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

1


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.

2


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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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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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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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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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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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.

8


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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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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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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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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(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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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

14


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

15


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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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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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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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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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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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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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?).

22

case study far 360 20.06

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