Download - Case Study FAR 360 20.06
FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
TABLE OF CONTENTS
Content Pages
1 Case Study2 - 17
2 Requirements18 - 22
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
Introduction
Puan Hamidah binti Wahab started a business producing and selling special
homemade Sarawak black pepper sauce in 2007 as a sole proprietor. Over time,
its popularity and demand prompts her to set up a company, now serving demand
from all over the state. On 1 January 2010, Lada & Saus Sdn Bhd (LSSB) was
incorporated with Puan Hamidah and her daughter Cik Intan binti Hassan, a UiTM
graduate as shareholders. Both of them are also appointed as directors of the
company. Previously Puan Hamidah operated from her house located in Kota
Samarahan. Curently, LSSB is renting a small factory located nearby Kota
Samarahan’s industrial area.
LSSB was incorporated with an authorised capital of 3 million shares, par value of
RM1.00 each. Upon conversion of the business from sole proprietorship to
company, the directors agreed to purchase the closing stock of raw material (60kg
of pepper and 117kg of sugar), finished goods (3,900 bottles), and a machinery
from the previous business at 2010 market price. The proceeds of this sale was
used by Puan Hamidah’s as part of her paid-up capital of RM200,000. Meanwhile,
Cik Intan invested RM300,000 on 2 January 2010 as capital to start the company.
LSSB also secured a start-up loan of RM500,000 from Malaysian Industrial
Development Finance Berhad (MIDF) with an interest rate of 4%, payable monthly
for 10 years. The loan was received on 1 February 2010 and was given a rest
period of six months before they start paying the loan. The loan is used to finance
the purchase of fixed assets and working capital. In addition, RM100,000 is
reserved for the purpose of future expansion project in 2011.
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
Production Process
The following are the processes involved in producing the black pepper sauce.
1. Cleaning
The main ingredient, black pepper is washed and dried.
2. Mixing
Other ingredients such as spice, sugar and salt are added to the mixer and are
grounded until they become paste.
3. Cooking
The paste is mixed with water and cooked.
4. Cooling
The ready sauces are cooled down to room temperature.
5. Packaging
The sauces are then poured into bottles and labeled and packed into boxes.
The Budget of 2010
In order to have a realistic budget, Cik Intan prepared the 2010 budget based on
actual figures of 2009 when the business was still operating as sole proprietorship
and is prepared on a quarterly basis. As at 31 Dec 2009, inventory of sauce,
pepper and sugar exist. The sauce was valued at cost of RM2.50 per bottle while
pepper and sugar were valued at cost of RM23 per kg and RM2 per kg
respectively. The annual sales for 2009 was RM464,000. For the first quarter of
2010 (Q1), LSSB had forecasted a sales figure of 30% higher than the 2009
average quarterly sales. The sales for second quarter (Q2) of 2010 were
budgeted to be a 35% increase from sales in Q1. For Q3 and Q4, the sales
increase would be 40% and 55% respectively from the previous quarters. The
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
fourth quarter sales of 2010 are expected to be maintained for the next two
quarters of 2011.
One bottle of black pepper sells for RM5.80. 20% of the budgeted sales units of
the next quarter is to be maintained as the closing stock of the finished goods.
The price of fresh black pepper is expected to be RM25.00 per kg. As a means to
reduce cost associated with inventory and also to overcome sudden surge in
demand LSSB keeps 5% of next quarter’s production as closing inventories for its
pepper supplies. The price of sugar is expected to increase to RM150 per 60 kg.
For its sugar supplies, LSSB plans to keep about 10% of next quarter’s production
requirements as its closing stock.
LSSB employs two grades of labour. In the year 2009, the machine operators and
general production worker are spends approximately 0.50 minutes and 0.85
minutes respectively to produce one bottle of black pepper sauce. The labour
rates for both machine operators and general production workers are RM10.00
and RM8.00 respectively.
The expected cost of a bottle is RM0.30 and labeling cost amounts to RM0.05 per
label.
Other information is expected to remain the same as the previous year.
ACTUAL ACTIVITIES FOR THE YEAR ENDED 31 DECEMBER
2010.
Sales
The standard size bottle of LSSB black pepper sauce is 375 grams per bottle. In
coping up with the increases in input cost, the selling prices of the product have
been increased to RM6.00 per bottle.
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
Production
During the year, the actual amount of black pepper sauce produced is as
budgeted. Production cost would remain the same unless otherwise stated.
Material inputs and direct expenses
Black pepper forms a major input to the production of sauce in addition to sugar.
Salt, starch, garlic, spices, food conditioner are also required but are considered
as indirect materials. The cost of indirect materials incurred in 2010 was RM6,750.
The average price of black pepper is RM26.50 per kg. Sugar cost is RM155 per
60 kg sack. A batch of 100 bottles of black pepper sauce requires 5 kg of black
pepper and 8 kg of sugar. Bottles are purchased at RM0.30 each and labeling
cost amounts to RM 0.05 per label.
Staffing
LSSB operates on an 8 working hour duration per day. Total working days in a
year are 310 days. A production manager employed was paid RM42,000 per
annum. The production team comprising of machine operators and general
production workers takes 0.50 minute and 0.85 minute respectively, to produce
one bottle of black pepper sauce. The machine operators and general production
workers are paid as budgeted. RM4,500 was incurred paying 3 cleaners working
in the factory. The company contribute 11% EPF and 1.5% SOCSO for all its
production team. The December 2010 EPF and SOCSO amounting RM789 and
RM108 will be paid in January 2011.
Overheads
Of the total floor area of the factory building, one quarter (¼) is occupied by the
administrative department. This forms the basis of allocating common cost. The
actual expenses incurred during the year 2010 were as follows:-
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
1. Monthly rental of factory RM2,500. The company paid three months
refundable deposit.
2. Building insurance amounting RM2,400 (paid for one year from 1 April 2010
until 31 March 2011).
3. Maintenance of machineries RM11,500.
4. Utilities amount to RM55,000.
5. Factory supplies costs RM5,200.
Operating Expenses
Cik Intan is appointed as the Managing Director of the company with a monthly
salary of RM5,000. This excludes entertainment allowance of RM1,000 which she
received every month. LSSB engaged an accounts executive (RM1,500 per
month), two administrative cum general clerks (RM800 per month each) and a
marketing executive (RM1,200 per month). The company also pay 11% EPF for
all its staffs. Both of the directors received an annual fee of RM12,000 each. The
company paid the December 2010 EPF of RM1,133 in January 2011.
EPF and SOCSO are calculated based on the total salary paid to the workers and
staff.
In addition to the above expenses, the company also incurred the following
expenses for the year ended 31 December 2010:
RM
1. Pre-operating expenses
2. Stationeries
3. Advertisement
4. Petrol (1/3 was spent for Proton Waja)
5. Repair and maintenance of motor vehicles (1/3 for Proton
Waja)
6. Entertainment expenses
7. Donation
8. Miscellaneous
13,930
1,800
5,000
6,000
4,700
5,000
2,000
6,000
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
The pre-operating expenses consist of the followings:
RM
Company registration fees
Secretarial fee
Halal certification service charge (valid for two
years)
Logo design fee
Manufacturing license (annually)
Deposit for utilities
1,130
4,300
800
2,500
200
5,000
LSSB estimated audit and tax fees charges will be RM8,000 and RM3,000
respectively. All expenses are paid when they are incurred unless otherwise
stated. As at 31 December 2010, the company have yet to receive 20% of the
total sales. The outstanding amount due to suppliers was 10% of the total direct
materials purchased. The company maintains a cash in hand balance of RM5,000
every month.
Property, Plant and Equipment
Machineries
When Puan Hamidah started her business in 2007, she bought a mixing machine
at a cost of RM200,000. Previously, the machine has a useful life of 10 years and
was depreciated yearly on straight line basis. Upon conversion of the business
from a sole proprietorship to a company, Puan Hamidah sold the machine to
LSSB at a market value of RM150,000. The company decided to continue
depreciating the machine based on its remaining useful life.
In order to increase the production, LSSB bought two new machines for cooking
and packaging. The cooking machine was bought on 1 January 2010 for
RM200,000. LSSB was charged installation cost of RM1,000 and transportation
cost of RM500. Since this is a special machine, the company had to send the
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
production team for training before using the machine. The training cost was
RM3,000. The cooking machine is estimated to have a salvage value of
RM10,000.
The packaging machine was bought on 10 February 2010 for RM100,000 but can
only be used on 1 March 2010. Both machines had an estimated useful life of 10
years. The machines are depreciated based on period of ownership.
Motor Vehicles
LSSB purchased a Proton Waja which was used by the Managing Director. The
company also bought a van for transporting and distributing the black pepper
sauce to its customers. The Proton Waja was purchased on 5 February 2010
while the van was purchased on 10 April 2010. Each vehicle cost RM85,000 and
RM120,000 respectively. The company paid 10% of the cost price as deposit for
each of the vehicles upon purchase. The company took up a hire purchase
financing from Bank Usahawan for both vehicles at an interest rate of 3.5% with a
repayment period of 5 years. The hire purchase instalments are paid monthly
starting 20 March 2010 for the Proton Waja and 25 May 2010 for the van. The
motor vehicles are depreciated at 10% based on monthly basis.
Office Equipment
LSSB bought computers, printers and air-conditioners in January 2010. These
assets were acquired in 5 January 2010 at the costs of RM9,000, RM2,000 and
RM5,000, respectively. The office equipment is to be depreciated on straight line
method based on yearly basis at the rate of 10%, with no salvage value at the end
of its useful life.
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
Furniture and fittings
New furniture costing RM10,000 were purchased in January 2010. The company
also spent RM50,000 for renovation of its office. The management decided to
depreciate the furniture and fittings at 10% on cost based on yearly basis.
FUTURE EXPANSION PROGRAMS
During the board of directors’ meeting held in 2010, it was decided that the
company is will diversify its product lines by introducing a new product in May
2011.
In order to diversify, it is anticipated that the company will have to invest in a new
machine costing RM180,000 excluding custom duty, transportation and insurance
cost of RM16,000, RM7,000 and RM9,000 respectively. The forecasted sales of
the new product will be RM150,000 annually for the first four years, and
RM190,000 annually for the remaining years. The company is aware that both
products (i.e., the existing and the new product) are competitive in nature.
Therefore, it is anticipated that the introduction of the new product will result in the
reduction of sales in the existing product by RM4,000 annually in the first four
years and by RM5,000 annually for the remaining years.
The new machine will require an additional RM22,000 inventory. The company is
planning to spend a total amount of RM6,000 on training their workers in handling
the new machine. The training is scheduled to be conducted in the beginning of
the year 2011. In addition, It is expected that the annual overhead cost will be
increased by RM18,000. The company is planning to buy the machine in January
2011. It will be depreciated using the straight-line method over its useful life of 10
years with RM1,000 salvage value.
RM112,000 of the retained earnings is expected to be available to finance the
machine. It is expected that the dividend payment for 2011 will be 5% based on
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
the market price (RM2). The dividend growth rate is anticipated to be at 7%
indefinitely. The remaining balance will be financed by long term loan from MIDF
at a pre-tax cost of capital of 4%.
Auditing
To comply and ensure the Company Act 1965 requirements fulfilled the board
members has appointed Osman & Co, Public Accountant, to carry out an audit for
the financial year ended 31st December 2010. Beside that LSSB as appointed
Badron Corporate Services Sdn Bhd as the tax agent. The address of Osman &
Co and Badron Corporate Services are as follows:-
i. Osman & Co., Public Accountant, No 88,Lorong 2 Diamond ,Tabuan Jaya
93050,Kuching.Telephone:082-677456 and Fax:082-677457
ii. Badron Corporate Services, No 1, Lorong Matang 1,Jalan Petra Jaya,
93250 Kuching. Telephone 082-622 745 and Fax :082-677777
On 1 June 2010, Osman & Co Public Accountant received an appointment letter
from LSSB to become company auditor for the year ended 31st December 2010.
The partner of Osman & Co drafted an engagement letter and was sent to the
board of director and acknowledged received and agreed with all the terms
specified and described therein. The audit comprises the audit firm’s partner,
supervisor and two auditors. An entrance meeting was held on 1 July 2010, during
which both parties was briefed on matters pertaining LSSB operations and
performances as at 30th June 2010 and the objectives of an audit and how audit
should be carried out by the auditor.
The audit comprises the audit firm’s partner, supervisor and two auditors. An
entrance meeting was held on 1 July 2010, during which both parties was briefed
on matters pertaining LSSB operations and performances as at 30 June 2010 and
the objectives of an audit and how audit should be carried out by the auditor. The
auditor visits the office, plants and other parts of the company. On 28 February
2011, the audit team led by the manager and two (2) auditors was given a full set
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
of financial statements of the company for the year ended 31 December 2010.
Once again upon receiving the financial statements the audit team performed the
second field work within two weeks and it was very time-pressured. This was
evidenced by the fact that the audit team had to work until mid-night and over the
weekends. Nonetheless, LSSB’s staffs had been very supportive and
accommodative throughout the whole audit process.
Test on Control
While auditors of Osman & Co. led by Fazrin performing the test on controls to
assess the effectiveness the company’s internal control system, the audit team
found that the company did not effectively implement the inventory control
procedures.
The following is a brief description of the procedures implemented by the
company.
The production process involved five (5) steps which cover cleaning of black
paper; mixing black paper with spice, sugar and salt: cooking the paste with
water; cooling and packing of sauces. Major raw materials used are black paper,
sugar, salt and spice.
Purchasing, storing and issuing of materials used for production is handled by
Jasmin the storekeeper. He had no experience in the inventory management
especially applying inventory management techniques such as how to purchase
quality materials with the best price. Other areas of concern keeping lowest and
highest inventory level at all time.
There are no proper documentations used on the ordering of materials and the
storekeeper just place the order when he feels like ordering. All items (black
paper, sugar, salt) were kept in one place at the corner of the kitchen. Mr Jasmin
place order from any suppliers, which in his opinion that are offering best price.
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
He accumulated all invoices and simple purchase orders at the end of month to
the account department for preparing ledger account. Sallem, the Accounts
Executive of LSSB prepare the necessary accounts reconciliation once in every
two (2) months and never been verified by Cik Intan binti Hassan, board member
who is responsible on the financial management.
On few occasions the delivery of black paper, the major amount of cost production
were not properly checked and supervised by another senior staff caused
shortage quantity delivered. Due to the shortage of staff in the Finance
Department, irregular time of the preparation and closing accounts were
experienced in addition that the accounts are maintained manually. Inventory
taking was once carried out on 31 December 2010 in absent of an auditor. Other
than the mentioned issues, the audit team considered the internal control within
the company were implemented satisfactorily and assessed as moderate level of
control risk.
Substantive Test
Due to the moderate control risk identified, the audit team decided to concentrate
more on the analytical review with the objective to gather audit evidence. During
the performance substantive testing on the balances and on the class of
transaction of inventory, the audit team discovered the following unrecorded
transactions and to propose further adjustments to the management.
(a) Provision of Audit fees and tax fees for the year ended 31 December 2010
amounted to RM3,500.00 and RM2,500.00 respectively were not provided in
the book of accounts.
(b) After searching for unrecorded liabilities, a purchase invoice dated 24
December 2010 amounted to RM1,500.00 to UnMo Enterprise was not
accounted for but it is included in physical stock-take.
(c) Allowance for doubtful debt are to made at RM550.00
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
(d) Credit sales on 21 November to KaKa Trading amounted to RM3,000.00 was
not included in the financial statement. The physical units of the sales was
deducted from the inventory at the year end.
(e) Upon completing the audit assignment, the audit team has submitted the
audit files to the tax department for computing the actual tax expenses of
LSSB for the year assessment 2010. Having those figures ready, the audit
team will make the necessary adjustments to final accounts.
Completing the Audit
As part of the auditing assignment, the audit team examining and scrutinising the
minutes of meeting of the company, the audit team discovered the board and the
management has proposed the company to acquire RM200,000.00 machine
excluding other cost such as custom duty, transportation and insurance. The
actual transaction will take place in January 2011.The overall cost of the
acquisition will be financed through the issue of share and hire purchase loan.
Finalising the Audit
On 30 April 2011, the audit work was completed and draft copy for deliberation of
the audited financial statements of the company was produced. The audit team
and Mr.Fazrin had the exit meeting with the Board of Directors and assistant
accountant of LSSB on the same day. During the meeting, the audit team
informed the management about their findings and proposed corrections and
adjustment that require company to account for. The board agreed with the finding
and promised to improve the weaknesses in the internal control in the future. The
board also agreed to incorporate the adjusting entries into the general ledgers and
reflected in the financial statements.
On 30 May 2011, the financial statements were approved during the board of
director’s meeting after the entire current year audit issues were satisfactorily
resolved. The following is the extracted minutes of meeting.
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
LADA & SAUS SDN BHD
Company No:12345-K
(Incorporated in Malaysia)
DIRECTORS’ RESOLUTION IN WRITING IN ACCORDANCE WITH ARTICLES OF
ASSOCIATION OF THE COMPANY
We, being all the directors of the Company for the time being hereby resolve the following:
1. APPROVAL OF DIRECTORS REPORT AND ACCOUNT
THAT the Audited Accounts for the year ended 31 December 2010 and the Directors’ Report
and Statement by Directors thereon(hereinafter collectively referred to as “Financial Statement”)
be hereby approved and that the following directors be and are hereby authorized to sign the said
Financial Statements for and on behalf of the Board:
i. HAMIDAH BINTI WAHAB
ii. INTAN BINTI HASSAN
Further RESOLVED THAT the Financial Statements be and are hereby approved for submission
to members at the forthcoming ANNUAL GENERAL MEETING of the company.
2 STATUTORY DECLARATION.
THAT INTAN BINTI HASSAN be and is hereby authorized to make the Statutory Declaration in
respect of the above said Accounts pursuant to Section 169(16) of the Companies Act, 1965.
BOARD OF DIRECTORS
HAMIDAH BINTI WAHAB INTAN BINTI HASSAN
Kuching, Sarawak
30 May 2011
LADA & SAUS SDN BHD
Company No:12345-K
(Incorporated in Malaysia)
STATEMENT BY DIRECTORS
Pursuant to Section 169(15) of the Companies Act,1965
We, Hamidah Binti Wahab and Intan Binti Hassan, being the Directors of Lada & Saus Sdn
Berhad, do hereby state that, in the opinion of the directors, the accompanying financial
statement set out on pages XXX. Are drawn up in accordance with the provision of the
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
Companies act, 1965 and Financial Reporting Standards in Malaysia so as to give a true and fair
view of the financial position as at 31 December 2010 and of the result and the cash flows of the
company for the year then ended.
Signed on behalf the LSSB
Hamidah Binti Wahab Intan Binti Hassan
XXXXXXXXXXXXXX XXXXXXXXXXXX
STATUTORY DECLARATION
Pursuant to Section 169(16) of the Companies Act, 1965
I, Intan Binti Hassan, being the Director primarily responsible for the financial management of
Lada & Saus Sdn Bhd, do solemnly and sincerely declare that the accompanying financial
statements set out on pagesXXtoXXare in my opinion correct, and I make this solemn declaration
conscientiously believing the same to be true and by virtue of the provisions of the Statutory
Declarations Act, 1960.
Subscribed and solemnly declared by the abovementioned
Intan Binti Hassan at Kuching in the State of Sarawak on
20 April 2011 Intan Binti Hassan
XXXXXXXXXXXX
Before me,
Ahmad Karrim
Commissioner for oaths
No 1234, 3rd Floor
Jalan Tun Tan of Jalan Airport
89890 Kuching
Taxation
Badron Corporate Services was reappointed by LSSB Sdn Bhd as the company’s
tax agent. Badron Corporate Services was also the tax agent before the
conversion of the sole proprietorship business to a company. En Badron Bakri
whom is the owner of Badron Corporate Services acts as the tax consultant and is
assisted by his team of tax executive. The Director General of IRB is satisfied that
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
the company and the directors are resident in Malaysia for tax purposes for the
year of assessment 2010.
During the process of setting up the company, Encik Badron and Cik Intan had
discussed on the terms and conditions pertaining to tax matters as laid out in the
Income Tax Act 1967. During the meeting, Encik Badron highlighted that tax
computation of the company will be constructed based on the audited accounts
and additional schedules provided by the company. Encik Badron and his tax
team will carry out the assignment in determining the actual tax payable within 2
weeks after receiving the audited financial statements. Upon finalizing the
computation of actual tax payable, the company is required to fill in and submit the
tax return (Form C) to the IRB within 7 months after the closing of the company’s
year end. In this case, the deadline will be on or before 31 July 2011.
In addition, Encik Badron has highlighted to his client that prior to computing the
actual tax of the company, LSSB Sdn Bhd should prepare the estimate of tax
payable for a year of assessment using prescribed form (Form CP204) and
furnish to the Director General of IRB not later than 30 days before the beginning
of the basis period for that year of assessment. In this case, it should be
submitted latest by 1 December. However, pursuant to S.107C - ITA 1967 and
upon confirmation with the IRB, Encik Badron further noted that the company is
not required to prepare an estimation of income tax payable for the year 2010
since LSSB Sdn Bhd is considered a newly formed company. Therefore, the
company is spared from preparing the estimated income tax payable for the year
of assessment 2010 and 2011.
Upon conversion of the business from a sole proprietorship to a company on 1
January 2010, the machine was sold to LSSB Sdn Bhd at market value of
RM150,000. Encik Badron and his team informed that the disposal of the existing
mixing machine to the company was not at arm’s length. Therefore, the company
is deemed to have acquired the mixing machine at market value or net realizable
value whichever is agreed upon. In this case, it has been agreed between the
Director General of IRB and the owner that market value should be used. Encik
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
Badron further noted that the company is still entitled to claim initial allowance on
the mixing machine although it was a second hand machine on the ground that
sole proprietorship and company are two different engagement.
The tax team started their assignment in determining the actual tax payable for
LSSB Sdn Bhd on 10 June 2011. The tax team found that an amount of RM3,500
on leave passage of Cik Intan to Phuket, Thailand in 2010 was included as part of
the entertainment expenses. The cost of air fare was RM1,500 while the
remaining balance was for hotel and food. In addition, included in the salaries
and allowances was a total salary of RM9,600 paid to a physically disabled
employee (admin clerk) in 2010. Other than that, included in the miscellaneous
expenses was the cost of wheel chair for the disabled employee amounting to
RM2,500 purchased in June 2010. Upon further clarification, donation comprised
of RM1,200 donation in kind given to an approved institution, while the remaining
amount was cash given to unapproved institution.
Since the company is planning to diversify its business in 2011, Cik Intan has
inquired the tax team regarding the possibility of constructing the company’s own
factory building in Kota Samarahan’s industrial area instead of renting out. The
following cost are considered : cost of land (RM350,000), clearing of land
(RM13,000), architect’s fee (RM20,000), construction cost (RM356,000) and
electrical wiring and fitting (RM25,000). It is estimated that 58,000 square feet out
of 490,000 square feet of the building will be used as the company’s office. The
factory building is expected to be completed in October 2011.
Being satisfied with the provided information on taxation matters, the tax agent
proceeded with the final computation of the tax liability followed by the filling of
Form C. Badron Corporate Services signed the form on 10 July 2011 and the form
was later declared as being true by Cik Intan.
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
ANSWER THE FOLLOWING REQUIREMENTS
Execute the following instructions for the year ended 31 December 2010.
A. Management Accounting
1. Prepare the following budget for the year 2010.
a. Sales budget
b. Production budget
c. Material usage and purchase budget for black pepper and sugar.
d. Direct labour cost budget
e. Direct expense budget
f. Fixed and variable overhead budget
g. The standard cost card showing the total production cost
2. i. From the year 2010 Budget, the following information were available:
RM
Budgeted fixed cost (all inclusive) for 2010 150,000
Variable cost per bottle of black pepper 3.00
Selling price per bottle 5.80
a. Calculate the break-even point (BEP) in units and RM, for the company
for year 2010.
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
b. Determine the margin of safety (in units) for the year.
ii. Suppose, in 2010, the company introduces another product, White pepper
sauce as a new product together with Black pepper sauce. Determine the
new BEP (for the company and each product), based on the following
information. Discuss the effect on the company’s BEP for the year as
calculated in (i)(a) above.
Black pepper White pepper
Projected Sales volume 550,000 450,000
Variable cost per bottle RM3.00 RM4.00
Selling price per bottle RM5.80 RM6.00
Budgeted fixed cost (all inclusive) for
2010RM 150,000
B. Financial Accounting
Prepare the following financial statement for the year ended 31 December 2010.
1. Manufacturing Account
2. Statement of Comprehensive Income
3. Statement of Changes in Equity
4. Statement of Financial Position
5. Statement of Cash Flow (direct method)
Note: Show all relevant workings.
C. Financial Management
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
1. The Industry averages obtained showed the following:
Current ratio
Acid test ratio
Inventory turnover
Average collection period
Total asset turnover
Debt ratio
Time interest earned
Gross profit margin
Net profit margin
Return on Asset
Return on Equity
2.34x
1.78x
7.23x
80 days
2.23x
48%
16x
28.60%
15.47%
12.88%
24.30%
Based on the 31 December 2010 unaudited figures, compute the above
financial ratios for LSSB Sdn Bhd. Comment on the financial performance of
LSSB Sdn Bhd in comparison with the industry average. For the purpose of
calculating the financial ratios, use 360 days in year wherever applicable.
2. Based on the information given on the planned acquisition of the new
machine, calculate the followings:
a. Initial outlay
b. Annual differential cash flows
c. Terminal cash flows of the proposed investment
d. WACC
e. Payback period
f. Net present value
3. As the bank officer, would you approve the company’s application for a loan?
Give reasons for your answer.
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
4. What is the advantage of raising funds through a combination of sources of
financing instead of using just one source of financing?
D. Auditing
1. Identify the weakness in the present inventory purchasing, receiving and
issuing control procedure and describe the potential irregularities, which could
occur due to the weakness mentioned.
2. Suggest any improvements in system of internal control, which could prevent
any potential irregularities.
3. Describe the regulatory provisions which cover the appointment and dismissal
of company auditor. Quote the specific sections of the acts.
4. The audit findings are to be considered as material and to be incorporated in
the audited financial statement as Client Adjusting Entries (CAJE). Discuss on
the importance of preparing the audit working paper. Prepare a working
statement of financial position and comprehensive income statement
incorporating the adjustments into management financial statements.
5. Describe the essential content of a Letter of Representation. Prepare a Letter
of Representation from Osman & Co.,Public Accountant at the end of the 2010
audit engagement.
6. Explain why analytical review is important and be part of the audit process.
7. Prepare the Audited Financial Statements of Lada & Saus Sdn. Bhd for the
year ended 31 December 2010 in accordance with the applicable approved
accounting standards in Malaysia and the provisions of the Companies Act.
1965 together with Directors’ Report, Statement by Directors, Statutory
Declaration and Audit Report.
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FAR 360 – Integrated Accounting Study Sept 2011Lada & Saus Sdn. Bhd.
E. Taxation
1. Compute the followings:
a) Capital allowances for the year of assessment 2010.
b) Actual tax payable for the year of assessment 2010.
2. Complete the Form C for the year of assessment 2010.
3. Distinguish the difference between a sole proprietorship business and a
company from the context of taxation? Your answer should include the
following scope:
a) Tax rate
b) Forms for estimation
c) Return form and
d) Date of submission for each form (item in b and c)
4. Compute Cik Intan’s chargeable income for the year of assessment 2010.
5. If the factory building is to be constructed in the year of assessment 2011,
advise the management on the claim of industrial building allowances. Your
advice should include the computation of IBA, necessary explanation in
deriving the IBA and the manner of set off (i.e., IBA be deducted from which
level of income?).
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