AirAsia's RM 24.483 million LOSS for the June Quarter 2008.
It has been widely reported that AirAsia achieved an after tax profit of RM 9.4 million in the quarter ended 30 June 2008 (See for example http://business.smh.com.au/business/budget-carrier-spreads-wings-in-turbulent-skies-20080907-4biz.html).
This figure does not however include losses suffered by AirAsia's associated companies in Thailand and Indonesia. Once these losses,(which are disclosed in AirAsia's recent announcement to the Bursamalaysia as "unrecognised losses") are taken into account ,Loss before tax to rises from RM 46.901 million to RM 80.80100, and Loss after tax from a PROFIT of RM 9.417 million to a loss RM 24.483 million.
In the quater ended 30 June 2008, the two associates, Thai AirAsia and Indonesia AirAsia suffered losses of RM 21.7 and Rm 12.2 million respectively.
Losses for the period to date, which coincides with the end of AirAsia's financial year, were RM 63.5 and RM 87.4 million respectively. Consequently profit before tax for the 2008 financial year should be a lower RM 23 million , rather than the reported RM 173.805 million
AirAsia's interest in both entities is approximately 49%.
The higher after tax figure, which is due to the addition of a deferred tax item, is due to a previous interpretation of accounting standards that only the SC and Bursamalaysia might accept. I have commented on these previously at http://sahathevan.blogspot.com/2007/06/airasias-double-standards.html
AirAsia attempts to explain the exclusion of the losses incurred by its associates from its consolidated accounts in the following manner.
At Note 18 in the announcement to the BursaMalaysia:
18. Jointly Controlled Entity and Associate Company
FRS 128 states that interest in an associate is defined as “the carrying amount of the investment in the associate under the equity method together with any long-term interests that, in substance, form part of the investor’s net investment in the associate”. On this basis, the share of losses of the investment in associate was equity accounted for by the Group and limited to the Group’s investment in the ordinary share capital of the associate.
In other words, AirAsia has decided that it will not account in its Profit and Loss the losses of its associates.It justifies this by an interpretation of FRS 128 that beggars belief in its assertion that accounting for interests in associates can be limited to the investment in the associates share capital.
The genesis of this disingenuous interpretation of FRS 128 appears to be this statement of earnings for the quarter ended 30 June 2007:
FRS 128 states that interest in an associate is defined as “the carrying amount of the investment in the associate under the equity method together with any longterm
interests that, in substance, form part of the investor’s net investment in the
associate”. In the previous quarters, the Group had equity accounted for additional share of losses in the associated company in Indonesia amounting to RM31.3 million. This change in accounting policy has been applied retrospectively with restatement
made to the comparatives.
As readers will note, the interpretation used to justify the accounting treatment appears to be shifting.It should also be noted that this "change in accounting policy" has passed without comment, even from the BursaMalaysia, and the SC.
The above adds to the confusion caused by AirAsia's explanation that earnings for the quarter fell primarily due to a translation loss of RM 77 million.
The matter of the translation loss of RM 77 million is explained in the notes headed Finance (Cost)/Income:
Net Finance Cost
Quarter ended 30/06/08: (130,773,000)
Quarter ended 30/06/07 :(19,903,000)
Increase significantly attributable to:
Foreign exchange loss on FINANCE INCOME: RM 76,885,000
A translation loss or gain would normally be incurred on the holding of an asset or liability denominated in a foreign currency. Therefore it is difficult to understand what this translation loss on finance income might be.
(For a primer on Translation Loss/Gain see cas.uah.edu/schoenn/FIN%20454/Finding%20Translation%20Loss.doc)
This figure does not however include losses suffered by AirAsia's associated companies in Thailand and Indonesia. Once these losses,(which are disclosed in AirAsia's recent announcement to the Bursamalaysia as "unrecognised losses") are taken into account ,Loss before tax to rises from RM 46.901 million to RM 80.80100, and Loss after tax from a PROFIT of RM 9.417 million to a loss RM 24.483 million.
In the quater ended 30 June 2008, the two associates, Thai AirAsia and Indonesia AirAsia suffered losses of RM 21.7 and Rm 12.2 million respectively.
Losses for the period to date, which coincides with the end of AirAsia's financial year, were RM 63.5 and RM 87.4 million respectively. Consequently profit before tax for the 2008 financial year should be a lower RM 23 million , rather than the reported RM 173.805 million
AirAsia's interest in both entities is approximately 49%.
The higher after tax figure, which is due to the addition of a deferred tax item, is due to a previous interpretation of accounting standards that only the SC and Bursamalaysia might accept. I have commented on these previously at http://sahathevan.blogspot.com/2007/06/airasias-double-standards.html
AirAsia attempts to explain the exclusion of the losses incurred by its associates from its consolidated accounts in the following manner.
At Note 18 in the announcement to the BursaMalaysia:
18. Jointly Controlled Entity and Associate Company
FRS 128 states that interest in an associate is defined as “the carrying amount of the investment in the associate under the equity method together with any long-term interests that, in substance, form part of the investor’s net investment in the associate”. On this basis, the share of losses of the investment in associate was equity accounted for by the Group and limited to the Group’s investment in the ordinary share capital of the associate.
In other words, AirAsia has decided that it will not account in its Profit and Loss the losses of its associates.It justifies this by an interpretation of FRS 128 that beggars belief in its assertion that accounting for interests in associates can be limited to the investment in the associates share capital.
The genesis of this disingenuous interpretation of FRS 128 appears to be this statement of earnings for the quarter ended 30 June 2007:
FRS 128 states that interest in an associate is defined as “the carrying amount of the investment in the associate under the equity method together with any longterm
interests that, in substance, form part of the investor’s net investment in the
associate”. In the previous quarters, the Group had equity accounted for additional share of losses in the associated company in Indonesia amounting to RM31.3 million. This change in accounting policy has been applied retrospectively with restatement
made to the comparatives.
As readers will note, the interpretation used to justify the accounting treatment appears to be shifting.It should also be noted that this "change in accounting policy" has passed without comment, even from the BursaMalaysia, and the SC.
The above adds to the confusion caused by AirAsia's explanation that earnings for the quarter fell primarily due to a translation loss of RM 77 million.
The matter of the translation loss of RM 77 million is explained in the notes headed Finance (Cost)/Income:
Net Finance Cost
Quarter ended 30/06/08: (130,773,000)
Quarter ended 30/06/07 :(19,903,000)
Increase significantly attributable to:
Foreign exchange loss on FINANCE INCOME: RM 76,885,000
A translation loss or gain would normally be incurred on the holding of an asset or liability denominated in a foreign currency. Therefore it is difficult to understand what this translation loss on finance income might be.
(For a primer on Translation Loss/Gain see cas.uah.edu/schoenn/FIN%20454/Finding%20Translation%20Loss.doc)
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