plant and equipment are initially recorded at cost. After initial recognition, property, plant and equipment except for freehold land are stated at cost less any accumulated depreciation and accumulated impairment losses. Depreciation is calculated to write down the cost of the assets to their residual values on a straight-line basis over their estimated useful lives. The principal depreciation annual rates used are as follows:

Buildings 2%

Plant and machinery 10%

Office furniture and equipment 10%

Motor vehicles 20%

(ii)Investment properties are freehold land and buildings held for rental income which are not occupied for use in the operations of Dorf.

Investment properties are stated at cost less accumulated depreciation and accumulated impairment losses. The principal annual depreciation rate is as follows:Buildings 2%

In 2020, The Malaysian government implemented a nationwide restricted movement order from 18 March 2020 until 9 June 2020 to curb the spread of Covid-19. Dorf was not allowed to operate during the Movement Control Order (MCO) and Conditional Movement Control Order (CMCO) period. Dorf resumed its operation on 16 June 2020.

In 2020, Dorf reported its revenue dropping by 28%, with a negative profit margin of 10%. Dorf also registered a 40% decline in the total rental income generated from the investment properties against the rental income earned in 2019. The decrease in rental income was mainly due to the increased vacancy rate for office space in Sunway City in the third quarter and fourth quarter of 2020 resulted from the COVID-19 pandemic. The occupancy rate of the Sunway Dorf Tower located at Sunway City was 70% as at 31 December 2020.

In 2021, the Malaysian government reintroduced a nationwide MCO due to the increase in Covid-19 cases. The MCO started on 12 May 2021, and has extended indefinitely to reduce the spread of Covid-19 infection in the country. The financial controller forecasts the revenue of Dorf will shrink by 20%, and the negative profit margin will increase by 5%. The general manager proposes to the Board of Directors (The Board) to dispose of the building located at Subang Jaya (Subang Dorf Tower) and move the headquarter from Subang Jaya to the Sunway Dorf Tower. Dorf will be using 10% floor space of the Sunway Dorf Tower as its headquarter. The Board is concerned about the financial reporting for the year ended 31 December 2021. The Chairman of the Board requests a report detailing the impact of the COVID 19 on the financial reporting for the year ended 31 December 2021.

Required:

Prepare a 4,000-word report detailing the impact of the COVID-19 on the financial statements for year-ended 31 December 2021 of Dorf covering the following aspects:

1. Discuss the implication of the impact of the Covid 19 on the going concer basis of accounting

2. Discuss the impact of covid 19 on the measurement of the property, plant and equipment.

3. Discuss the impact of covid 19 on the measurement of investment properties.

4.Discuss the accounting treatment for the Subang Dorf Tower and Sunway Dorf Tower in 2021 when Dorf sells the Subang Dorf Tower in 2021 and moves its headquarter to Sunway Dorf Tower.

Your report should refer to the relevant financial reporting standards, academic and professional literature.

Answer Question 1 & 2