notes to the accounts[1]

7/28/2019 Notes to the Accounts[1]

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1

A. MANAGEMENT ACCOUNTING

QUESTION 1

Budget is detailed plans that coordinate various activities within a company. It is a financial

or quantities statement, prepared or approval prior to a defined period of time, for the policy

to be pursued during the period in order to achieve a given objective.

5 keys purposes of budgeting system.

i) To ensure the managers plan for future operations.

ii) Allow managers to coordinate the activities of the firm, thus identify and resolve

conflict.

iii) Communicate and deliver the plan to other responsibility centre managers in

increasing the company efficiency.

iv) Budget act as a motivation which encourage efficiency that lead to achieve firms

goal.

v) Controlling of activities in the firm by comparing the budget and actual.

vi) Performance evaluation can be done by measuring the success in meeting the

budgets.


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QUESTION 2

Budget activities on quarterly basis for the year ended 31st December 2011

Wardah Apparel Sdn Bhd

Manufacturing Account For The Year Ended 31 December 2011

a) Sales Budget

Q1 Q2 Q3 Q4

Sales (unit) 27,000 9,000 18,000 36,000

x Selling Price per unit (RM) 35 35 35 35

Total Sales Value 945,000 315,000 630,000 1,260,000

b) Production Budget

Q1 Q2 Q3 Q4

Sales (unit) 27,000 9,000 18,000 36,000

Add: closing stock 500 900 3,600 2,250

27,500 9,900 21,600 38,250

Less: opening stock 0 (500) (900) (3,600)

Unit to be Produced 27,500 9,400 20,700 34,650

c) Direct Material Usage Budget

Q1 Q2 Q3 Q4

Quantity to be Produced 27,500 9,400 20,700 34,650

x Fabric per unit (RM) 1.5 1.5 1.5 1.5

Total Material Usage 41,250 14,100 31,050 51,975

Add: closing stock 895 3,105 5,197 2,100

42,145 17,205 36,247 54,075

Less: opening stock 0 (895) (3,105) (5,197)

Total Material to be Purchase 42,145 16,310 33,142 48,878

x Cost per Unit 2.50 2.50 2.50 2.50

Cost Material to be Purchase 105,362.50 40,775 92,855 122,195


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d) Direct Labour Budget

Skilled Workers Q1 Q2 Q3 Q4

Production Unit 27,500 9,400 20,700 34,650

x hour per unit 0.2 0.2

0.2

0.2

Total Hours 5,500 1,880 4,140 6,930

Rate per hours (RM) 10 10 10 10

Total Cost 55,000 18,800 41,400 69,300

Semi-skilled Workers Q1 Q2 Q3 Q4

Production Unit 27,500 9,400 20,700 34650

x hour per unit 0.35 0.35 0.35 0.35

Total Hours 9,625 3,290 7,245 12,127.50

Rate per hours (RM) 6 6 6 6

Total Cost 57,750 19,740 43,470 72,765

e) Manufacturing Overhead Budget

Traditional method:

RM

Supervision Salaries 5,600

Insurance 9,600

Maintenance machineries 10,400

Utilities 7,500

Depreciation - machineries 35,072

Total 68,172

OAR = Budgeted Overhead

Basis

= 68,172

28,400 machine hour

= RM2.40


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ABC method:

Activity Amount (RM) Total Cost Driver Activity Pool

Rate

Indirect Material 1,250 92,250 0.0136

Factory Electricity 750 92,250 0.0081

Set-up Cost 10,000 92,250 0.1084

Purchasing and Material Handling 1,200 92,250 0.0130

Inspection 800 92,250 0.0087

Design 4,000 92,250 400

Manufacturing Overhead

Activity Q1 Q2 Q3 Q4

Indirect Material 373 127 280 470

Factory Electricity 224 77 168 282

Set-up Cost 2,981 1,091 2,244 3,756

Purchasing and Material

Handling

358 122 269 451

Inspection 238 82 180 300

Design 1,000 600 800 1,600

Total Overhead Cost 5,173.44 2,026.56 3,941.46 6,858.54

No of unit 27,500 9,400 20,700 34,650

Total Overhead/ unit 0.19 0.22 0.19 0.20


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f) Production Cost Budget

Q1 Q2 Q3 Q4

Direct Material 103,125 35,250 77,625 129,937.50

Direct Labour 112,750 38,540 84,870 142,065Prime Cost 214,875 73,790 162,495 272,002.50

Production overhead :



Set-up Cost 2,981 1,091 2,244 3,756


Handling

358 122 269 451

Inspection 238 82 180 300Design 1,000 600 800 1,600

Supervision Salaries 1,400 1,400 1,400 1,400

Insurance 2,400 2,400 2,400 2,400

Maintenance machineries 2,600 2,600 2,600 2,600

Factory Utilities 1,875 1,875 1,875 1,875

Depreciation - machineries 8,768 8,768 8,768 8,768

Depreciation factory

building

13,500 13,500 13,500 13,500

TOTAL PRODUCTION

COST

251,591.44 106,359.56 196,979.46 309,404.04

Production Cost per unit = RM251591.44 + RM106359.56 + RM196979.46 + RM309404.04RM27500 + RM9400 + RM20700 + RM34650

= RM864334,50RM92250

= RM9.37


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g) Cash Budget


Cash Budget for the year ended 31 December 2011

Q1

RM

Q2

RM

Q3

RM

Q4

RM

OPENING CASH BALANCE 16,1800 729,638.50 101,3891.50 138,2706.75

Receipt:

Receipt from debtor:

80% for this quarter 756,000 252,000 504,000 1,008,000

18% for next quarter 43,200 170,100 56,700 113,400

Total Cash Available 961,000 1,151,738.50 1,574,591.50 2,504,106.75

Less: Payment :

Payment to creaditors :

60% for this quarter 53,647.50 24,465 49,713.75 73,316.25

40% for next quarter 22,740 35,765 16,310 33,142.50

Salary :

Skilled Labour

Semi-skilled Labour

55,000

57,750

18,800

19,740

41,400

43,470

69,300

72,765

Manufacturing Overhead :



Set-up Cost 2,981 1,091 2244 3,756


Handling

358 122 269 451

Inspection 238 82 180 300

Design 1,000 600 800 1,600

Supervision Salaries 1,400 1,400 1,400 1,400

Insurance 2,400 2,400 2,400 2,400

Maintenance machineries 2,600 2,600 2,600 2,600

Factory Utilities 1,875 1,875 1,875 1,875


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Selling Overhead :

Sales salaries 2,000 2,000 2,000 2,000

Sales commission 750 750 750 750

Freight outwards 500 500 500 500

Advertising 250 250 250 250

Travelling expenses 2,750 2,750 2,750 2,750

Administrative Overhead :

Licensing fees 150 150 150 150

Clerical wages 1,250 1,250 1,250 1,250

Manager salary 18,000 18,000 18,000 18,000

Entertainment expenses 2,500 2,500 2,500 2,500

Utilities 625 625 625 625

Total Cash Payment 231,361.50 137,847 191,884.75 292,432.75

CLOSING CASH BALANCE 729638.50 1013891.50 1382706.75 2211674


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Actual activities on quarterly basis for the year ended 31st December 2011

Q1 Q2 Q3 Q4

ACTUAL SALES :

Sales (units)

x Selling price (RM)

TOTAL SALES VALUE (RM)

27,000.00

35.00

945,000.00

9,000.00

35.00

315,000.00

18,000.00

35.00

630,000.00

36,000.00

35.00

1,260,000.00

ACTUAL PRODUCTION :

Sales (units)

+ Closing stock

- Opening stock

TOTAL QUANTITY TO BE

PRODUCED

27,000.00

1,500.00

28,500.00

(1,350.00)

27,150.00

9,000.00

900.00

9,900.00

(1,500.00)

8,400.00

18,000.00

3,600.00

21,600.00

(900.00)

20,700.00

36,000.00

2,250.00

38,250.00

(3,600.00)

34,650.00

ACTUAL DIRECT MATERIAL

USAGE:

Quantity to be produced

x Fabric per unit (m)

TOTAL MATERIAL USAGE

27,150.00

1.50

40,725. 00

8,400.00

1.50

12,600.00

20,700.00

1.50

31,050.00

34,650.00

1.50

51,975.00


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ACTUAL MATERIAL PURCHASE :

Quantity of material to be used

+ Closing stock

- Opening stock

TOTAL MATERIAL TO BE

PURCHASED

x Cost of material per meter

COST OF MATERIAL TO BE

PURCHASED

40,725.00

895.00

41,620.00

(6,200.00)

35,420.00

2.50

88,550.00

12,600.00

3,105.00

15,705.00

(895.00)

14,810.00

2.50

37,025.00

31,050.00

5,197.50

36,247.50

(3,105.00)

33,142.50

2.50

82,856.25

51,975.00

2,100.00

54,075.00

(5,197.50)

48,877.50

2.50

122,193.75

ACTUAL DIRECT LABOUR :

Skilled worker

x Rate/hour (RM/hr)

TOTAL COST

Semi-skilled worker

x Rate/hour (RM/hr)

TOTAL COST

5,430.00

9.50

51,585.00

9,502.50

6.50

61,766.25

1,680.00

9.50

15,960.00

2,940.00

6.50

19,110.00

4,140.00

9.50

39,330.00

7,245.00

6.50

47,092.50

6,930.00

9.50

65,835.00

12,127.50

6.50

78,828.75


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ACTUAL MANUFACTURING

OVERHEAD:

Traditional method :

Supervision salaries

Insurance

Maintenance - machineries

Utilities

Depreciation machineries

OAR = Budgeted overhead

Basis

= RM 61,672.00

30,000 MH

= RM 2.06/MH

RM

5,600.00

9,600.00

5,400.00

6,000.00

35,072.00

61,672.00


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ABC method :

ACTIVITY

Amount

(RM)

Total Cost

Driver Activity Pool Rate

Indirect materials 1,550.00 90900.00 0.0171

Factory electricity 750.00 90900.00 0.0083

Set-up cost 10,000.00 90900.00 0.1100

Purchasing & material

handling 1,200.00 90900.00 0.0132

Inspection 800.00 90900.00 0.0088

Design 4,000.00 10.00 400.00

ACTIVITY Q1 Q2 Q3 Q4

Indirect materials 462.95 143.23 352.97 590.84

Factory electricity 224.01 69.31 170.79 285.89

Set-up cost 2,986.80 924.09 2,277.23 3,811.88

Purchasing & material

handling358.42 110.89 273.27 457.43

Inspection 238.94 73.93 182.18 304.95

Design 1,000.00 600.00 800.00 1,600.00

Total overhead cost 5,271.12 1,921.45 4,056.44 7,050.99

No of units 27,150.00 8,400.00 20,700.00 34,650.00

TOTAL OVERHEAD /

UNIT0.19 0.23 0.20 0.20


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ACTUAL PRODUCTION COST

Q1 Q2 Q3 Q4

Direct Material 101,812.50 31,500.00 77,625.00 129,937.50

Direct Labour 113,351.25 35,070.00 86,422.50 144,663.75

PRIME COST 215,163.75 66,570.00 164,047.50 274,601.25

Production Overhead:

Indirect Material 462.95 143.23 352.97 590.84

Factory electricty 224.01 69.31 170.79 285.89

Set-up cost 2,986.80 924.09 2,277.23 3,811.88

Purchasing and material handling 358.42 110.89 273.27 457.43

Inspection 238.94 73.93 182.18 304.95

Design 1,000.00 600.00 800.00 1,600.00

Supervision salaries 1,400.00 1,400.00 1,400.00 1,400.00

Insurance 2,400.00 2,400.00 2,400.00 2,400.00

Maintenance-machineries 1,350.00 1,350.00 1,350.00 1,350.00

Factory utilities 1,500.00 1,500.00 1,500.00 1,500.00

Depreciation on machineries 8,768.00 8,768.00 8,768.00 8,768.00

Depreciation on factory building 13,500.00 13,500.00 13,500.00 13,500.00

TOTAL PRODUCTION COST 249,352.87 97,409.45 197,021.94 310,570.24

Production cost per unit =RM 854,354.50

90,900.00 units

= RM 9.40/unit


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WARDAH APPAREL SDN BHD

Actual Cash for the year ended 31ST December 2011

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

RM RM RM RM

Opening Cash Balance 161,800.00 720,067.63 989,401.18 1,341,798.49

Add : Receipt :

Receipt from debtors :

80% for this quarter 756,000.00 252,000.00 504,000.00 1,008,000.00

18% for next quarter 43,200.00 170,100.00 56,700.00 113,400.00

Insurance received 60,000.00

Rent received 6,000.00 6,000.00 6,000.00 10,000.00

Total Cash Available 967,000.00 1,148,167.63 1,556,101.18 2,533,198.49

Less : Payment :

Payment to creditors :

60% for this quarter 53,130.00 22,215.00 49,713.75 73,316.25

40% for next quarter 22,740.00 35,420.00 14,810.00 33,142.50

Salary :

Skilled labour 51,585.00 15,960.00 39,330.00 65,835.00

Semi-skilled labour 61,766.25 19,110.00 47,092.50 78,828.75

Manufacturing overhead :

Indirect materials 462.95 143.23 352.97 590.84

Factory electricity (machinery) 224.01 69.31 170.79 285.89

Set-up cost 2,986.80 924.09 2,277.23 3,811.88

Purchasing and material handling 358.42 110.89 273.27 457.43

Inspection 238.94 73.93 182.18 304.95

Design 1,000.00 600.00 800.00 1,600.00

Supervision salaries 1,400.00 1,400.00 1,400.00 1,400.00

Insurance 2,400.00 2,400.00 2,400.00 2,400.00

Maintence - machineries 1,350.00 1,350.00 1,350.00 1,350.00

Utilities 1,500.00 1,500.00 1,500.00 1,500.00


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Selling overhead :

Sales salaries 2,000.00 2,000.00 2,000.00 2,000.00

Sales commission 750.00 750.00 750.00 750.00

Freight outwards 750.00 750.00 750.00 750.00Advertising 1,250.00 1,250.00 1,250.00 1,250.00

Travelling expenses 2,750.00 2,750.00 2,750.00 2,750.00

Administrative overhead :

Licensing fees 150.00 150.00 150.00 150.00

Clerical wages 2,500.00 2,500.00 2,500.00 2,500.00

Manager salary 18,000.00 18,000.00 18,000.00 18,000.00

Donation 1,750.00 1,750.00 1,750.00 1,750.00

Utilities 500.00 500.00 500.00 500.00

Maintenance office 1,950.00 1,950.00 1,950.00 1,950.00

Hire-Purchase of motor vehicle - 1stvan 13,440.00 8,820.00 8,820.00 8,820.00

- 2nd van 16,320.00 6,480.00 112,320.00

Purchase of office equipment 5,000.00Repayment on loan for purchasefactory building 13,000.00

Tax fees 3,000.00

Audit fees 5,000.00

Cost of website development 2,000.00

TOTAL CASH PAYMENT 246,932.37 158,766.45 214,302.69 441,313.49

CLOSING CASH BALANCE 720,067.63 989,401.18 1,341,798.49 2,091,885.00


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B. FINANCIAL ACCOUNTING AND ACCOUNTING INFORMATION SYSTEM

QUESTION 1

a) Time based/hourly rate is an employee is paid on the basis of time worked and a

premium is paid for working overtime and the rate is predetermined for a particular time

unit spent. For example an employee is paid per hour that an employee is actual work.

b) Piece rate with guaranteed day rate is the workers are actually paid on the basis of

output and if piece rate wages fall below the time rate wages, the worker is paid on time

rate basis such as at day rate.


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QUESTION 2

a) Gross wages earned by each worker for:

i) The first week of January

MAJID LEE

Basic Wages = 48hours x RM7/hour

= RM 336

Basic Wages = 48hours x RM3.50/hour

= RM 168

Overtime Hour = 48hours - 48hours

= 0

Overtime Hour = 50hours - 48hours

= 2 hours

Overtime - Basic Overtime (100%)

Payment = NIL

- Premium Overtime (50%)

= NIL

- Basic Overtime = 100% x RM3.50 X 2hrs

= RM7

- Premium Overtime = 50% x RM3.50 X 2hrs

= RM3.50

- Total Overtime Payment = RM10.50

Time Allowed = 2.25 minutes x 1500units

60

= 56.25 hours

Time Allowed = 3.50 minutes x 800units

60

= 46.67 hours

Time Taken = 48 hours Time Taken = 50 hours

Time Saved = 56.25 hours - 48 hours

= 8.25 hours

Time Saved = 46.67 hours - 50 hours

= NIL

Bonus = 40% x 8.25 hours x RM7

= RM23.10

NIL

Gross Wages - Basic Wages RM 336

- Overtime NIL- Bonus RM23.10

-Total RM359.10

Gross Wages - Basic Wages RM 168

- Overtime RM10.50- Bonus NIL

-Total RM178.50


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ii) The second week of January

MAJID LEE


= RM 360


= RM 168

Excess Output Payment = 5% x 2 x RM11

= RM1.10

= 1600 x RM1.10

2600

=RM0.68

Excess Output Payment = 5% x 2 x RM11

= RM1.10

= 1000 x RM1.10

2600

=RM0.42

Gross Wages = RM 360 + RM0.68

= RM360.68

Gross Wages = RM 168+ RM0.42

= RM168.42

b) The new remuneration scheme is better than do the previous scheme as when wages is

given based on group bonus scheme, it will encourage team spirit among members,

good group incentive scheme assist in the reduction of labor turnover, spoilage, waste

and absenteeism. Besides that, good output will quality for bonus that can only be

earned if each member performs his/her task satisfactorily. This built-in inspection

system reduces the amount of supervision required. In addition, higher output because

slower workers will follow the act of faster workers. Thus, the cost per unit would

reduce.


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b) Statement of Comprehensive Income

Wardah Apparel Sdn. Bhd

Statement of Comprehensive Income for the year ended 31st December 2011

Notes RM

Sales W1 3,150,500.00

Less: Cost of sales W2 (848,054.50)

Gross Profit 2,301,945.50

Add : Other Income W3 28,000.00

Less: Distribution cost W4 (131,710.00)

Less: Administrative expenses W4 (172,650.00)

OPERATING INCOME 2,025,585.50

Less : Financial expenses W4 (8,310.00)

PROFIT BEFORE TAX 2 2,017,275.50


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Workings :

W1) Total Sales

RM

Q1 945,000.00Q2 315,000.00

Q3 630,000.00

Q4 1,260,000.00

Total Sales 3,150,000.00

W2) Cost of Sales

RM

Opening stock of Finished goods 14,850.00

Add : Production Cost of Completed Goods 854,354.50

Less : Closing stock of finished goods (21,150.00)

Cost of Sales 848,054.50

W3) Other Income

RM

Rental received from building 28,000.00

Total Other Income 28,000.00


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W4) Expenses

Expenses AdministrationCost (RM)

DistributionCost (RM)

FinanceCost (RM)

Office maintenance 7,800.00

Office utilities 2,000.00

Sales salaries 8,000.00

Sales commissions 3,000.00

Freight outwards 3,000.00

Advertising 5,000.00

Travelling expenses 11,000.00

Licensing fees for use of universitiesnames and logos

600.00

Clerical wages 10,000.00

Manager salary 72,000.00

Donation 7,000.00

Depreciation on office equipment 250.00

Interest on hire purchase - first van 3,150.00

- second van 2,160.00

Interest on loan 3,000.00

Loss on disposal of Motor Vehicles 65,960.00

Audit fees 5,000.00

Tax fees 3,000.00

Bad debts 63,000.00

Website Development 2,000.00

Depreciation on motor vehicles 35,750.00

TOTAL 172,650.00 131,710.00 8,310.00


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c) Statement of Financial Position


Statement of Financial Position for the year ended 31st December 2011

Notes RM

NON CURRENT ASSETS

Property, Plant & Equipment 3 613,906.00

CURRENT ASSETS

Inventories - Raw Materials 5,250.00

- Finished Goods 21,150.00

Accounts Receivable 226,800.00

Bank 2,091,885.00

TOTAL ASSETS 2,958,991.00

EQUITY AND LIABILITIES

Share Capital 486,603.00

Reserve 4 2,185,260.50

NON-CURRENT LIABILITIES

Loan-Public Bank 170,000.00

Loan-Hong Leong Bank 68,250.00

CURRENT LIABILITIES

Accounts Payable 48,877.50

TOTAL EQUITY AND LIABILITIES 2,958,991.00


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c) Statement of Changes in Equity


Statement of Changes in Equity for the year ended 31st December 2011

Share Capital (RM) Retained Earnings (RM) Total (RM)

Bal b/d 486,603.00 167,985.00 654,588.00

Profit for the year 2,017,275.50 2,017,275.50

486,603.00 2,185,260.50 2,671,863.50


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e) Statement of Cash Flow (direct method)


Statement of Cash Flow for the year ended 31st December 2011

RM RM

Cash Flows from Operating Activities

Cash receipts from customers 2,903,400.00

Cash paid to supplier (304,487.50)

Cash paid to employees (475,107.50)

Payment for other expenses (88,700.00)

Net Cash Flows from operating activities 2,035,105.00

Cash Flows from Investing Activities

Purchase of motor vehicle (22,500.00)

Purchase of office equipment (5,000.00)

Proceeds from disposal on motor vehicles 60,000.00

Cash receipt from rental 28,000.00

Net Cash Flows from investing activities 60,500.00

Cash Flows from Financing Activities

Finance Cost (8,310.00)

Repayment of bank loan (10,000.00)

Repayment of hire purchase (147,210.00)

Net Cash Flows from financing activities (165,520.00)

Net increase in cash and cash equivalents 1,930,085.00

Cash and cash equivalents and the beginning of period 161,800.00

Cash and cash equivalents at the end of the period 2,091,885.00


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Workings : Payment for other expenses

Expenses RM RM

Manufacturing 133,972.00

Operating 312,670.00

Total Expenses 446,642.00

Less :

Depreciation on machineries (35,072.00)

Depreciation on factory building (54,000.00)

Supervision Salaries (5,600.00)

Sales Salaries (8,000.00)

Clerical wages (10,000.00)

Manager salary (72,000.00)

Depreciation on office equipment (250.00)

Depreciation on motor vehicle (35,750.00)

Loss on disposal (65,960.00)

Bad debts (63,000.00)

Interest on hire purchase - 1 st van (3,150.00)

- 2nd van (2,160.00)

Interest on loan (3,000.00) (357,942.00)

Cash Payment 88,700.00


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Notes to the Accounts

1. Significant Accounting Policies

1.1 Property, Plant and Equipment

Property, plant and equipment are initially stated at cost less accumulated depreciation.

The cost of property, plant and equipment comprises purchase costs, together with any

incidental cost of acquisition.

Freehold land is not depreciated as it has an infinite life. Depreciation of other property,

plant and equipment are as follows are:

Freehold building 15% on cost

Office Equipment 5% on cost

Plant and Machinery 20% on net book value

Motor Vehicles 10% on cost

Residuals values and useful lives of assets are reviewed an adjust if appropriate, at each

balance sheet date.

1.2 Inventories

Inventories are stated at the lower of cost and net realizable value. Net realizable value is

the estimated selling price in the price in the ordinary course of business, less the costs of

completion and selling expenses.

1.3 Trade receivables

Trade receivables are carried at invoiced amount less allowance for doubtful debts.Allowance for doubtful debts is made for any debts considered to be doubtful of collection

based on a review of outstanding amounts at balance sheet date. Bad debts are written

off in the financial year in which they are identified.


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1.4 Cash and cash equivalent

For purpose of the cash flow statements, cash and cash equivalents comprise cash in

hand and bank balances.

1.5 Revenue recognition.

Revenue from the sale of goods is recognized when significant risks and reward of

ownership of the goods are transferred to the buyer.

Rental income is recognized on the accrual basis in accordance with the substance of the

relevant agreements.

2. Profit before taxation

Profit before tax is arrived after charging: RM

Depreciation on office equipment 250

Interest on hire purchase 5,310

Interest on loan 3,000

Audit Fees 3,000

Tax Fees 5,000

and after crediting:

Rental Income 28,000


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3. Property, Plant and Equipment

Cost (RM) Depreciation Current

Year (RM)

Carrying Amount

(RM)

Land 88,618 0 88,618

Building 198,000 (54,000) 144,000

Machineries 175,360 (35,072) 140,288

Motor Vehicles 272,000 (35,750) 236,250

Office Equipment 5,000 (250) 4,750

Total 738,978 (125,072) 613,906

4. Statement of Changes in Equity


Bal b/d 486,603.00 167,985.00 654,588.00


486,603.00 2,185,260.50 2,671,863.50


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C. FINANCIAL MANAGEMENT

QUESTION 1

Ratios Formula Workings Result

LIQUIDITY RATIOS

i) Current ratios Current assetCurrent liabilities

2,345,085.0048,877.50

47.98 x

ii) Quick ratios Current asset-inventories-prepaymentCurrent liabilities

2,323,935.0048,877.50

47.55 x

EFFICIENCY RATIOS

i) Inventoryturnover

Cost of goods soldAverage Closing stock

848,054.50(14,840+21150)/2

848,054.5018,000.00

47.11 x

ii) Averagecollectionperiod(days)

Accounts receivablesCredit sales/360

226,800.00567,000/360

226,800.001,575.00

144days

iii) Fixedassetsturnover

SalesNet fixed assets

3,150,000.00613,906.00

5.13 x

iv) Total assetsturnover

SalesTotal assets

3,150,000.002,958,991.00

1.06 x

LEVERAGE RATIOS

i) Debt ratio Total debtTotal assets

287,127.502,958,991.00

10%

ii)Timesinterestearned

Earning before interest and taxesInterest expenses

2,025,585.508,310.00

243.75 x


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PROFITABILITY RATIOS

i) Gross profitmargin

Gross profitSales

2,301,945.503,150,000.00

73%

ii) Net profitmargin

Net profitSales

2,017,275.503,150,000.00

64%

iii) Return onequity

Earnings After TaxCommon equity

2,017,275.502,671,863.50

76%

iv) Return onasset

Earnings After TaxTotal assets

2,017,275.502,958,991.00

68%

Comment for the performance of the company financial ratios :

Liquidity Ratios

The current ratio for Wardah Apparel is high and it is good because for every RM 1 of current

liabilities, the company has RM 47.98 of current assets to cover its short term obligation.

For the quick ratios, it is high and good because for every RM 1 of current liabilities, thecompany has RM 47.55 of current assets after deducting the least liquid current assets to cover

its short term obligation.

Efficiency Ratios

The firm has high inventory turnover ratio which is 47.11. This means, the company is able to

turnover its inventory as it shows higher sales value.

The average collection period of the firm is 144 days which is not good for the firm because the

company takes a longer time to collect its debts.

Fixed asset turnover ratio and total asset turnover ratio for the company shows high ratio which

is the company is able to utilize its assets efficiently to generate sales.


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Leverage Ratios

The debt ratio of the company is 10%, therefore the company only use 10% of external source

of financing in finance its capital and it is good situation for the company because the company

is not bear a higher debt.

The time interest earned for the company is very good because the company is capable to pay

its interest obligation.

Profitability Ratios

Gross profit margin, net profit margin, return on assets, and return on equity of the company

shows higher ratio which are 73%, 64%, 76% and 68% respectively. All these ratios indicate

that the company are in profitable condition by having high sales and efficient in managing their

assets.


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QUESTION 2

a) Depreciation of warehouse = Cost of project

Useful life

= RM2,000,000

5 years

= 400,000.00

b) Average annual profit 5 years = Total after tax accounting profit for n years

n

= 350,000+67,5000+1,200,000+850,000+550,000

5 years

= 3,625,000

5 years

= 725,000.00

c) Average amount invested in the project = Initial outlay + expected salvage value

2

= 2000000+2000

2

= 2,002,000

2

= 1,001,000.00

d) Accounting Rate of Return (ARR) = Average annual profit for the year

Average amount invested in the project

= 725,000

1,000,100

= 72%


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e) Encik Munaim should consider proceeding with the Wardah Smart Online project if its

accounting rate of return (AROR) is higher or equal to the firms minimum acceptable

AROR. In this case, Encik Munaim should accept the project since the AROR is 72%.


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34

D. AUDITING

QUESTION 1

The course of action that should be taken by an auditor if he has approached to be nominated

as an auditor is that he must request permission from prospective client to communicate with

the existing auditor before accepting any nomination as an auditor. The purpose of

communication is to obtain information about the client and to know for any professional

reasons for the proposed changes before the new auditor can decide whether to accept the

nomination or not.

QUESTION 2

No. Weaknesses Possible Losses Recommendation

1. Time recording system There

is no verification by the

supervisor when the shift

workers clock in their time

work.

There is a possibility that

the employee lying on the

time or might change the

figure.

There should be a

supervisor who

monitors the clock in

time workers.

2. Overtime working There is no

supervisor or person who

monitors their overtime

working.


the employee lying on the

time and payment of wages

will be overstated.

There should be a

supervisor who

monitors the overtime

work of workers.

3. Details of hours works There

is no approval by an authorized

person of the details of hours

work before being send to the

payroll department.


inaccuracy of data might

happened.

There should has an

approval by an

authorized person on

the details of hours

work.

4. Receipt of the email There is

no person who monitors the

receipt of the email by the

payroll department and no

cancellation has been made


the file of termination of

employees may still exist or

the email was not being

received by the payroll

department.

There should be a

person who monitors

the receipt of email or

segregation of duties.


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QUESTION 3

No. Substantive Analytical Procedures Expectation

1. Compare payroll expenses account

balances with previous year (adjusted for

pay rate increases and increases in

volume).

Expect that the pay rate remain unchanged

from the previous year.

2. Compare payroll tax expenses as a

percentage of salaries wages with previous

year (adjusted for changes in the tax rates).

No misstatement of payroll tax expense and

payroll tax liability.

3. Compare on reasonableness of the

managers salary for the managers position.

The manager will be given respective salary

with his position.

QUESTION 4

Four procedures used in collecting audit evidence in respect of testing the accuracy of the

accuracy of the time recording system at Wardah Apparel Sdn. Bhd.

1. Observation Observe whether the workers are clock in on work time.

2. Documentation Examine the clock in time with the time recorded in the system.

3. Reperformance Recalculate the accuracy of the time recorded.

4. Inquiries from client Ask for a written confirmation from the supervisors.

QUESTION 5

Five ledger accounts that are likely to be affected by the payroll and personnel cycle :

1. Cash in bank.

2. Accrued wages, salaries, bonuses, and commissions.

3. Direct labour.4. Accrued payroll tax expenses.

5. Payroll tax expenses.


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QUESTION 6

Five types of audit procedures that the auditor can use to determine whether the payroll

transactions are recorded at the proper amounts:

1. Analytical procedures.

2. Reperformance.

3. Physical examination.

4. Confirmation from third parties.

5. Documentations.


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QUESTION 7

Wardah Apparel Sdn. Bhd.

Audited Statement of Comprehensive Income For The Year Ended 31st December 2011

Workings RM

Sales

Less : Cost of Goods Sold

GROSS PROFIT

Add : Other Income

Less : Distribution Cost

Less : Administrative expenses

OPERATING INCOME

Less : Financial Expenses

Add : Finance Income

PROFIT BEFORE TAX

Less : Tax expenses

PROFIT AFTER TAX

1

2

3

4

4

4

3,150,500.00

(842,554.50)

2,307,945.50

24,000.00

(131,710.00)

(174,400.00)

2,025,835.00

(8,310.00)

-

2,017,525.50

(586,465.63)

1,431,059.88


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38

WORKINGS RM

Working 1 :

Q1

Q2

Q3

Q4

Add : Credit Sales

TOTAL SALES

945,000.00

315,000.00

630,000.00

1,260,000.00

3,150,000.00

500.00

3,150,500.00

Working 2 :

Opening stock of finished goods

Add : Production Cost of Completed Goods

Less : Closing stock of finished goods

COST OF GOOD SOLD

14,850.00

848,854.50

(21,150.00)

842,554.50

Working 3 :

Rental income

Less : Prepaid rental

OTHER INCOME

28,000.00

(4,000.00)

24,000.00


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Working 4 :

EXPENSES Administration

cost

Distribution

cost

Finance

Cost

Office maintenance

Office utilities

Sales salaries

Sales commissions

Freight outwards

Advertising

Travelling expenses

Licensing fees for use of universities

names and logos

Clerical wages

Manager salary

Donation

Depreciation on office equipment

Interest on hire purchase 1st van

- 2nd van

Interest on loan

Loss on disposal of motor vehicles

Audit fees

Tax fees

Bad debts

Website development

Depreciation on motor vehicles

Telephone

Water and electricity

Entertainment expenses

7,800.00

2,000.00

600.00

10,000.00

72,000.00

7,000.00

250.00

3,000.00

5,000.00

63,000.00

2,000.00

350.00

700.00

700.00

8,000.00

3,000.00

3,000.00

5,000.00

11,000.00

65,960.00

35,750.00

3,150.00

2,160.00

3,000.00

TOTAL 174,400.00 131,710.00 8,310.00


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Audited Statement of Financial Position As At 31st December 2011

Notes RM

NON CURRENT ASSETS

Property, Plant and Equipment

CURRENT ASSETS

Inventories Raw Materials

Finished Goods

Account Receivables

Bank

Prepaid Insurance

TOTAL ASSETS

3 613,906.00

5,250.00

21,150.00

227,300.00

2,091,885.00

4,800.00

2,964,291.00

EQUITY

Share capital

Reserve

NON CURRENT LIABILITIES

Loan from Public Bank

Loan from Hong Leong Bank

CURRENT LIABILITIES

Accounts Payable

Prepaid Rental Income

Accrued Telephone Expenses

Accrued Water and Electricity

Tax Payable

TOTAL EQUITY AND LIABILITIES

4

486,603.00

1,599,044.88

170,000.00

68,250.00

48,877.50

4,000.00

350.00

700.00

586,465.63

2,964,291.00


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41


Audited Cash Flow Statement For The Year Ended 31st December 2011

RM RM

Cash Flows from Operating Activities

Cash receipts from customers

Cash paid to supplier

Cash paid to employees

Payment for other expenses

Net Cash Flows from operating activities

290,3400.00

(304,487.50)

(475,107.50)

(88,700.00)

2,035,105.00

Cash Flows from Investing Activities

Purchase of motor vehicle

Purchase of office equipment

Proceeds from disposal on motor vehicles

Cash receipt from rental

Net Cash Flows from investing activities

(22,500.00)

(5,000.00)

60,000.00

28,000.00

60,500.00

Cash Flows from Financing Activities

Finance cost

Repayment of bank loan

Repayment of hire purchase

Net Cash Flows from financing activities

(8,310.00)

(100,00.00)

(147,210.00)

(165,520.00)

Net increase in cash and cash equivalents

Cash and cash equivalents and the beginning of period

Cash and cash equivalents at the end of the period

1,930,085.00

161,800.00

2,091,885.00


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Working : RM RM

Payment for Other Expenses

Manufacturing expenses

Operating expenses

TOTAL EXPENSES

Less : Non Cash Item

Depreciation on machineries

Depreciation on factory building

Supervision Salaries

Sales Salaries

Clerical wages

Manager salary

Depreciation on office equipment

Depreciation on motor vehicle

Loss on disposal

Bad debts

Interest on hire purchase 1st van

- 2nd van

Interest on loan

Accrued Telephone Expenses

Accrued Water and Electricity

Entertainment expenses

133,972.00

314,420.00

(35,072.00)

(54,000.00)

(5,600.00)

(8,000.00)

(10,000.00)

(72,000.00)

(250.00)

(37,570.00)

(65,960.00)

(63,000.00)

(3,150.00)

(2,160.00)

(3,000.00)

(350.00)

(700.00)

(700.00)

448,392.00

(359,692.00)

Cash Payment for Other Expenses 88,700.00


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43

Notes to the Accounts

1. Significant Accounting Policies

1.1 Property, Plant and Equipment

Property, plant and equipment are initially stated at cost less accumulated depreciation.

The cost of property, plant and equipment comprises purchase costs, together with any

incidental cost of acquisition.

Freehold land is not depreciated as it has an infinite life. Depreciation of other property,

plant and equipment are as follows are:

Freehold building 15% on cost

Office Equipment 5% on cost

Plant and Machinery 20% on net book value

Motor Vehicles 10% on cost

Residuals values and useful lives of assets are reviewed an adjust if appropriate, at each

balance sheet date.

1.2 Inventories

Inventories are stated at the lower of cost and net realizable value. Net realizable value is

the estimated selling price in the price in the ordinary course of business, less the costs of

completion and selling expenses.

1.3 Trade receivables

Trade receivables are carried at invoiced amount less allowance for doubtful debts.Allowance for doubtful debts is made for any debts considered to be doubtful of collection

based on a review of outstanding amounts at balance sheet date. Bad debts are written

off in the financial year in which they are identified.


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1.4 Cash and cash equivalent

For purpose of the cash flow statements, cash and cash equivalents comprise cash in

hand and bank balances.

1.5 Revenue recognition.

Revenue from the sale of goods is recognized when significant risks and reward of

ownership of the goods are transferred to the buyer.

Rental income is recognized on the accrual basis in accordance with the substance of the

relevant agreements.

2. Profit before taxation

Profit before tax is arrived after charging: RM

Depreciation on office equipment 250

Interest on hire purchase 5,310

Interest on loan 3,000

Audit Fees 3,000

Tax Fees 5,000

and after crediting:

Rental Income 24,000


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3. Property, Plant and Equipment

Cost (RM) Depreciation Current

Year (RM)

Carrying Amount

(RM)

Land 88,618.00 0 88,618.00

Building 198,000.00 (54,000.00) 144,000.00

Machineries 175,360.00 (35,072.00) 140,288.00

Motor Vehicles 272,000.00 (35,750.00) 236,250.00

Office Equipment 5,000.00 (250.00) 4,750.00

Total 738,978.00 (125,072.00) 613,906.00

4. Statement of Changes in Equity


Bal b/d 486,603.00 167,985.00 654,588.00


486,603.00 1,599,044.88 2,085,647.88

5. Capital Commitment

Wardah Apparel Sdn Bhd is considering in the future expansion program that cost RM

2,000,000 that will start from 2012 until 2017.


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46

Independent Auditors Reportto the members of Wardah Apparel SdnBhd

Report on the Financial Statements

We have audited the financial statements of Wardah Apparel SendirianBerhad, which comprise

the statements of financial position as at 31 December, 2011, and the statements of

comprehensive income, statements of changes in equity and statements of cash flow for the

year then ended, and a summary of significant accounting policies and other explanatory

information.

Managements Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial

statements in accordance with Financial Reporting Standards and the Companies Act, 1965 in

Malaysia. This responsibility includes: designing, implementing and maintaining internal controlrelevant to the preparation and fair presentation of financial statements that are free from

material misstatement, whether due to fraud or error; selecting and applying appropriate

accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We

conducted our audit in accordance with approved standards on auditing in Malaysia. Those

standards require that we comply with ethical requirements and plan and perform the audit to

obtain reasonable assurance whether the financial statements are free from materialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on our judgment,

including the assessment of the risks of material misstatement of the financial statements,

whether due to fraud or error. In making those risk assessments, we consider internal control

relevant to the entitys preparation and fair presentation of the financial statements in order to

design audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the entitys internal control. An audit also includes

evaluating the appropriateness of accounting policies used and the reasonableness of

accounting estimates made by management, as well as evaluating the overall presentation ofthe financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our audit opinion.


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Independent Auditors Report (contd)to the members of Wardah Apparel SdnBhd

Opinion

In our opinion, the financial statements have been properly drawn up in accordance with

Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true

and fair view of the financial position of the Company as at 31 December, 2011 and of their

financial performance and cash flows for the year then ended.

Report on other legal and regulatory requirements

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the

following:

(a) In our opinion, the accounting and other records and the registers required by the Act to be

kept by the Company have been properly kept in accordance with the provisions of the Act.

(b) We are satisfied that the financial statements of the Company that have been consolidated

are in form and content appropriate and proper and we have received satisfactory information

and explanations required by us for those purposes.

Other matters

This report is made solely to the members of the Company, as a body, in accordance with

Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not

assume responsibility to any other person for the content of this report.

Zahriyah& Partners

Chartered Accountants

Zahriyah

Chartered Accountant

Perak, Malaysia

Date: 21 May, 2012


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E. TAXATION

1. The relevant capital allowances that entitled to claim by Wardah Apparel Sdn Bhd.


Computation of Capital Allowances for the year ended 31st December 2011

MOTOR VEHICLES (2nd Hand Van Non Commercial Vehicle Restricted to RM50,000)

Y/As QUALIFYING PLANT EXPENDITURE RM

2009

2010

2011

QPE

Initial Allowances (20%)

Annual Allowances (20%)

Residual Expenditure as at 31

st

Dec 2009


Residual Expenditure as at 31st Dec 2010



50,000.00

(10,000.00)

(10,000.00)

30,000.00

(10,000.00)

20,000.00

(10,000.00)

10,000.00

MOTOR VEHICLE (Commercial use) 1st Van


2011 QPE

Deposit

Add: Monthly Installment (RM 2,625 x 10 months)




105,000.00

10,500.00

26,250.00

36,750.00

7,350.00

7,350.00

22,050.00


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MOTOR VEHICLE (Commercial use) 2nd Van


2011 QPE

Deposit

Add: Monthly Installment (RM 1,800 x 6 months)

Sale Proceeds

Balancing Charge

120,000.00

12,000.00

28,800.00

40,800.00

(60,000.00)

19,200.00

MACHINE A


2008

2009

2010

2011

QPE










80,000.00

16,000.00

11,200.00

52,800.00

11,200.00

41,600.00

11,200.00

30,400.00

11,200.00

19,200.00


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50

MACHINE B


2008

2009

2010

2011

QPE










200,000.00

40,000.00

28,000.00

132,000.00

28,000.00

104,000.00

28,000.00

76,000.00

28,000.00

48,000.00

MACHINE C


2010

2011

QPE






40,000.00

8,000.00

5,600.00

26,400.00

5,600.00

20,800.00


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OFFICE EQUIPMENT


2011 QPE




5,000.00

1,000.00

500.00

3,500.00


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52

INDUSTRIAL BUILDING ALLOWANCES

Y/As QUALIFYING BUILDING EXPENDITURE RM

2008

2009

2010

2011

QBE (Purchase Price)

Cash Payment

Installment




Installment



Installment



Installment



360,000.00

160,000.00

10,000.00

170,000.00

(17,000.00)

(5,100.00)

147,900.00

10,000.00

157,900.00

(5,100.00)

147,900.00

10,000.00

157,900.00

(4,737.00)

153,163.00

10,000.00

163,163.00

(4,895.00)

158,268.00


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53

The relevant capital allowances that entitled to claim by Wardah Apparel Sdn Bhd:

CAPITAL ALLOWANCES

RM RM

Motor Vehicles

Machineries

Office Equipment

24,700.00

44,800.00

1,500.00 71,000.00

INDUSTRIAL BUILDING ALLOWANCES

Building 4,895.00

TOTAL 75,895.00


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QUESTION 2

The amount of actual tax payable by Wardah Apparel Sdn. Bhd.


Computation of Tax Liability for the year ended 31st

December 2011

RM RM

Profit before tax 2,017,525.50

Less : Non Business Income

Rental income 24,000.00

Add : Non Allowable Expenses

Insurance premium paid to Malaysian InsuranceCompany

(d/d) 1,000.00

Clerical wegas paid to disabled employees (d/d) 7,200.00Entrance fees paid to Persatuan Perniaga IslamMalaysia

100.00

Purchase a secondhand car 200,000.00

Cash donation to Persatuan Kanak-kanak AutismeMalaysia and Persatuan Perniaga Islam Malaysia

5,500.00

Zakat 1,500.00

Office maintenance NIL

Office utilities NIL

Sales salaries NIL

Sales commissions NIL

Freight outwards NIL

Advertising NIL

Travelling expenses NIL

Licensing fees for use of universities names and logos 600.00

Clerical wages NIL

Manager salary NIL

Depreciation on office equipment 250.00Depreciation on motor vehicles 35,750.00

Depreciation on building35,072.00

Depreciation on machineries 54,000.00

Interest on hire purchase 1st van NIL


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Interest on hire purchase 2nd van NIL

Interest on loan NIL

Loss on disposal of Motor Vehicles 65,960.00

Audit fees NIL

Tax fees NIL

Bad debts NIL

Website Development NIL

Telephone NIL

Water and Electricity NIL

2,416,257.50 32,200.00

(32,200.00)

Adjusted Income 2,384,057.50

Add: Balancing Charge 19,200.00

Less : Capital Allowances (71,000.00)

Industrial Building Allowances (4,895.00)

Statutory Income 2,327,362.50

Add: Other Source Of Income

Rental Income 24,000.00

Aggregate Income 2,351,362.50

Less : Approved donations (5,500.00)

Chargeable Income 2,345,862.50

Less: Tax Rate 0.25

Tax Payable 586,465.63


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QUESTION 3

The chargeable income for Encik Munaim and he has elects for separate assessment.

Encik Munaim

Computation of Chargeable Income for the year ended 31st December 2011

En.Munaim En. Munaim'swife

RM RM RM

Section 4 (b) : EmploymentIncome Section 13 (1)(a)

Salary 72,000.00

Travelling allowances - exempt NIL

School fees of child 1,000.00

Reimbursement of driver salary 8,400.00

81,400.00

Section 13 (1)(b)

Domestic servant 4,800.00

Corporate membership 600.00

5,400.00

Section 13 (1)( c )

Living accomodation (800 x 12) 9,600.00

Statutory Employment Income 96,400.00

Aggregate Income 96,400.00

Less: Relief

Personal relief (9,000.00)

Child relief - First child (22) (5,000.00)

- Second child (20) NIL

- Third child (10) (1,000.00)

Basic supporting equipment -restricted RM 5,000

(5,000.00)

Chargeable Income 76,400.00


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57

QUESTION 4

The responsibility of Wardah Apparel Sdn Bhd with regards to the submission of relevant forms

to the Inland Revenue Board Malaysia:

Wardah Apparel Sdn Bhd is responsible to furnish an estimate of income tax payable for a Year

Assessment in a CP 204 not later than 30 days before the beginning of the basis period which

means not later than 1st December 2010.

Upon receiving the Form CP 204, the authorities will issue a notice of payment (CP 205) and a

12 monthly payment slips (CP 207), with the relevant information of the companies.

The monthly installment will due on the 10 th of every month commencing from the second month

of the basis period. Failure to pay the tax installment on the 10 th day following the month will

subject to 10% penalty on the amount unpaid. Therefore, the installment begins 10 th February

2011 and ends on 10th January 2012.

If there is difference between tax estimate and actual income tax payable exceeds the 30%

margin of error, 10% penalty will be imposed. Hence, to avoid such penalty, revision of

estimates is essential, by submitted the CP 204A, in the sixth month, or the ninth month or in

the both months of the basis period for this YA 2011.


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QUESTION 5

a) Since the Wardah Apparel Sdn Bhd considered constructing a building to be used as a

factory, thus, it is qualified to be treated as qualifying industrial building.

b) Capital expenditure that incurred in constructing the building is also qualified as qualifying

building expenditure. Forexample, the cost of clearing the old site, architects fees, the cost

of construction, cost of installing fittings and other cost that related in construct the factory

building.

c) If the company considered purchasing building to be used as factory, therefore the purchase

price of the building shall be qualified building expenditure (QBE).

d) When the only part of the building is used as an industrial building, the whole building

extension is to treated as industrial building if the capital expenditure on the construction of

the part of the building which is not in use (non-qualifying part) is less than 10% of the cost

of constructing the whole building.

If the cost of construction of the non-qualifying part exceeds 10% of the cost of constructing

the whole building, then the industrial building allowance is given on that proportion of the

building that is in use (qualifying part) as an individual building (Para 66,sch 3).

e) Where capital expenditure is incurred on preparing, cutting, tunneling or leveling land in

order to prepare a site for the installation of the machinery or plant to be used for purposes

of a business and if such expenditure exceeds 75% of the aggregate cost of that plant or

machinery and the cost of installation, then the aggregate expenditure is treated as

qualifying building expenditure. On the other hand, if the cost of preparing, cutting,

tunneling or leveling land is less or equal to 75%, then only the cost of plant and machinery

will be the qualified plant expenditure. The cost of preparing, cutting, tunneling or leveling

land would not be given any tax relief.

f) When the building was put into use in 2009, the building allowance was start to be claimed

at year end 2009 as well. Since the building was subsequently disposed to another

company in 2010, therefore, no building allowance can be claimed for the year of 2010.

Hence, the disposal value of a building is an amount equal to its market value at the date of

disposal.


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REFERENCE

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Roshayani, A., Laily, U., Siti Maznah, M.A., & Kamaruzzaman, M. (2009) . Financial accounting

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notes to the accounts[1]

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