ASSIGNMENT

SEPTEMBER 2016 SEMESTER

SUBJECT CODE : MFA 204

SUBJECT TITLE : INTRODUCTION TO BUSINESS ACCOUNTING

LEVEL : BACHELOR LEVEL

STUDENTS NAME : IRMAN BIN MOHAMMAD

MATRIC NO. : M30105160007

PROGRAMME : BACHELOR OF BUSINESS ADMINISTRATION

(HONS)
ACADEMIC FACILITATOR : MADAM ELIZABETH ANAK ENSENG

LEARNING CENTRE : PHM KUCHING (K-RESOURCES TRAINING

CENTRE)
INSTRUCTIONS TO STUDENTS

1) This assignment consists of TWO (2) parts. Answer ALL questions.

2) Plagiarism in all forms is forbidden. Students who submit plagiarised assignment will be
penalised.

3) This assignment carries 30% in Part A and 30 % in Part B.

4) The submission date of this assignment is BEFORE OR ON 14 December 2016.

THERE ARE THREE [9] PAGES OF QUESTIONS, EXCLUDING THIS PAGE.

DECLARATION BY STUDENT

I certify that this assignment is my own work and is in my own words. All sources have been acknowledged
and the content has not been previously submitted for assessment to Asia e University or elsewhere. I also
confirm that I have kept a copy of this assignment.

Signed: _____________________________
INSTRUCTION: Answer ALL questions.

PART A:
TOTAL: 100 Marks (30%)

Question 1

Glokal Services was organised on February 1 2014. A summary of the revenue and expenses
transaction for February follows:
RM
Fees Earned 479,280
Wages Expenses 310,600
Rent expenses 60,000
Supplies expenses 6,200
Miscellaneous expenses 11,150

Required

Prepare an Income Statement for the month ended February 28, 2014. (20 marks)

Glokal Servises
Income statement for the month ended 28 febuary 2014

Revenue RM
Fees Earned 479,280
Expenses RM
Wages Expenses 310,600
Rent expenses 60,000
Supplies expenses 6,200
Miscellaneous expenses 11,150
Total 387,950

RM479,280 RM387,950 = RM91,300

Question 2

A summary of cash flows for Webster Consulting Group for the year ended July 31, 2007 is
shown below:
RM
Cash received from customers 495,000
Cash paid for operating expenses 371,500
Cash received from additional investment from owners 20,200
Cash paid to land 40,000
Cash paid to owners for personal use 9,000

The cash balance as of August 1, 2007, was RM 46,750.

Required:

Prepare a statement of cash flow for Webster Consulting Group for the year ended 31 July 2007.

(20 marks)

Webster Consulting Group

Statement of cash flow for the year ended 31 july 2007

RM
Cash received from customers 495,000 +
Cash paid for operating expenses (371,500)-
Cash received from additional investment
from owners 20,200 +
Cash paid to land (40,000)-
Net cashflows 103,700

Cash Flow = (cash Received cash Paid)

= RM 515,200 RM 411,500
= RM 103,700
Question 3

The amount of the assets and liabilities of Reliance Travel Services a 31 August, 2015, the of
the current year, and the revenues and expenses for the year are listed below. The Capital of
Michael, the owner, was RM60,000 at 1 August, 2015, the beginning of the current year, and the
owner withdrew RM50,000 during the current year.

RM RM
Accounts Payable 12,500 Supplies 4,250
Accounts Receivable 48,750 Supplies expenses 8,250
Cash 99,000 Taxes expenses 6,400
Fees Earned 375,000 Utilities expenses 31,200
Miscellaneous expenses 3,150 Wages expenses 145,000
Rent expenses 50,600

Requirements:

1) Pre pare an income statement for the current year ended August 31, 2015.

Reliance Travel
Income statement for the year ended 31 august 2015
Revenue RM
Fees earned 375,000
expenses RM
Miscellaneous expenses 3,150
Rent expenses 50,600
Supplies expenses 8,250
Taxes expenses 6,400
Utilities expenses 31,200
Wages expenses 145,000
Total 244,600

Profit =(Fess Earned Total Expenses)

= RM 375,000 RM 244,600

= RM 130,400
2) Prepare a statement of owners equity for the current year ended 31 August, 2015.

Statement of owners equity for the year enden 31 august 2015

RM
Capital 60,000
Add:profit for the year 130,400
Less: drowning (50,000)
Owner equity 140,400

Owner Equity = [(capital + profit) - Owner withdrew]

= [(RM60,000 - RM 130,400) RM 50,000]
= RM 140,400

2) Prepare a balance sheet as at August 31, 2015.

reliance travel services

balance sheet as at 31 august 2015
Asset RM
Accounts Receivable 48,750
Cash 99,000
Supplies 4,250
152,000
Liabilities RM
Accounts Payable 12,500
Owners equity RM
Capital 60,000
Add: profit for the year 130,400
Less: Drowning (50,000)

152,900

Balance sheet as at August 31, 2015 = Accounts Payable + Owner Equity

= RM 12,500 + RM 140,400
= RM 152,900

(30 marks)
Question 4

Describe and explain the main purpose of budgets? (10 marks)

Definition Budget :
An estimate of costs, revenues, and resources over a specified period, reflecting a reading
of future financial conditions and goals.One of the most important administrative tools, a
budget serves also as a Plan of action for achieving quantified objectives, Standard for
measuring performance, and Device for coping with foreseeable adverse situations.
Purpose of budgets :
1) Forecast of income and expenditure
Budgeting is a critically important part of the business planning process. Business owners
and managers need to be able to predict whether a business will make aprofit or not. The
purpose of budgeting is basically to provide a model of how the business might perform,
financially speaking, if certain strategies, events, plans are carried out.In constructing a
Business Plan, the manager attempts to forecast Income and Expenditure, and thereby
profitability.

2) Tool for decision making

Illustration of the purpose of budgeting as a tool for decision making The purpose of
budgeting is to provide a financial framework for the decision making process i.e. is the
proposed course action something we have planned for or not. In managing a business
responsibly, expenditure must be tightly controlled. When the budget for advertising has
been fully expended, the decision on "can we spend money on advertising" is likely to be
"no".

3) Monitoring business performance

Illustration of the purpose of budgeting as a method for monitoring business
performanceThe purpose of budgeting is to enable the actual business performance to be
measured against the forecast business performance i.e. is the business living up to our
expectations.In the figure opposite, "variance" is the difference between budgeted
expenditure and actual expenditure.
Question 5

State FIVE possible causes of an adverse labour variance. (10 marks)

Labor Rate Variance Overview

The labor rate variance measures the difference between the actual and expected cost of
labor. It is calculated as the difference between the actual labor rate paid and the standard rate,
multiplied by the number of actual hours worked. The formula is:

(Actual rate - Standard rate) x Actual hours worked = Labor rate variance
An unfavorable variance means that the cost of labor was more expensive than
anticipated, while a favorable variance indicates that the cost of labor was less expensive than
planned. This information can be used for planning purposes in the development of budgets for
future periods, as well as a feedback loop back to those employees responsible for the direct labor
component of a business. For example, the variance can be used to evaluate the performance of
the company's bargaining staff in setting hourly rates with the company union for the next
contract period.

There are a number of possible causes of a labor rate variance. For example:
- Incorrect standards.
The labor standard may not reflect recent changes in the rates paid to employees. For
example, the standard may not reflect the changes imposed by a new union contract.
- Pay premiums.
The actual amounts paid may include extra payments for shift differentials or overtime.
For example, a rush order may require the payment of overtime in order to meet an aggressive
delivery date.
- Staffing variances.
A labor standard may assume that a certain job classification will perform a designated
task, when in fact a different position with a different pay rate may be performing the work. For
example, the only person available to do the work may be very skilled, and therefore highly
compensated, even though the underlying standard assumes that a lower-level person (at a lower
pay rate) should be doing the work. Thus, this issue is caused by a scheduling problem.
- Component tradeoffs.
The engineering staff may have decided to alter the components of a product that requires
manual processing, thereby altering the amount of labor needed in the production process. For
example, a business may use a subassembly that is provided by a supplier, rather than using
inhouse
labor to assemble several components.
- Benefits changes.
If the cost of labor includes benefits, and the cost of benefits has changed, then this
impacts the variance. If a company brings in outside labor, such as temporary workers, this can
create a favorable labor rate variance because the company is presumably not paying their
benefits. (Labor Rate Variance | Direct Labor Rate Variance, 2016)

Questions 6

a) What are the criticism of Standard Costing? Explain. (5 marks)

Standard Costing
Standard costing is the practice of substituting an expected cost for an actual cost in the
accounting records, and then periodically recording variances showing the difference between the
expected and actual costs. This approach represents a simplified alternative to cost layering
systems, such as the FIFO and LIFO methods, where large amounts of historical cost information
must be maintained for items held in stock.
Standard costing involves the creation of estimated (i.e., standard) costs for some or all
activities within a company. The core reason for using standard costs is that there are a number of
applications where it is too time-consuming to collect actual costs, so standard costs are used as a
close approximation to actual costs.
Since standard costs are usually slightly different from actual costs, the cost accountant
periodically calculates variances that break out differences caused by such factors as labor rate
changes and the cost of materials. The cost accountant may also periodically change the standard
costs to bring them into closer alignment with actual costs.

Advantages of Standard Costing

Though most companies do not use standard costing in its original application of
calculating the cost of ending inventory, it is still useful for a number of other applications. In
most cases, users are probably not even aware that they are using standard costing, only that they
are using an approximation of actual costs. Here are some potential uses:

- Budgeting.
A budget is always composed of standard costs, since it would be impossible to include in
it the exact actual cost of an item on the day the budget is finalized. Also, since a key application
of the budget is to compare it to actual results in subsequent periods, the standards used within it
continue to appear in financial reports through the budget period.

- Inventory costing.
It is extremely easy to print a report showing the period-end inventory balances (if you are
using a perpetual inventory system), multiply it by the standard cost of each item, and instantly
generate an ending inventory valuation. The result does not exactly match the actual cost of
inventory, but it is close. However, it may be necessary to update standard costs frequently, if
actual costs are continually changing. It is easiest to update costs for the highest-dollar
components of inventory on a frequent basis, and leave lower-value items for occasional cost
reviews.

- Overhead application.
If it takes too long to aggregate actual costs into cost pools for allocation to inventory,
then you may use a standard overhead application rate instead, and adjust this rate every few
months to keep it close to actual costs.

- Price formulation.
If a company deals with custom products, then it uses standard costs to compile the
projected cost of a customers requirements, after which it adds on a margin. This may be quite a
complex system, where the sales department uses a database of component costs that change
depending upon the unit quantity that the customer wants to order. This system may also account
for changes in the companys production costs at different volume levels, since this may call for
the use of longer production runs that are less expensive.
Nearly all companies have budgets and many use standard cost calculations to derive
product prices, so it is apparent that standard costing will find some uses for the foreseeable
future. In particular, standard costing provides a benchmark against which management can
compare actual performance.

b) Explain the behavioural factors which should be considered when budgets are being used to
access management performances?
(5 marks)
This management function includes fiscal planning, accounting and revenue, and expense
controls. Budgeting requires specific planning, a thorough understanding of objectives and future
programmers, a sixth sense of economic conditions and realities, and a hunch for predicting the
unpredictable. In many cases, an organization specifies the budget system being used. It could be
based on:
- Historical data (what you had last year with variations for the coming year)
- 0-based data where the budget is created and justified on a line-item basis according to
programmers and priorities;
- An MBO system - management by objectives whereby specific objectives are funded; and
- A PERT system - programmer review and evaluation technique where each programmer is
reviewed and assessed according to its contribution to specific goals.

These are only a few of the budgeting systems in use. However, the key elements of any
budget system consist of
- Determining what line items are necessary in terms of objectives
- In line with policies, determining the financial amounts for each line
- Determining overhead, surplus, and/or profit margins
- Determining anticipated revenue from fees, grants, gifts, contracts, etc.
- Drafting a budget with specific amounts and justifications; and
- Discussing and making adjustments to produce a working budget.

The budget then becomes a guide which, however, may always be in a state of
change.The budget process is not in a vertical something that one does only once a year; it is a
continual process of regular review and possible revision. One should always be checking to see
how one is doing compared with how one anticipated doing. Budget management, then, consists
of three parts:
- Budget determination - allocating revenue according to priorities and by line items
- Budget accountability - how well the anticipated budget matches reality
- Using a +, 0 - notation in answering the questions and by placing the notations in the boxes
on the chart. In this way, one can get a picture of the predominant types of management modes
currently being used. While this may be useful in describing what is, it could be even more useful
in describing what could be. It is also useful in providing some clues as to possible areas of role
conflict - the scholarly research model would likely collide with the competent practitioner model

(Total: 10 marks)
INSTRUCTION: Answer ALL questions.

PART B:
TOTAL: 100 Marks (30 Marks)

Question 1

SEEYEWSOON opened his own shop named SYS BOOK STORE, selling all kinds of books.
On 1 January 2014 he brought in his own vehicle worth RM120,000 for the business use and cash
of RM80,000. The following transactions were completed in the very first month of operation:

January 1 Paid RM14,400 rental expenses for January until June 2014.
Purchased furniture and paid RM62,000 cash.
3 Purchased merchandise from JIBAM BOOK DISTRIBUTOR for RM18,800,
FOB shipping point, terms 5/15, n/30.
5 Paid freight on purchases from JIBAM BOOK DISTRIBUTOR for RM752.
7 Purchased merchandise from AZLEN BOOK DISTRIBUTOR for RM16,600.
FOB destination, terms 4/10, n/eom.
8 Cash sales RM12,800. The cost of the merchandise sold was RM4,480.
9 Returned defect books to AZLEN BOOK DISTRIBUTOR costing RM1,080.
10 Sold merchandise totalled RM18,600 to JOJIE JUNCTION. Terms 5/10, n/30.
The cost of the merchandise was RM6,510.
11 Paid JIBAM BOOK DISTRIBUTOR the full amount for purchases made on 3
January.
The owner took few books costing RM1,400 for his mother.
12 Obtained a loan from AKUKAYA BANK for RM60,000 cash payable in 4
years.
17 Sold merchandise costing RM5,040 to ANUSHA SQUARE for RM14,400.
Terms 5/10, n/30.
20 Paid AZLEN BOOK DISTRIBUTOR in full.
Received payment from JOJIE JUNCTION in full.
22 Sold merchandise to HENRY for RM14,800 and received cash. The cost of the
merchandise was RM5,180.
25 Purchased merchandise from JIBAM BOOK DISTRIBUTOR for RM13,400,
FOB shipping point, terms 3/10, n/30. Paid freight charges of RM660.
29 Paid RM840 to HENRY for merchandise returned that costs RM294.
30 Paid utility bills totalled RM1,480 and RM15,600 for salary to employees.
31 Purchased a one-year insurance policy starting from February 2014 for
RM10,080.

At the end of the month, the following adjustments need to be made:

Rental expenses for the month;
(i) Vehicle is to be depreciated at the rate of 6% per annum;
(ii) Furniture is to be depreciated at the rate of 12% per annum; and
(iii)A total of RM1,240 salaries remained payable at the end of the month.
YOU ARE REQUIRED TO:

1. Journalize all the transactions and the adjusting entries in the general journal.

Date Particulars Debit(RM) Credit(RM)

2014
Jan 01 DR Motor vehicle 120,000
DR Cash 80,000
CR Capital 200,000
DR Prepaid rental expenses 14,400
CR Cash 14,400
DR Furniture 60,000
CR Cash 62,000
Jan 05 DR Freight charges 725
CR JIBAM BOOK DISTRIBUTOR 725
Jan 11 DR Drawings 1,400
CR Purchases 1,400
Jan 12 DR Cash 60,000
CR Bank Loan AKUKAYA BANK 60,000
Jan 25 DR Freight charge 660
CR JIBAM BOOK DISTRIBUTOR 660
Jan 30 DR Utility bills 1,480
DR Salaries 15,600
CR Cash 17,080
DR Prepaid Insurance 10,080
CR Cash 10,080
DR rental expenses(14,400/6) 2,400
CR Cash 2,400
DR Depreciation-motor 600
vehicles[(6%x120,00)/12]

CR provision for depreciation-motor vehicles

600

DR Depreciation Furniture [(12%x62,000)/12 620

CR provision for depreciation furniture 620

DR Salaries 1,240

CR Accrued Salaries 1,240

 Sales Journal
Date Name of Credit Coustemer folio Invoice no Amount (RM)

Jan 10 JOJIE JUNCTION 18,600

17 ANUSHA SQUARE 14,400

31 Transferred to sales account

33,000

Purchases Journal
Date Name of Credit Coustemer folio Invoice no Amount (RM)

Jan 03 JIBAM BOOK 18,800

07 DISTRIBUTOR 16,600
25 AZLEN BOOK 13,400
31 DISTRIBUTOR
JIBAM BOOK
DISTRIBUTOR
Transferred to purchases 48,800
account

Return Outwards Journal

Date Name of Credit Coustemer folio Invoice no Amount (RM)

Jan 09 AZLEN BOOK 1,080

31 DISTRIBUTOR
Transferred to return 1,080
outwards account

2. Post all the entries from general journal to general ledger.

Capital

2014 RM 2014 RM
31/01 Balance c/d 200,000 01/01 Motor Vehicle 120,000
01/01 Cash 80,000
200,000 200,000
 Motor vehicle

2014 RM 2014 RM
01/01 Motor vehicle 120,000 31/01 Balance c/d 120,000
120,000 120,000

Cash

2014 RM 2014 RM
01,01 Capital 80,000 01,01 Prepaid Rentail
08/01 Sales 12,800 Expenses 12,000
12/01 loan AKUKAYA BANK 60,000 01/01 Furniture 62,000
20/01 JOJIE JUNCTION 17,670 11/01 JIBAM BOOK
22/01 SALES 14,800 DISTRIBUTOR 17,860
20/01 AZLEN BOOK
DISTRIBUTOR 15,520
29/01 Return Inwards 840
30/01 Utility Bills 1,480
30/01 Salaries 15,600
31/01 Prepaid Insurance 10,080
31/01 rental expenses 2,400
31/01 Balance c/d 47,490
185,270 185,270

Rental Expenses

2014 RM 2014 RM
31/01 Cash 2,400 31/01 Balance c/d 2,400
14,400 14,400

Prepaid Rental expenses

2014 RM 2014 RM
01/01 Cash 12,000 31/01 Balance c/d 12,000
14,400 14,400
 Furniture

2014 RM 2014 RM
01/01 Cash 62,000 31/01 Balance c/d 62,000
62,000 62,000

Freight charges

2014 RM 2014 RM
05/01 JIBAM BOOK 31/01 Balance c/d 1,412
DISTRIBUTOR 752
25/01 JIBAM BOOK
DISTRIBUTOR 660
1,412 1,412

Drawings

2014 RM 2014 RM
11/01 Purchases 1,400 31/01 Balance c/d 1,400
1,400 1,400

Sales

2014 RM 2014 RM
31/01 Balance c/d 60,600 08/01 Cash 12,800
10/01 JOJIE JUNCTION 18,000
17/01 ANUSHA SQUARE 14,400
22/01 Cash 14,800
60,600 60,600

Purchases

2014 RM 2014 RM
03/01 JIBAM BOOK Drawings 1,400
DISTRIBUTOR 18,800 Balance c/d 47,400
07/01 AZLEN BOOK
DISTRIBUTOR 16,600
25/01 JIBAM BOOK
DISTRIBUTOR 13,400
48,800 48,800
 Return Inwards

2014 RM 2014 RM
29/01 Cash 840 31/01 Balance c/d 840
840 840

Return Outwards

2014 RM 2014 RM
31/01 Balance c/d 1,080 09/01 AZLEN BOOK
DISTRIBUTOR 1,080
1,080 1,080

Discount received

2014 RM 2014 RM
31/01 Balance c/d 940 11/01 JIBAM BOOK
DISTRIBUTOR 940
940 940

Discount allowed

2014 RM 2014 RM
20/01 JOJIE JUNCTION 930 31/01 Balance c/d 930
930 930

Account payable AZLEN BOOK DISTRIBUTOR

2014 RM 2014 RM
09/01 Return Outwards 1,080 07/01 Purchases 16,600
20/01 Cash 15,520
16,600 16,600
 Account payable JIBAM BOOK DISTRIBUTOR

2014 RM 2014 RM
11/01 Cash 18,048 03/01 Purchases 18,800
11/01 Discount received 752 05/01 Freight charge
31/01 Balance c/d 14,812 Purchases 725
25/01 Purchases 13,400
25/02 Freight Charge
Purchases 660
33,612 33,612

Account payable JOJIE JUNCTION

2014 RM 2014 RM
31/01 Sales 18,600 20/01 Cash 17,670
20/01 Discount allowed 930
18,600 18,600

Account receivable ANUSA SQUARE

2014 RM 2014 RM
17/01 Sales 14,400 31/01 Balance c/d 14,400
14,400 14,400

Utility Bills

2014 RM 2014 RM
30/01 Cash 1,480 31/01 Balance c/d 1,480
1,480 1,480

Salaries

2014 RM 2014 RM
30/01 Cash 15,600 31/01 Balance c/d 16,840
31/01 Accrued salaries 1,240
16,840 16,840
 Accrued Salaries

2014 RM 2014 RM
31/01 Balance c/d 1,240 31/01 Accrued 1,240

1,240 1,240

Prepaid Insurance

2014 RM 2014 RM
31/01 Cash 10,080 31/01 Balance c/d 10,080
10,080 10,080

Loan AKUKAYA BANK

2014 RM 2014 RM
31/01 Balance c/d 60,000 12/01 Cash 60,000
60,000 60,000

Provision for depreciation Motor Vehicle

2014 RM 2014 RM
31/01 Balance c/d 600 31/01 Depreciation
Motor Vehicle 600
600 600

Provision for depreciation Furniture

2014 RM 2014 RM
31/01 Balance c/d 620 31/01 Depreciation
Furniture 620
620 620
 3. Prepare the Adjusted Trial Balance for the month.

Trial Balance

SYS BOOK STORE

Trial Balance as at 31 January 2014
Debit (RM) Credit (RM)
Capital 200,000
Motor Vehicle 120,000
Furniture 62,000
Cash 47,000
Retail expenses 2,400
Freight charge 1,412
Drawing 1,400
Sales 60,600
Purchases 47,400
Return Inwards 840
Return outward 1,080
Discount received 940
Discount allowed 930
Account receivable ANUSHA SQUAR 14,400
Account payable JIBAM BOOK DISTRIBUTOR 14,812
Utility bills 1,480
Salaries 16,840
Accrued salaries 1,240
Prepaid rental expenses 12,000
Prepaid insurance 10,080
Loan AKUKAYA BANK 60,000
Provision for depreciation Motor vehicle 600
Provision for depreciation furniture 620
Depreciation Motor vehicle 600
Depreciation Furniture 620

339,892 339,892
Prepare the Statement of Profit or Loss and Other Comprehensive Income for the month.

SYS BOOK STORE

Income Statement for the ended 31 January 2014
RM
Sale 60,000
Less: Return inward (840)
Discount allowed (930)
Net sales 58,830
Less : Cost of goods sold
Purchases 47,400
Add : Freight charge 1,412
Less : Return outwards (1,080)
Less : Discount received (940)
(46,792)
Gross Profit 12,038
Less : Expenses
Retail Expenses 2,400
Utility bills 1480
Salaries 16,840
Deprecation - Motor Vehicle 600
Depreciation Furniture 620
(21,940)
Net Loss -9,902

3. Prepare the Statement of Changes in Equity for the month.

Statement of equity for the month ended 31 January 2014

RM
Balance c/d 200,000
Less : lost for the year (9,902)
Less : Drawing (1,400)
Balance c/d 188,698
6. Prepare the Statement of Financial Position as at the end of the month.

SYS BOOK STORE

Statement of financial passion as at 31 January 2014
Asset RM RM
Non-Current Asset
Furniture at sect 62,000
Less : Provision for depreciation Furniture (620)
Net book value 61,380
Motor vehicle 120,000
Less: provision for depreciation-Motor vehicle (600)
119,400
180,780
Current Asset
Cash 47,490
Trade receivables 14,400
Prepaid insurance 10,080
Prepaid rental expenses 12,000
84,420
Total Assets 265,200
Owners equity 188,698
Long term liability
Loan AKUKAYA BANK 60,000
Current Liabilities
Accrued salaries
Account payable 1,240
15,600 16,840
Total Equity and Liabilities 265,538

7. Provide analyses for the month, on the followings:

1. Current Ratio
2. Acid Test Ratio
3. Total Assets Turnover
4. Profit Margin
5. Return on Assets
6. Return on Equity (60 marks)
 Financial ratio analysis for SYS BOOK STORE
Financial Ratio Result Explanation
Current ratio
Current ratio 84,420 = 5.01x Each RM of current liabilities
Current liabilities 16,840 has RM 5.01 of current assets

Acid test ratio

= Current asset prepayment 84,420 10,080 12,000 Each of current
Current Liabilities 16,840 liabilities has RM
3.70 of current
=3.7x assets (excluding
prepayments &
inventory

Total asset turnover

= Net sales 58,830 SYS BOOK STORE
Total Assets 265,200 generated sales of
=0.22x RM 0.22 for each RM
it had invested in
assets

Profit margin
= Net Profit -9,902 x 100% Each sale has result
Net sales 58,830 in decrease in profit
= -16.8% by 16.8%

Return on assets (ROA)

= Net Profit -9,902 x 100% assets has result in
Total Assets 265,200 decrease in profit by
= -3.7% 3.7%.

Return of Equity
= Net Profit = -9,920 x 100% Every RM1 of capital
Owners Equity 188,698 has result in
= 5.2% decrease in profit by
5.2%.
Question 2

What are the assumptions of Cost Volume Profit Analysis?

List and explain the assumption and explain briefly. (10 Marks)

Assumptions in Cost-Volume-Profit (CVP) Analysis

Certain underlying assumptions place definite limitations on the use of CVP analysis.
Therefore, it is essential that anyone preparing CVP information should be aware of the
underlying assumptions on which the information is to be derived. If these assumptions are not
recognized, serious errors may result and incorrect conclusions may be drawn from the analysis.
Some of the key assumptions underlying cost-volume-profit analysis are as follows:
1. All costs can be classified as fixed and variable
While developing and applying cost-profit-analysis including the break-even analysis, it is
assumed that all costs can be classified into fixed and variable costs. In fact, it is difficult to
identify each and every cost element as fixed and variable. In the traditional type of recording
costs, it is very difficult to segregate costs into fixed and variable. Moreover, the flexible policy
of the company also makes it more difficult to identify the cost as fixed and variable.
If anyone fails to identify the cost as fixed and variable, the application of cost-volume-profit
analysis becomes almost impossible.

2. Behavior or costs will be linear within the relevant range

Cost-volume-profit (CVP) analysis assumes that total fixed costs do not change in the short-run
within the relevant range. Total variable costs are exactly proportionate to sales volume. But in
reality, cost behavior may not remain constant.

3. Difficulty of steps fixed costs

Relevant range for many costs is very short. In that case it becomes very uncomfortable to
compute the required volume because it is difficult to say that which the relevant range for our
needed volume is.

4. Selling price remains constant for any volume

Indeed, most often quantity discount is offered for different lots of purchase. This causes
difficulty in determining the contribution margin per unit(CMPU) and contribution margin ratio.
5. There is no significant change in the size of inventory
Application of cost-volume-profit (CVP) analysis is possible only under following two situations:
* Either the company should follow variable costing for the inventor able product cost.
* Or all the production volume should be sold within the same period.

6. Cost-volume-profit (CVP) analysis applies only to a short-term time horizon

CVP analysis is a short term planning tool, because nothing remains stable in the long-run. In the
condition of changing variables, all equations of CVP analysis need readjustment of figures.
Resources: (Assumptions in Cost-Volume-Profit (CVP) Analysis, 2016

Question 3

Mr Najid own a florist shop. He wants to prepare a cash budget showing expected cash receipts
and payments for the month of February, and the cash balance expected as of February 28,
2015.The following data can be used to develop the cash budget.
a) Planned cash balance, January 2015:RM8,000
b) Accounts payable of RM9,200 as on January 31,2015.
c) Bank note due of RM5000 plus RM500 interest due February 15, 2015.
d) Accounts receivable of RM10,200 as on January 31,2015.
e) Sales for February: RM20,000, half collected in the month of sale, 30% in the next month,
and 20% in third month.
f) Goods purchased for February: RM12,000, 60% paid in the month of purchase and 40%
in the next month.
g) Accrued sales tax for February of RM1,000, payable in March.
h) Other expenses for February: payable in February:RM1,200.
i) One year insurance policy due February 2 for renewal: RM800to be paid in cash.
j) Payrolls due in February: RM1,200.
k) Depreciation for February: RM1,500

Required

Prepare the cash budget. (30 marks)

 MR NAJID
Cash budget for the month of February 2015
Debit (RM) Credit (RM)
Beginning of cash balance 8,000
Add : Cash receipts
Cash Sales 10,000

Less : Cash payments

Bank note plus interest 5,500
Cash purchased 7,200
Other expenses 1,200
Insurance 800
Payrolls 1,300
Depreciation 1,500
= 17.400 17,400
Ending Cash Balance 600

END OF QUESTIONS
References

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http://www.accountingtools.com/standard-costing

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