FAR 360 – Integrated Accounting Study/Dec – Apr 2011

Adizan Sdn Bhd

TABLE OF CONTENT

Content Pages

1 INTRODUCTION 2–3

2 THE BUDGET OF 2010 4-7

3 THE ACTUAL ACTIVITIES FOR THE YEAR ENDED 31 JANUARY 2010 7 - 11

4 ADDITIONAL ACTIVITIES CARRIED OUT DURING THE YEAR ENDED 11 – 12

31 JANUARY 2010

5 OTHER ADDITIONAL INFORMATION FOR FEBRUARY 2010 12 – 14

6 AUDITING 15 – 20

7 TAXATION 20 – 21

REQUIREMENTS 22 - 26

INTRODUCTION

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FAR 360 – Integrated Accounting Study/Dec – Apr 2011
Adizan Sdn Bhd

Adizan Sdn. Bhd (Adizan) is a small and medium sized company (SME) which is newly
established on 1st February 2009 based in Gemas, Negeri Sembilan. The company is
specialized in processing and retailing chicken nuggets which is known as Gemas Nugget for
local market. Encik Adi Putra bin Hafizuddin, the owner and Managing Director of Adizan
started out in selling Nasi Ayam Gemas operated in a small stall at Alor Gajah, Melaka. He has
always been innovative and creative with ideas since he was a young boy. Using his unique
ingredients, Encik Adi wishes to venture into a fast-food business by introducing Gemas Nugget
as a main product. To realize his dream, Encik Adi together with his wife Pn Amirah invest a
capital of RM100,000 which consist of RM90,000 in the company’s bank account and RM10,000
cash.

Prior to start up the business, he had made a market study and the studies shows an
encouraging result on the company’s proposed products. As a result he has succeeded in
securing a contract with Felda Trading to supply the first product, Gemas Nugget to Felda’s
outlets commencing from the first batch of production. Since he is very concern to ensure that
the contract is successful, he has detailed out and documented the process of making the
Gemas Nugget to standardize the procedure and make sure the production meets the required
quality.

Gemas Nugget Process

The nuggest are breaded with a savory blend of eggs, rice, seasoning and corn flour. The
breading on the Gemas Nugget is set with refined vegetables oil. There are several processes
involves in making chicken nuggets:-

• Cleaning & cutting. The raw materials i.e. chickens are wash and cut into cubes, stripes
and larger pieces.

• Mixing. All ingredients are mixed in the mixer and set aside.

• Cooking. Place the chicken nuggets onto the baking sheet, spacing as needed and
keep them in an even layer. Then put them into the oven about 40-45 minutes total.

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Adizan Sdn Bhd

• Cooling. The ready chicken nuggets are cooled down to room temperature.

• Packaging. The ready-made nuggets are packed and labeled.

The process involves are summarize in the flow chart below: -

To ensure everything is in place, Encik Adi had listed out his working plans. One of it is to
penetrate the market of Gemas Nugget to retail outlets in Melaka within one year of operation.
Encik Adi also aims to market its product to canteen operator in Negeri Sembilan, Melaka and
Johor as well as to expand the market to retail outlets in Negeri Sembilan within subsequent
year. Within five years from operation, he expects that the company’s product can be purchased
from Mydin stores.

In order to embark in a broader market, Encik Adi is working very hard to get Halal certification
for the company’s product. He also plans to introduce the company’s next products: Gemas
Chicken Pop and Gemas Wedges during next year. But before he can continue with his future
plans, the following is to be prioritized.

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Adizan Sdn Bhd

THE BUDGET OF 2010

Since Adizan is considerably a new established company, En. Adi is seriously concern with the
performance of the company. Therefore, the actual performance should not be having too high
variances from the budgeted figures especially in term of sales and production cost. Encik Adi
pays more attention to these two areas since these are considered as the most important
factors in determining the bottom line as well as the sustainability of the company. Therefore,
the cost of production should be kept at a minimum and these should lead to product being
prizes reasonably.

En. Adi had prepared an annual budget by using estimated figures before he commences the
business. The budgets are prepared quarterly and begin its annual budgeting process on 30th
April 2009, 31st July 2009, 30th October 2009 and 31st January 2010. The sales budget is
prepared by multiplying the expected unit sales volume for each product by its anticipated unit
selling price. Adizan expects sales volume to be 3,000 bags in the first quarter, with 500 bags
increases in each succeeding quarter. Each bag is pack for 1 kg. The sales budget for the year
is based on the selling price of RM13 per bag. Adizan believes it can meet the future sales
requirement by maintaining an ending inventories equal to 20% of the next quarter’s budgeted
sales volume.

Because of its proximity to suppliers, Adizan maintains an ending inventory of raw material
equal to 10% of the next quarter’s production requirements. The manufacture of Gemas
Nuggets requires 1 kg of chicken and the expected cost per kg is RM5.00. Assume that for the
second year of operation (first quarter ending 30th April 2010) the budgeted sales are 5,000
bags.

In term of labour, Adizan is planning to hire two direct labours, a clerk, a supervisor, and a
salesman who also act as a driver for the company. In order to produce 10 bags of Gemas
Nugget, it requires 3.5 direct labour hours. The anticipated hourly wage is RM2.50. The
company paid their labours based on unit (bag) produced.

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Adizan Sdn Bhd

For the purpose of packaging Gemas Nugget, plastics, labels and boxes are expected to
purchase from Syarikat Plastik Maju Sdn Bhd. The cost of these expenses is RM0.27 per bag.
Purchasing is made on monthly basis based on the estimated production unit (bag).

The company use traditional costing method based on direct labour hours to calculate
manufacturing overhead. In order to produce one bag of Gemas Nugget the same number of
direct labour hour is applied.

Adizan expects variable costs for manufacturing overhead to fluctuate with the production
volume on the basis of the following rates per direct labour hour:

1) Indirect materials RM0.20

2) Utilities RM0.20
3) Maintenance RM0.10

For other expenses, Adizan projects to incur the following:

1) Rental of RM1,000 per month. 2 months of deposit is required. 30% of the space is for
office.
2) Supervisor salary of RM700 per month.
3) Salesman salary of RM800 per month.
4) Office salary of RM2,500 per month.
5) Insurance of RM1,555 per year. 80% of it is for factory.
6) Maintenance of motor vehicle is RM1,800 per year.
7) Selling commissions of RM0.60 per bag.
8) Freight outwards of RM0.10 per bag.
9) Advertising of RM4,000 per year.
10) Office utilities of RM100 per month.
11) Halal certification cost of RM3,000 incur during the third quarter.
12) Fees for designing the product brand Gemas Nuggets of RM700 incur during the first
quarter.

Adizan use straight-line method to calculate depreciation for all assets on monthly basis. The
following rate is applied:

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Adizan Sdn Bhd

Assets Rate per annum (%)

Machinery 10
Motor vehicles 15
Office equipment 5
Computers and printers 20

To ensure smooth flow of cash, Adizan prepares quarterly cash budget based on the following
assumptions:

1) Adizan wishes to maintain a cash budget balance of at least RM10,000 for each quarter.

2) For budgetary control purpose, Adizan wish to maintain that 70% of sales are collected
in the quarter sold and 30% are collected in the following quarter.

3) On the other hand, 60% of direct materials are paid in the quarter purchase and 40% are
paid in the following quarter.

4) 100% of direct labour expenses, direct expenses, manufacturing overhead, selling and
administrative expenses are paid in the quarter incurred except for depreciation.

5) For capital investment, Adizan plans to purchase the followings:

i) 2 units of machinery during the first month of operation: mixing machine at a

cost of RM65,000 and oven at a cost of RM20,000. Oven will be acquired
through cash purchase while mixing machine through hire purchase of
RM60,000. The forecasted interest rate is at 5% per annum for 4 years. The
repayment period begins in the forth month of operation.

ii) 1 unit of delivery van costing RM20,000 acquires through cash purchase. Adizan
expects to purchase during the fourth month of operation.

iii) Office equipment comprises of furniture costing RM8,000 and air conditioner
costing RM4,000. The company also acquires computer costing RM5,000. These
assets are acquired through cash purchase. The assets will be purchased in the
first month of operation.

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Adizan Sdn Bhd

THE ACTUAL ACTIVITIES FOR THE YEAR ENDED 31 JANUARY 2010

During the year, there is no change in the actual amount of sales. The costs are remaining
constant unless otherwise stated.

The production days in the year were 240 days. As at 31st January 2010, the closing inventories
for finished goods are 1,000 bags.

All payments and receipts are made through bank unless otherwise stated.

Raw Materials

Adizan purchased chickens from two major suppliers, namely Perniagaan Ayamnas and KHC
Enterprise. The suppliers send this chicken directly to the plant. To ensure the freshness of the
chicken purchasing are made on daily basis. All the payment for the purchased is made on 30
days term. The average price for chicken per kg is RM6.50 but since Adizan made a purchased
in bulk, the company get a trade discount at RM1.50 per kg. One bag of Gemas Nugget
required 1kg of chicken.

The main ingredients in the production of nugget are chicken. In addition, eggs, breadcrumbs,
corn flour, seasoning and vegetables oil are also required but considered as indirect material
due to its relatively small quantity of usage.

Direct Expenses

For the packaging, Adizan purchased the plastic bags from Syarikat Plastik Maju Sdn. Bhd. The
same company also acts as the supplier of the labels and boxes for Gemas Nugget. The
company charges Adizan RM0.25 per bag. Purchasing is done every month based on exact
production units.

Expenses

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Adizan Sdn Bhd

The manufacturing overhead consist of fixed and variable cost. Adizan Sdn. Bhd. expects
variable cost to fluctuate with production volume. All the variable cost which consist of indirect
material, utilities and maintenance are to be absorb to production overhead on the basis of
direct labour hours. The following is the rate per hour per each:-

1) Indirect material RM0.20

2) Utilities RM0.20
3) Maintenance RM0.05

Other variable expenses consist of sales commission and freight outward at RM0.50 and
RM0.10 per bag respectively. Variable expenses are based on unit sales per quarter.

In addition, the company also incurred the following expenses:

1) Rental of RM1,000 per month. 70% of the space is for factory. The company paid two
months rental as a deposit.
2) Insurance of RM1,300 per year. 80% relates to factory.
3) Advertising expenses of RM1,000 per year
4) Office utilities of RM150 per month.
5) Maintenance of motor vehicle of RM1,200 per year.
6) Halal certification cost of RM1,000 incurred in the fifth month of operation.
7) Fees for designing product brand Gemas Nuggets incurred in the first month of
operation amounted RM500.
8) Training costing RM500, incurred during the month of January 2010.
9) Donation to UiTM Johor for Destini Anak Bangsa programme amounted RM200.
10) Preliminary expenses of RM1,385.

Labour

A supervisor was hired in the year 2009 to supervise production activity and he earned RM700
per month. Other than that, Adizan also paid office salaries that consist of Managing Director’s
salary at RM1,800 per month and a clerk at RM500 per month whereas salesman cum driver is
paid at RM800 per month.

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En. Adi also hired two direct labours for production department. The anticipated hourly wage is
RM2.50. The company paid their labours based on unit (bag) produced.

Activity-Based Costing

Encik Adi recently directed his clerk to implement the activity-based costing system to be
absorbed into the production cost. The following table shows three main activities, their cost
driver and the proportion of the cost for the year ended 31st January 2010.

Activities Activity cost driver Expected use cost Percentage of

driver Overhead cost (%)
Purchasing Number of order 3,000 30
Machine set-up Number of set-up 5,000 40
Quality control Number of quality 2,500 30
inspections
TOTAL 100

Property, Plant and Equipment

All property, plant and equipment are acquired through cash purchase unless otherwise stated.
Payment is made by issuing a cheque to the respective suppliers. The company depreciates the
assets using straight line method and depreciated on monthly basis. The following rates apply:

Type of Asset Rate per annum

(%)
Office equipment 5
Computers and printers 20
Machinery 10
Motor vehicle 15

A. Office Equipment

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Adizan Sdn Bhd

Office equipment consists of RM8,000 fixtures and fittings, RM5,000 computers and printers
and RM4,000 air-conditioners.

B. Machineries

Adizan Sdn. Bhd. purchases two types of machineries, namely mixing machine and oven at
RM60,000 and RM20,000 respectively. All these machineries were acquired on 1st February
2009. A down payment of RM5,000 is paid for the acquisition of mixing machine and the
balance was financed through hire purchase. The interest rate is at 4% per annum for
repayment period of 4 years. The company started the repayment period after three months of
rest period with effect from the agreement date. No interest is charged during the rest period.
The company uses straight line method to record the hire purchase interest allocation.

C. Delivery Van

Management purchases a delivery van to deliver goods to customers in the second quarter for
RM20,000.

Share Capital

The company has authorized ordinary share capital of 1,000,000 shares with par value of
RM1.00 each.

Issued Capital

On 1st February 2009, Adizan had issued and fully paid capital of 100,000 ordinary shares at par
value. The proceeds from the issuance of these shares were used to purchase assets and as a
working capital of the company.

ADDITIONAL ACTIVITIES CARRIED OUT DURING THE YEAR ENDED

31 JANUARY 2010

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Adizan Sdn Bhd

In order to ensure the company has sufficient cash flow, Adizan obtained an overdraft facility
from CIMB amounted RM100,000 since 1 Jun 2009. A bank charge of 10% per annum is
calculated if the company utilise the said facility.

Adizan is considering investing in new processing machine amounted to RM250,000 to produce

Gemas Chicken Pop and Gemas Wedges. Consistent with current practices, it is estimated that
the machinery will be depreciated using straight line method over its useful life of 10 years with
RM10,000 salvage value.

The new machinery is expected to increase the company’s sales by RM100,000 per year. The
use of the machine will also require the company to increase the investment in the raw
marerials by RM40,000 per annum, increase direct operating expenses by RM10,000 per year
and maintenance cost s of RM3,000 per annum. The machine is expected to be purchased in
Jun 2010. However, the down payment of 5% is paid in January 2010.

Adizan has made decision to finance the acquisition of the machinery by the following ways:

1) Common stock – issuance of new common stock of RM57,500 with a floatation cost of
10% based on market price and expected dividend of RM0.05 per share. Market price is
at RM1.00 per share and expected growth rate of 5%.

2) Hire purchase debt with the pre-tax cost of capital at 8%. The marginal tax rate is 25%.
The tenor for repayment is for 5 years.

OTHER ADDITIONAL INFORMATION

Other than producing and selling Gemas Nuggets, En. Adi concerned about customer demand
on chicken sausage at Felda Mendapat, Melaka. However, due to the resource constraint in his
factory, En. Adi could not produce his own sausage and he decided to become a part-time
retailer to purchase and sold Ramly sausage starting from February 2010 to cater his

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Adizan Sdn Bhd

customers’ demand. He purchased chicken sausage from Ramly Enterprise at a cost RM 3.00
per packet and sold it at RM6.00 per packet.

At the same time, En Adi also wants to record the related transaction using MYOB after
attending short course training at Kuala Lumpur. For beginning he will record the following
transaction incurred in the month of February 2010.

2010 Transaction
Feb 1 Opening balance (refer to your unaudited financial statement for the year ended 31
January 2010) except for expenses , sales and purchases accounts for Gemas
Nuggets (Manufacturing Account)

2 Purchased another motor van from Mutiara Motors costing RM23,700. A deposit of
RM4,000 was paid by cheque (Cheque No. 10001) and the balances were paid
through installment basis, starting next month at the rate of 5% per annum for 5
years period.

3 Purchase 2,000 packets of sausage (RS01) for RM3.00 per packet from Ramly
Enterprise on 30 days credit term:-

A purchase order (PO 301) was raised to purchase the above items. All the order
was received at the same day with the supplier bill. Generate this purchase order.

4 Issued a debit note to Ramly Enterprise for goods returned amounting RM60
(CN0001). Generate this debit note.

6 Issued an invoice to Ayam Penyek Trading for sales of Ramly sausage on 30 days
credit term of 500 packets of sausage (RS01) for RM6.00 per packet.

An invoice (00000001) was raised to record the above transaction. Generate this
invoice.

6 Issued credit note to Ayam Penyek Trading for goods returned amounting to RM60
(CN101).Generate this credit note.

7 The owner took RM800 cash from the business’ bank account for personal use

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Adizan Sdn Bhd

(Cheque No. 10002)

10 Received invoices from Ramly Enterprise on 30 days credit term for purchase of
2,000 packet of sausage at RM3.00 per packet.

A purchase order (PO 302) was raised to purchase the above items. All the order
was received at the same day with the supplier bill. Generate this purchase order.

17 Received invoices from Ramly Enterprise on 30 days credit term for purchase of
100 packet of sausage at RM3.00 per packet.

A purchase order (PO 303) was raised to purchase the above items. All the order
was received at the same day with the supplier bill. Generate this purchase order.

19 Paid loan to Bank SME amounted to RM1,375 for mixing machine (Cheque No.
10003) inclusive of interest.

20 Issued an invoice to Agribazaar for sales of Ramly sausage on 30 days credit term.
 100 packets of sausage (RS01) for RM6.00 per packet.

An invoice (00000003) was raised to record the above transaction. Generate this
invoice.

21 Paid factory rental for February 2010 amounted to RM1,000 by cheque. (Cheque
No. 10004)

21 Payment for February’s utilities bills amounting to RM102 by cash. (Cheque No.
10005)

25 Received cash for sales of 300 packets of Ramly sausage (RS01) at RM6.00 per
packet.

26 The total salary for February is RM3,800. (This payment for supervisor, managing
director, clerk and salesman cum driver). A cheque No. 10006 was drawn.

27 The owner paid for fixed maintenance to factory costing RM100 (Cheque No.

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Adizan Sdn Bhd

10007.

28 Received cash for sales of Ramly sausage amounting to RM1,770.

 295 packets of sausage (RS01) at RM6.00 per packet.

AUDITING

To ensure better quality in auditing on the company’s financial statements, Adizan has
appointed Haris & Co. as new auditor and Zahir Corporate Services Sdn Bhd as the tax agent.
Addresses of Haris & Co. and Zahir Corporate Services Sdn Bhd are as follows:-

I. Haris & Co., No. 44-1, Jalan DS 2U, Desa Pandan, 55100 Kuala Lumpur.
Telephone: 03 9442 5556 and Fax: 03 9442 5558.

II. Zahir Corporate Services Sdn Bhd, No. 43-2, Suite 2, Jalan 1/1D, Desa Pandan,
55100 Kuala Lumpur. Telephone: 03 9341 8755 / 56 and Fax: 03 9341 8758.

After the appointment process has been completed, an audit team from Haris & Co. started the
final audit of the company for the year ended 31 January 2010, commencing on 15 May 2010.
The audit team comprises an engagement partner, a manager, a supervisor and three auditors.
An entrance meeting was held on 15 May 2010, during which the audit team was briefed by Adi
Putra about various issues such as the performance of the company in the previous year and
discussion on events and issues currently happening in the market and industry that have
directly or indirectly affected the company. In addition, Adi Putra also informed the audit team
about the future plans of the company. In return, the audit team informed Adi Putra and the rest
of her management team of the proposed audit plan and timing.

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Adizan Sdn Bhd

The audit team then was given a full set of financial statements of the company for the year
ended 31 January 2010 by Adi Putra together with related documents that are deemed
necessary for audit purposes. The audit team had performed the field work within two weeks
and it was very time-pressured. This was evidenced by the fact that the team had to work until
mid-night towards the end of the audit. Nonetheless, Adizan’s staffs had been very supportive
and accommodative throughout the whole audit process to the extent of bringing in evening
meals for the audit team. They did this with the intention that the audit team could work with
minimum disruptions and able to complete the job within the stipulated time frame.

Test on Control

While performing the test on controls to assess the effectiveness the company’s internal control
system, the audit team found that the company did not properly implement the cash collection
procedures.

The following is a brief description of the procedures implemented by the company:

Adizan’s cash collection method comes in two (2) ways that are in the form of cash sales and
cheques received through post from credit customers. Adizan has two sets of invoice which are
used for cash sales and credit sales respectively. When payment is received for cash sales by
clerk, a copy of invoice is stamped as paid and filed alphabetically by her. The original copy of
the invoice is given to the customer. With regards to credit sales, the invoice is sent to
customers and when payment is received the copy of invoice is stamped as paid and filed
alphabetically with the cash sales invoices. Mail is opened by the clerk and she passes any
remittances to En Adi for his review, without recording the amount received. Next, En. Adi gives
the remittances to the clerk by putting them in a tray in the clerk’s desk. The clerk then makes a
listing to the remittances which are used by En. Adi for posting it to the sales ledger.

The cheques from credit customers and cash sales receipts are banked-in daily by the
salesman. En Adi posts remittance to the sales ledger by using Excel system and verifies the
cash discount allowable.

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Other than those issues, the audit team considered the implementation of internal controls
within the company is satisfactory and assessed as moderate level of control risk.

Substantive Testing

Since the audit team considered the control risk is moderate, the audit team decided to focus
more on analytical review in order to gather audit evidence. During the performance of
substantive testing on account balances and on class of transactions, the audit team discovered
the following unrecorded transactions and decided to propose further adjustments to the
management:-
a. After searching for unrecorded liabilities, a purchase invoice dated 20 December 2009
amounted to RM500 owing to KHC Enterprise was not accounted for.

b. Credit sales on 30 March 2010 to Kira Trading amounted to RM2,000 was not included in
the financial statements. This is the amount of sales for Gemas Nuggets.

c. Allowances for doubtful debt are to be recorded at RM440.

d. On 1st October 2009, Adizan had issued another 50,000 ordinary shares at par which have
been fully subscribed and paid by Fariz Redzuan bin Ahmadi, a new shareholder. This
transaction was not recorded yet.

e. Audit fees and tax fees for the year ended 31 January 2010 amounted to RM3,000 and
RM2,000 respectively were unrecorded.

f. Upon completing the audit assignment, the audit team has submitted the audit files to the
tax department for computing the actual tax expenses of Adizan for the year of assessment
2010. Having those figures ready, the audit team will make the necessary adjustments to
final accounts.

Completing the Audit

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After scrutinising the minutes of meeting of the company, the audit team found the board of
directors has approved declaration of dividend at 1 sen per share on 30 th May 2010. The
dividend was paid on 30th July 2010.

Through checking the legal files, the audit team also discovered that there is one legal suit
taken against Adizan for breaching of supplying contract with a major customer. The amount of
damages claimed by the plaintiff is RM20,000. The outcome of the case has yet to be decided
by the court.

Finalising the Audit

On 30 May 2010, the audit field work was completed and a draft copy for discussion of the
audited financial statements of the company was produced. The audit team and En Adi had the
exit meeting on the same day. During the meeting, the audit team informed the management
team about their findings and proposed adjustments that require the company to account for. En
Adi agreed with the findings and promised to overcome the weaknesses in the internal control in
the future. He also agreed to incorporate the adjusting journal entries in the general ledgers.

On 20 June 2010, the financial statements were approved during the board of directors’ meeting
after the entire current year audit issues were satisfactory resolved. The following is the
extracted minutes of meeting:

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ADIZAN SDN. BHD.

Company No: 439710-W
(Incorporated in Malaysia)

DIRECTORS’ RESOLUTION IN WRITING IN ACCORDANCE WITH THE ARTICLES OF ASSOCIATION OF THE COMPANY

We, being all the directors of the Company for the time being, hereby resolve the followings:

1. APPROVAL OF DIRECTORS' REPORT AND ACCOUNTS

THAT the Audited Accounts for the year ended 31 January 2010 and the Directors' Report and Statement by Directors thereon
(hereinafter collectively referred to as "Financial Statements") 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. ADI PUTRA BIN HAFIZUDDIN
ii. AMIRAH BINTI AHMAD ZAHID

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 ADI PUTRA HAFIZUDDIN be and is hereby authorized to make the Statutory Declaration in respect of the abovesaid Accounts
pursuant to Section 169(16) of the Companies Act, 1965.

BOARD OF DIRECTORS

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Adizan Sdn Bhd

ADI PUTRA BIN HAFIZUDDIN AMIRAH BINTI AHMAD ZAHID

Negeri Sembilan
Date: 20 June 2010

Haris & Co. signed the auditors’ report on the financial statements on the same day and
expressed unqualified opinion after they obtained reasonable assurance that the financial
statements are free from material misstatements. On 15 July 2010, the financial statements
were tabled to the shareholders of the company during the company’s annual general meeting.

TAXATION

Adizan Sdn Bhd has appointed Zahir Corporate Services Sdn Bhd as a tax agent. Zahir
Corporate Services has been involved extensively in providing tax consulations with various
companies including public listed companies. The tax agent is headed by En Zahir Amirul, and
assisted by his tax executive.

Before commencing the current year tax assignment for Adizan, En Zahir arranged a meeting
with En Adi to discuss on terms and conditions pertaining to the assignment. During the
meeting, En Zahir had briefly explained to En Adi on the responsibility of En Adi as a chargeable
person for the company in fulfilling the requirement under Income Tax Act (ITA) 1967. En Zahir
highlighted to En Adi that prior to the actual tax computation procedures could be made, Adizan
should prepare the estimation of tax payable (Form CP204) for every year of assessment and
this estimates should be submitted to the Inland Revenue Board (IRB) 30 days before the
beginning of the basis period. However, if the company is a SME company and first commences
business operation in YA 2009, then the company is not required to submit Form CP204 and
pay monthly tax installment for YA 2009 and YA 2010. If the company has no basis period for
YA 2009, then the company can still enjoy the exemption for not submitting the Form CP204
and pay monthly tax installment for the first two consecutive basis periods.

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In addition, En Zahir also discussed the procedures to be carried out during the assignment
which will be conducted within 2 weeks after receiving the audited financial statements. Once
the team has received the audited financial statements, they will perform the computation of
actual tax expenses for the year of assessment. This information will then be filled in Form C
and the completed form will be submitted to the IRB. Under normal circumstances, the deadline
for the submission of Form C would be within 7 months after the financial year end. In the case
of Adizan, the deadline would be on or before 31 August. Under the self-assessment system,
the company needs only to submit Form C which comprises the tax computations.

The tax team started their assignment for Adizan on 22 June 2010. The team found that the
whole amount spent for training is an approved training. In addition the company also made a
donation amounted to RM200 and En Adi wished to classify it as a donation under S44.

Being satisfied with the provided information on taxation matters, the tax agent proceeded with
the final computation of the tax expense. Prior to the submission of Form C, En Adi has inquired
the tax team regarding the eligibility to claim reinvestment allowance for the purchase of
machineries during the year. En Zahir explained the conditions for claiming reinvestment
allowance and advise En Adi to do tax planning in order for Adizan to enjoy the benefits of
reinvestment allowance.

Zahir Corporate Services Sdn Bhd signed the Form C on 30 June 2010 and the form was later
declared as being true by En Adi on 15 July 2010.

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FAR 360 – Integrated Accounting Study/Dec – Apr 2011
Adizan Sdn Bhd

ANSWER THE FOLLOWING REQUIREMENTS

In respect of the year 2010, execute the following instructions:

A. MANAGEMENT ACCOUNTING

Prepare the following budget on quarterly basis for the year ended 31st January 2010.

a. Sales budget (in unit and RM)

b. Production budget (in unit and RM)
c. Direct material budget (in unit and RM)
d. Direct labour budget (in hour and RM)
e. Manufacturing overhead budget (in RM). Please show manufacturing overhead per
direct labour hour.
f. Selling and administrative budget.
g. Calculate the unit production cost based on traditional method.
h. If the company applies Activity Based Costing, show your calculation of the unit
production cost.

B. FINANCIAL ACCOUNTING AND ACCOUNTING INFORMATION SYSTEM

1. Prepare the following budgeted statement (quarterly basis) for the year ended 31 st
January 2010:-

a. Income Statement
b. Balance Sheet
c. Cash Budget

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FAR 360 – Integrated Accounting Study/Dec – Apr 2011
Adizan Sdn Bhd

(Assume the company is using traditional method to compute the unit production cost)

2. Prepare financial statement for the year ended 31 January 2010. It is expected that the
financial statements includes the following:-

a. Manufacturing Account.
b. Income Statement
c. Statement of Cash Flow (Direct method)
d. Balance Sheet
e. Statement of Changes in Equity
(Assume the company is using traditional method to compute the unit production cost)

3. Based on the above information given for purchase and selling activities for Ramly
Sausage, you are required to:

a. Set up the company data file according to the facts given in Appendix 1 and 2.
b. Setup the account list as in Appendix 2. You must set the Header and Detail
Accounts accordingly.
c. Record the related transaction for the month of February 2010 using MYOB
according to the dates and details given.
d. Generate the following document:
i. A Purchase Order number: PO 301, PO 302 and PO 303
ii. A Debit Note number: CN 001
iii. A Credit Note number: CN101
iv. An Invoice number: 00000001 and 00000003
v.General Journal
vi. Cash Disbursement & Cash Receipt Journal.
vii. Trial Balance as at 28th February 2010.

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FAR 360 – Integrated Accounting Study/Dec – Apr 2011
Adizan Sdn Bhd

C. FINANCIAL MANAGEMENT

1. Based on the financial year ended 31 January 2010 unaudited figures, compute the
following key financial ratios:
a. Liquidity ratios
i. Current ratio
ii. Quick ratio
b. Efficiency ratios
i. Inventory turnover
ii. Average collection period (days)
iii. Fixed assets turnover
iv. Total assets turnover
c. Leverage ratios
i. Debt ratio
ii. Times interest earned
d. Profitability ratios
i. Gross profit margin
ii. Net profit margin
iii. Return on equity
iv. Return on asset

Comment on the financial performance of Adizan Sdn Bhd. 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 processing
machine, calculate the followings:
a. Initial outlay
b. Annual differential cash flows
c. Terminal cash flows
d. WACC
e. Payback period
f. Net present value

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FAR 360 – Integrated Accounting Study/Dec – Apr 2011
Adizan Sdn Bhd

g. Internal rate of return

3. As the bank officer, would you approve Adizan’s application for a loan on hire purchase?
Give reasons for your answer.

4. Explain why capital budgeting relies on an analysis of cash flows rather than accounting
profit?

D. AUDITING

1. Identify the weaknesses in the present system of cash collection procedures and
describe the potential irregularities, which could occur due to the weaknesses
mentioned.

2. Suggest any improvements in the system of internal control, which could prevent any
potential irregularities.

3. Describe the essential content of an engagement letter. Prepare an engagement letter

for the appointment of Haris & Co.

4. The audit findings are to be considered as material and to be incorporated in the audited
financial statements as Client Adjusting Journal Entries (CAJE). Discuss on the
importance of preparing the audit working paper. Prepare a working balance sheet and
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 Adizan Sdn Bhd to Haris & Co at the end of the 2010 audit
engagement.

6. Prepare the Audited Financial Statements of Adizan Sdn Bhd for the year ended 31
January 2010 in accordance with the applicable approved accounting standards in
Malaysia and the Companies Act, 1965 together with Directors’ Report, Statement by
Directors, Statutory Declaration and Audit Report.

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FAR 360 – Integrated Accounting Study/Dec – Apr 2011
Adizan Sdn Bhd

E. TAXATION

1. Briefly discuss the meaning of chargeable person in reference to Adizan Sdn Bhd.

2. Explain the responsibility of Adizan Sdn Bhd with regards to the submission of Form
CP204 and CP204A for YA 2010, YA 2011 and YA 2012.

3. Compute the actual tax payable for year of assessment 2010.

4. Complete the Form C for year of assessment 2010.

5. If the company remits the amount of tax payable for YA 2010 15 days after the due date
of the payment, explain the consequence to the company (Show your computation).

6. A Malaysian tax resident company can enjoy incentives available under Income Tax Act
(ITA) 1967 or Promotion of Investment Act (PIA) 1986. Advise Adizan Sdn Bhd on the
condition that must be satisfied first prior to claiming Reinvestment Allowance under ITA
1967.

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