Final Exam Q FAR360 Oct 09

8/8/2019 Final Exam Q FAR360 Oct 09

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CONFIDENTIAL AC/OCT 2009/FAR360

PART A

Answer ALL questions.

1. Accounting can be defined as the art of classifying, recording and summarising oftransactions and business events in monetary terms and interpreting the results tointerested parties to enable them to make decisions. Describe the complete accountingprocess.

(12 marks)

2. Users of accounting information could be either those of internal or external to anorganisation. Briefly explain two (2) internal users AND two (2) external users ofaccounting information and how the information is being used by each of them.

(4 marks)

3. State four (4) circumstances under which a particular expense is not qualified fordeduction (non-allowable expenses) against the business income under the Income TaxAct 1967.

(4 marks)

4. The auditors should obtain sufficient appropriate audit evidence to be able to drawreasonable conclusions on which to base the audit opinion. Can ratio analysis techniquebe applied by the auditor to obtain the sufficient appropriate evidence? State youranswer by giving reasons.

(5 marks)

5. The company always aims for the optimum capital structure i.e. the best combinationbetween debt and equity. Why is it necessary to raise capital through a mixture of equityand debt rather than just equity or debt? Explain with reasons.

(10 marks)

6. The third type of financial information after income statement and balance sheet whichusers find necessary for making decision about the entity is the entitys cash flows.Briefly discuss the information that can be obtained from the cash flow statement of acompany.

(5 marks)

7. Business risk, which is part of the unsystematic risk, is described as the variability in a

firms expected earnings before interest and tax. Its concern is mainly about theuncertainty associated with an investments earnings and the investments ability to payinterest, principal, dividends and any other return owed to investors. Briefly explain anythree (3) factors influencing the business risk.

(6 marks)

8. A company is required to comply with Section 169 of the Companies Act 1965 whichrequires that audited financial statements to be prepared and filed with the registraroffice of the Companies Commission of Malaysia (CCM) not later than 6 months after theaccounting year end. Briefly explain two (2) situations where a company will find it usefulto have the audited financial statements.

(4 marks)(Total: 50 marks)

Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

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PART B

Answer ALL questions.

QUESTION 1

Light N Bright Sdn Bhd is a manufacturer of electrical appliances located in Penang. Whenthe company was first formed forty years ago by Dato' Amir Rizal, it only had a workforce of10 people to take advantage of the booming demand of electrical appliances throughoutPeninsular Malaysia. Its product range was fairly limited but the company had an excellentreputation for quality to ward off similar cheaper imported products.

Currently, Light N Bright Sdn Bhd manufactures an extensive range of high quality electricalappliances and exports some of its products overseas. The company is now steered by

Dato' Amirs only daughter, Nur Aisyah, who heads a small management team and employs250 employees. It has an annual sales averaging approximately RM10 million.

Although it has been consistently profitable, Light N Bright Sdn Bhd is experiencingincreased competition from new industrialised nations such as China and Vietnam.Incredibly, products from these competing nations are improving in terms of quality whilemaintaining their cost advantages. Light N Bright Sdn Bhd uses a cost-plus approach topricing but it is under pressure to reduce its mark-up constantly in order to maintain marketshare.

Both Dato' Amir and his daughter are qualified as electrical engineers. Nevertheless, theyhave been very conservative in carrying their business and have never seen the need to

employ an accountant. Instead, a bookkeeper calculates monthly and yearly profits as salesrevenue minus expenses. Prices are based on rough estimates of cost of direct materialsand direct labour plus a 50 per cent mark-up.

With the changing environment leading to profit decline and constant pressure to keepprices down, Nur Aisyah began to have second thoughts about the way costs and profitswere calculated.

The results for the year ended 30 June 2009were as follows:RM RM

Sales 9,800,000

Other incomes 52,0009,852,000

Less Expenses:Materials purchased 3,000,000Factory wages production line 2,500,000Approved training expenses for employees 20,000Production supervisors salary 350,000Rental expenses 800,000City Hall rates (assessment tax etc) 50,000Salesmen salaries 1,100,000Insurance expenses 10,000Advertising 180,000Entertaining customers 5,000


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Equipment depreciation 250,000Old office computer written off 500Electricity 120,000Managers salaries 800,000Truck lease 100,000

Total expenses 9,285,500

Net Profit 566,500

Additional information in respect of the financial statements for the year ended 30 June 2009are as follows.

1. Other incomes comprise of:

a) Interest income of RM10,000.b) Dividend income of RM15,000.c) Profit on disposal of unused machinery of RM20,000.d) Insurance compensation received in respect of faulty machine of RM7,000.

2. There was virtually no beginning inventory of raw material, work-in-progress andfinished goods.

3. At the end of the year, 10% of the materials purchased remained in hand, work-in-progress amounted to 20% of the manufacturing costs incurred during the year, andnone of the finished goods inventories were in hand.

4. Out of the total space of the premise, factory occupies 80% of the area, salesdepartment occupies 15% and the rest is being occupied by the administrationdepartment.

5. The insurance expenses were paid to a local insurance company for the purpose ofdistribution of finished goods to the final customers.

6. The total cost of the companys equipment is RM2,500,000 depreciated over 10years based on straight-line method. Most of the equipments are used for manufacturing,with only 5% being used for sales functions and another 5% on administrative functions.

The rates of initial and annual allowances are 20% and 14% respectively. All of theseequipment were acquired in the previous years and still entitled to claim capitalallowance. None of these equipments were purchased within the current year.

7. Almost all of the electricity is consumed within the factory.

8. The trucks are used to deliver finished goods to customers. The trucks arecommercial leased vehicles. The lease started five years ago and the lease amount paidto date is RM500,000.

9. Managers spend about half of their time on managing factory operations, about 30%in handling the sales function and the rest on administrative issues.


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Required:

a) Nur Aisyah asks you to review the results for the year and evaluate the companysapproach to estimating product costs. In doing so, you should :

1. Criticize the income and cost classifications used in Light N Bright Sdn Bhds incomestatement.

(4 marks)2. Estimate the cost of goods manufactured and sold.

(12 marks)3. Prepare a revised income statement for the year.

(14 marks)

4. Explain the differences between your income statement and the one above.

(3 marks)

5. Evaluate the usefulness of product costing and pricing based on direct materials anddirect labour.

(3 marks)

6. Suggest a method of product costing that is more acceptable compared to the onepractised by the company.

(3 marks)

b) Based on the net accounting profit, calculate the tax adjusted income according to theIncome Tax Act 1967.

(8 marks)

c) Based on the tax adjusted income, calculate the statutory tax income according to theIncome Tax Act 1967. Show capital allowance computation.

(3 marks)(Total: 50 marks)

END OF QUESTION PAPER


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Final Exam Q FAR360 Oct 09