apli scandal

General Announcement
Reference No CCS-071031-3783B
Company Name : APL INDUSTRIES BERHAD
Stock Name : APLI
Date Announced : 31/10/2007



Type : Announcement
Subject : APLI INDUSTRIES BERHAD (“APLI” OR “THE COMPANY”))
- Net Profit Variance in Audited and Unaudited Accounts

Contents :

-

Announcement Details :

Net Profit Variance in Audited and Unaudited Accounts


Based on the audited financial statements of APLI Group for the financial year ended 30 June 2007, the Net Loss After Tax amounting to RM 21.1 million, which is higher than the unaudited result (i.e. RM 4.5 million) for the same period. Details are as follows:
Unaudited Audited Variance
RM’000 RM’000 RM’000
Loss before taxation (3,451) (17,571) (14,120)
Taxation (1,068) (3,520) (2,452)
Loss after taxation (4,519) (21,091) (16,572)

The difference arose from the audit adjustments made, mainly attributed to the following:

1. Accounting treatment for land lease rental fees payable in respect of the unoccupied plot.

The Company had purchased a large plot of land for its Vietnam plant but large portion of the total land area is currently unoccupied. In this respect, the land lease rental fees payable was charged off based on the occupied land area while the remaining plot was capitalised as “pre-operating expenses”, amounting to USD 111,660 (RM 385,227).

However, according to the Vietnamese accounting standards, such item should instead be expensed off regardless of whether the land area has been occupied or not. Therefore, an additional amount of USD 111,660 (RM 385,227) has to be charged out as expenses (land lease rental). Total land lease rental charged out for FY06/07 is now RM 854,427 instead of RM 469,200.

2. Classification of certain machineries and equipment installed at Vietnam plant resulting in depreciation not charged.

Machineries and equipment purchased by the company’s Vietnam plant were not reclassified from “Construction in Progress” to “Fixed Assets” since they were commissioned. These items, once classified as “Fixed Assets” will be subject to annual depreciation charge. The Auditors had highlighted that the depreciation charge for these items was not recognised for 2 financial years. Therefore, an additional depreciation charge of USD 233,067 (RM 804,080) will be charged out during the audit year.

3. Damaged machinery parts not written-off.

The Company’s Vietnam plant is housing a number of damaged formers (being part of the machinery). Previously, it was anticipated that these formers could be disposed off as scrap and thus there was no decision to write-off.

However, the Auditors are of the opinion that these formers are not in recyclable condition and could not be easily disposed of. As such, these formers had to be written-off amounting to USD 143,474 (RM 494,985).

4. Computation of deferred tax asset and deferred tax liability.

(a) Based on the profits reported in Asia Pacific Latex Sdn Bhd’s unaudited financial results, a deferred tax asset was recognised amounting to RM 275,400. However, the audited financial statements revealed that the company recorded losses instead of profits as per unaudited results and thus such deferred tax asset has to be reversed accordingly.

(b) The Auditors’ computation of the deferred tax liability differs from the Management’s computation. Such difference resulted in under provision of deferred tax liabilities amounting to RM 343,266.

5. Accounting treatment on settlement of corporate tax underpaid.

IRB had carried out a tax investigation on APL Products Sdn Bhd’s tax affairs, for the year assessment 2001 to 2004. The outcome of the investigation revealed that the total tax underpaid amounted to RM 2,470,000 (including the tax penalty). Under initial understanding, this amount was supposed to be settled against the tax benefit carried forward from prior years and thus only need to be adjusted against deferred tax asset (i.e. 27% of the underpaid tax which is equivalent to RM 666,900).

However, the Auditors highlighted that the above item should instead be fully adjusted against the company’s tax credit. Therefore, additional tax expense should be recognised amounting to RM 1,803,100, making the total of RM2,470,000 for the entire FY06/07.

6. Downward revaluation of finished goods

All finished goods held are valued based on actual product costing.

However, the Auditors viewed certain finished goods as slow-moving stocks and thus they should be valued lower. This had resulted in a downward revaluation of such goods by RM 1,691,000.

7. Billing of finished goods sent to specific plant of an affiliated company for QC and packing and onward shipment to external customers.

During the financial year, there were certain goods transported from a manufacturing plant of APLI to another plant of an affiliated company for the purpose of QC and packing. These goods were then directly shipped to the external customers. The trading arm then issued sales invoices to overseas customers.

However, the Auditors highlighted that there were instances of incorrect billing where sales invoices had been erroneously issued based on shipment of goods to the plant handling the specific QC and packing functions.

As the shipment of these goods were already supported by sales invoices issued by the trading arm, the incorrect billing had resulted in sales being double taken-up amounting to RM 7,273,560.

8. Purchases of raw materials not taken up due to timing differences

There were several commercial invoices on purchases of raw materials which were captured as July 2007 transaction instead of June 2007. Although the commercial invoices were dated in July 2007, the delivery of stocks took place in June 2007.

Therefore, the purchases (amounting to RM 3,501,382) should be recognised in June 2007, i.e. at the point when the company took delivery of the stocks.



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