FOA Assignment (TARC)

1.0 Introduction
We have chosen Nestle (Malaysia) Berhad as the company for us to do research on it. Nestle (Malaysia) Berhad began in Malaysia in 1912 and the first factory was in Petaling Jaya. Nestle Malaysia has 7 manufacturing factories now and operates the headquarters in Mutiara Damasara. Nestle Malaysia was listed on the Bursa Malaysia on 13 December 1989 in Main Market under Consumer Product sector. Today, Nestle (Malaysia) Berhad employs more than 5000 employees and manufactures more than 300 Halal products in Malaysia. Like the other manufacturing company, Nestle (Malaysia) Berhad produces goods by processing raw materials to the finished goods.
2.0 Content
a) Type of Inventories
Nestle (Malaysia) Berhad manufactures a few type of products that been sold in the market. There are a few categories of inventories in the company. It includes Raw and packaging materials, Work in progress, Finished Goods and Spare Parts.
i) Raw material – Every basic component the company buys that used as input to produce the product. (Loughran, 2012) For example, the raw materials for Nestle (Malaysia) Berhad are cocoa powder, malt extract, skimmed milk powder, palm oil, sugar, etc. ii) Work-in-progress – The products that have not been completed which under processing. (Loughran, 2012) For example, the roasted cocoa beans, crushed cocoa beans, cocoa “nibs”, skimmed milk, green malt, cold raw milk, cream milk, etc. iii) Finished goods – It is goods that are ready to be consumed and have finished the manufacturing process. (Loughran, 2012) For example, the finished goods are Milo, Nescafe, Cerelac, Nestum, Coffee Mate, Koko Krunch, Drumstick, Omega, Bliss, Crunch, KitKat, Matkoo, etc.
b) Process of Manufacturing
One of the products that Nestle manufactures is Milo. Milo is a type of cocoa drink that contains Malt powder and it is consumed by mixing with hot water. For the process of manufacture, it consists of the manufacture of cocoa powder and the manufacture of malt extract, manufacture of skimmed milk and the combination between the ingredients in Mash Tun under high temperature.

I) From cocoa bean to cocoa powder
Harvesting – The cocoa fruit will be harvested and the seeds will be removed.
Fermentation – The bean will then transport to the fermentation area for 3 days. This is an important process to ensure the quality of cocoa. During fermentation, there are many complex chemical changes in the cocoa beans, and so on the characteristic flavor and colour will be developed.
Drying – The bean will then sent to be dried to reduce the moisture content from 60% to 7%. For the method of drying, it will be either under the sun or artificial drying.
Roasting – For producing a better quality of cocoa bean, the bean will be dried and the moisture content drop to 2% and aroma and colour compound will be formed. After that, the roasted bean will break down and the thin shell of the bean is removed. The results are cocoa “nibs”.
Alkalizing – The cocoa “nibs” will be alkalized become cocoa mass that contains 53 – 58% of cocoa butter.
Pressing – The cocoa mass will be pressed under high pressure condition and cocoa butter will be pressed out. The final products are cocoa butter and cocoa powder.
Picture of cocoa bean, cocoa powder, cocoa butter is attached in Appendix (a) in page 11.
II) From cereal to malt extract
Steeping – After barley is harvested, it will be soaked in water for 12-24 hours to stimulate the condition for germination. In a result, the moisture content of barley will be 38 – 40%.
Germination – In this process, different groups of enzymes will be produced that are necessary for further processing. Any changes in germination is called as “modification”.
Kilning – Water is then extracted from the malt and the product is called “green malt” that is 10% moisture.
Drying – The kilning temperature will increase to stimulate the malt to form colour and flavour. In the end the malt will have 4-5% moisture.
Malt Extracting – The malt will then be cleaned and the whole malted grains are crushed to produce a grist and mixed with hot water in a mash tun. The malt enzymes that produce during the Germination process will convert starch into sugar that can dissolve in water. Finally the liquid called “wort” is separated from remaining malt husk and formed into a viscous liquid – the Malt Extract.
Picture of barley plant, malted barley and malt extract is attached in Appendix (b) in page 12.
III) From Raw Milk to Skimmed Milk Powder
Collecting – Raw milk is collected from dairy cows twice a day using mechanical vacuum milking machines. The collected milk will then flowed to a refrigerated bulk milk tank with temperature 4.4 °C through a stainless steel or glass pipes.
Separating – The cold raw milk will then sent to clarifier and a separator that will spin the milk through conical disks inside an enclosure. The clarifier can remove debris, waste and bacteria in the raw milk. The separator will perform the almost same tasks, but in additional the separator will separate heavier milk and lighter milk to produce cream and skim milk.
Skimming – After the milk has been separated, a machine will skim the lower fat milk off the top and the milk and fats will be separated until the desired of fat content reached.
Pasteurizing – The skim milk will then sent into pasteurizer to kill any bacteria. The most common way of pasteurizing is called as High Temperature Short Time (HTST). The milk will be heated up to 72°C for 15 seconds.
Evaporating – The milk then send to evaporating machine and water is evaporated at temperature 45-75°C under vacuum condition until concentration of 33-35% of milk dry matter is obtained.
Drying – The concentrated milk is then will sent to the Spray Dryer and hot air at temperature 150-300°C will flow into it. As droplets of the solution are released through the nozzle and come in contact with the hot air, the moisture content of each droplet is removed, thus turning it from liquid to powder form and finally the Skimmed Milk Powder is produced.
III) Combination of Ingredients
The Malt Extract that obtained from barley is known as PROTOMALT that is the trademarked malt for Milo. It is malt with specific carbohydrates profile with lesser simple sugars. The Malt Extract will them added into the Cocoa Powder together with Skimmed Milk Powder and the other minor ingredients such as sugar, palm oil and Maltodextrin. The mix-up of the ingredients will then inserted into an equipment named Mash Tun to combine all of the ingredients to increase the nutritional of the product. One of the finished product of Nestle (Malaysia) Berhad – MILO is produced.
The mind map of full production of MILO is attached in Appendix (c) in page 13.

c) Inventories Valuation Method
The inventories are measured at the lower of cost and net realizable value (NRV). The costs of inventories, expenditures that will incur when acquiring the inventories, production or conversion cost and other costs incurred are valued by using the First In First Out principle (FIFO). NRV is the expected selling price less the estimated cost necessary to make the sales.
FIFO method is operated by selling the goods that purchased first to the customers. The advantages using FIFO method is because it is simple to understand and easy to calculate. Besides, the closing inventories price can also reflect the current market price of the inventories. (Rabi, 2012)
Nestle (Malaysia) Berhad is using perpetual method to record the inflows and outflows of their inventories to have a proper record of the stock movement. In the year ended, they will also do a physical stock count to make sure that their stocks in their warehouse are match with the inventories that they counted using the FIFO method.
Prudence concept is applied in Nestle (Malaysia) Berhad to prevent the assets and profits to be overstated similarly liabilities and losses to be understated. (Li, Tan, Goh, eds 2007, p.21)
The Notes to the Financial Position is attached in Appendix (d) in page 14.
d) Amount of Closing Inventories
For the amount of closing inventories for the financial year 2012 as reported in Nestle (Malaysia) Berhad, it will be RM 411,170,000. For the financial year 2011, the amount of closing inventories is RM 517,573,000. This shows that that the amount of inventories has decreased.
According to Nestle (Malaysia) Financial Report 2012, the raw and packaging materials worth RM 181,714,000, the work-in-progress goods worth RM 18,951,000, the finished goods worth RM 189,403,000 and the spare parts worth RM 21,102,000.
The Statement of Financial Position is attached in Appendix (e) in page 15.
The Notes to the Financial Position is attached in Appendix (f) in page 16.
3.0 Conclusion
In the midst of completing the Fundamental of Accounting assignment, we find out that inventories of a company are a very important and the valuation of inventories needs to be concerned well too. We have also managed to find out the type of inventories of Nestle (Malaysia) Berhad and the manufacture of Milo as well. As Finance & Investment students, we have learned to study an annual report of a company and how to search for annual report in Bursa Malaysia. We also take note that the recording, retaining and reporting are very important in any transactions. With this knowledge, it will be very advantageous for our work in the future time.