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Two New Accounting Standards effective January 2004 [MASB 31 and MASB 32]
Tue, 1 Jul 2003Two New Accounting Standards effective January 2004 [MASB 31 and MASB 32]
The Malaysian Accounting Standards Board (MASB) today issued another two new Standards for application by entities in Malaysia. The two new Standards MASB 31, Accounting for Government Grants and Disclosure of Government Assistance, and MASB 32, Property Development Activities, will take effect from 1 January 2004.
The Standard on Government Grant provides guidance for companies on the accounting treatment for government assistance and ensures consistency in disclosing information regarding the benefits received from the government. This Standard is similar to International Accounting Standard IAS 20 issued by the International Accounting Standards Committee (IASC) and had undergone MASB's due process before the Board reached a decision to issue it as an approved accounting standard.
Dato' Zainal Abidin Putih, the new Chairman of the MASB said, "The Standard adopts a similar approach to IAS 20 in recognising government grant as income over the period of the grant to match against the related costs, for which the grant is intended to compensate."
Explaining the details of the Standard, Dato' Zainal Abidin Putih said, "For non-monetary government grant, such as land and other resources, a company should assess the fair value of the non-monetary asset and to account for both the grant and asset at that fair value. No longer will the company use nominal value for government grants received. This approach provides greater relevance as to the future economic benefits expected from the non-monetary grants."
The Board is also issuing another MASB Standard on property development activities. Dato' Zainal Abidin Putih said, "This Standard is unique as there is no comparable international accounting standard. The original Standard, MAS 7 Accounting for Property Development, was developed by the local professional bodies. The principles of MAS 7 were used as a basis for the development of MASB 32 and the Board builds upon it clearer guidance on how companies should account for the revenue and expenses related to the development activity. The Board felt that an illustrative example will assist preparers in understanding the application of the Standard and had decided to include it as an Appendix."
"Of particular significance to property developer is the issue of land banks which the Standard mandates such land bank to be classified as non-current assets valued at cost less any accumulated impairment losses. Previously, such land banks were reported at cost or revalued amounts. Under the new Standard, a company will no longer revalue its land bank but be required to assess for any impairment at balance sheet date. Company that had previously carried the land bank at revalued amount shall continue to retain the amount as its surrogate cost," added Dato' Zainal.
MASB 31 Accounting for Government Grants and Disclosure of Government Assistance
Grants related to assets are government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets. These grants can either be shown as (i) deferred income or (ii) deducted from the carrying value of the asset. However, if the second option is chosen, an entity shall disclose additional information similar to setting up the grant as deferred income.
Grants related to income are government grants other than those related to assets and shall be presented as a credit in the income statement, either separately or under a general heading such as "Other income". Alternatively, these types of grants should be deducted in reporting the related expenses. If the alternative approach is adopted, an enterprise should disclose a reconciliation of the related expense before and after deduction of the grant.
This Standard also provides guidance on the accounting treatment for revocation of government grants.
MASB 32, Property Development Activities
This Standard shall apply to entities engaged in property development activities including those governed by the provisions of the Housing Development (Control and Licensing) Act 1966, whether or not such operations are their main activities.
This Standard has been extended to include the development of vacant lots for sale. Such vacant lots may be for the development of homesteads, hobby farms, orchards etc besides for the construction of buildings.
This Standard prescribes that land held for property development shall be classified as non-current asset where no development activities had been carried out or where development activities are not expected to be completed within the normal operating cycle. These lands shall be carried at cost less any impairment losses. The change in the classification of the land held for property development to current asset shall be at the point when development activities had commenced and where it could be demonstrated that the development activities could be completed within the normal operating cycle.
NOTICE OF PUBLICATION OF APPROVED ACCOUNTING STANDARDS
The Standard on Government Grant provides guidance for companies on the accounting treatment for government assistance and ensures consistency in disclosing information regarding the benefits received from the government. This Standard is similar to International Accounting Standard IAS 20 issued by the International Accounting Standards Committee (IASC) and had undergone MASB's due process before the Board reached a decision to issue it as an approved accounting standard.
Dato' Zainal Abidin Putih, the new Chairman of the MASB said, "The Standard adopts a similar approach to IAS 20 in recognising government grant as income over the period of the grant to match against the related costs, for which the grant is intended to compensate."
Explaining the details of the Standard, Dato' Zainal Abidin Putih said, "For non-monetary government grant, such as land and other resources, a company should assess the fair value of the non-monetary asset and to account for both the grant and asset at that fair value. No longer will the company use nominal value for government grants received. This approach provides greater relevance as to the future economic benefits expected from the non-monetary grants."
The Board is also issuing another MASB Standard on property development activities. Dato' Zainal Abidin Putih said, "This Standard is unique as there is no comparable international accounting standard. The original Standard, MAS 7 Accounting for Property Development, was developed by the local professional bodies. The principles of MAS 7 were used as a basis for the development of MASB 32 and the Board builds upon it clearer guidance on how companies should account for the revenue and expenses related to the development activity. The Board felt that an illustrative example will assist preparers in understanding the application of the Standard and had decided to include it as an Appendix."
"Of particular significance to property developer is the issue of land banks which the Standard mandates such land bank to be classified as non-current assets valued at cost less any accumulated impairment losses. Previously, such land banks were reported at cost or revalued amounts. Under the new Standard, a company will no longer revalue its land bank but be required to assess for any impairment at balance sheet date. Company that had previously carried the land bank at revalued amount shall continue to retain the amount as its surrogate cost," added Dato' Zainal.
MASB 31 Accounting for Government Grants and Disclosure of Government Assistance
Grants related to assets are government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets. These grants can either be shown as (i) deferred income or (ii) deducted from the carrying value of the asset. However, if the second option is chosen, an entity shall disclose additional information similar to setting up the grant as deferred income.
Grants related to income are government grants other than those related to assets and shall be presented as a credit in the income statement, either separately or under a general heading such as "Other income". Alternatively, these types of grants should be deducted in reporting the related expenses. If the alternative approach is adopted, an enterprise should disclose a reconciliation of the related expense before and after deduction of the grant.
This Standard also provides guidance on the accounting treatment for revocation of government grants.
MASB 32, Property Development Activities
This Standard shall apply to entities engaged in property development activities including those governed by the provisions of the Housing Development (Control and Licensing) Act 1966, whether or not such operations are their main activities.
This Standard has been extended to include the development of vacant lots for sale. Such vacant lots may be for the development of homesteads, hobby farms, orchards etc besides for the construction of buildings.
This Standard prescribes that land held for property development shall be classified as non-current asset where no development activities had been carried out or where development activities are not expected to be completed within the normal operating cycle. These lands shall be carried at cost less any impairment losses. The change in the classification of the land held for property development to current asset shall be at the point when development activities had commenced and where it could be demonstrated that the development activities could be completed within the normal operating cycle.
NOTICE OF PUBLICATION OF APPROVED ACCOUNTING STANDARDS