A.

MANAGEMENT ACCOUNTING

QUESTION 1 Budget is detailed plans that coordinate various activities within a company. It is a financial or quantities statement, prepared or approval prior to a defined period of time, for the policy to be pursued during the period in order to achieve a given objective.

5 keys purposes of budgeting system. i) ii) To ensure the managers plan for future operations. Allow managers to coordinate the activities of the firm, thus identify and resolve conflict. iii) Communicate and deliver the plan to other responsibility centre managers in increasing the company efficiency. iv) Budget act as a motivation which encourage efficiency that lead to achieve firms goal. v) vi) Controlling of activities in the firm by comparing the budget and actual. Performance evaluation can be done by measuring the success in meeting the budgets.

QUESTION 2 Budget activities on quarterly basis for the year ended 31st December 2011 Wardah Apparel Sdn Bhd Manufacturing Account For The Year Ended 31 December 2011 a) Sales Budget Q1 Sales (unit) x Selling Price per unit (RM) Total Sales Value 27,000 35 945,000 Q2 9,000 35 315,000 Q3 18,000 35 630,000 Q4 36,000 35 1,260,000

b) Production Budget Q1 Sales (unit) Add: closing stock 27,000 500 27,500 Less: opening stock Unit to be Produced 0 27,500 Q2 9,000 900 9,900 (500) 9,400 Q3 18,000 3,600 21,600 (900) 20,700 Q4 36,000 2,250 38,250 (3,600) 34,650

c) Direct Material Usage Budget Q1 Quantity to be Produced x Fabric per unit (RM) Total Material Usage Add: closing stock 27,500 1.5 41,250 895 42,145 Less: opening stock Total Material to be Purchase x Cost per Unit Cost Material to be Purchase 0 42,145 2.50 105,362.50 Q2 9,400 1.5 14,100 3,105 17,205 (895) 16,310 2.50 40,775 Q3 20,700 1.5 31,050 5,197 36,247 (3,105) 33,142 2.50 92,855 Q4 34,650 1.5 51,975 2,100 54,075 (5,197) 48,878 2.50 122,195 2

d) Direct Labour Budget Skilled Workers Production Unit x hour per unit Total Hours Rate per hours (RM) Total Cost Q1 27,500 0.2 5,500 10 55,000 Q2 9,400 0.2 1,880 10 18,800 Q3 20,700 0.2 4,140 10 41,400 Q4 34,650 0.2 6,930 10 69,300

Semi-skilled Workers Production Unit x hour per unit Total Hours Rate per hours (RM) Total Cost

Q1 27,500 0.35 9,625 6 57,750

Q2 9,400 0.35 3,290 6 19,740

Q3 20,700 0.35 7,245 6 43,470

Q4 34650 0.35 12,127.50 6 72,765

e) Manufacturing Overhead Budget Traditional method: RM Supervision Salaries Insurance Maintenance machineries Utilities Depreciation - machineries Total 5,600 9,600 10,400 7,500 35,072 68,172

OAR

Budgeted Overhead Basis

68,172 28,400 machine hour

= RM2.40 3

ABC method: Activity Amount (RM) Total Cost Driver Activity Pool Rate Indirect Material Factory Electricity Set-up Cost Purchasing and Material Handling Inspection Design 1,250 750 10,000 1,200 800 4,000 92,250 92,250 92,250 92,250 92,250 92,250 0.0136 0.0081 0.1084 0.0130 0.0087 400

Manufacturing Overhead Activity Indirect Material Factory Electricity Set-up Cost Purchasing and Material Handling Inspection Design Total Overhead Cost No of unit Total Overhead/ unit 238 1,000 5,173.44 27,500 0.19 82 600 2,026.56 9,400 0.22 180 800 3,941.46 20,700 0.19 300 1,600 6,858.54 34,650 0.20 Q1 373 224 2,981 358 Q2 127 77 1,091 122 Q3 280 168 2,244 269 Q4 470 282 3,756 451

f)

Production Cost Budget Q1 Q2 35,250 38,540 73,790 Q3 77,625 84,870 162,495 Q4 129,937.50 142,065 272,002.50

Direct Material Direct Labour Prime Cost Production overhead : Indirect Material Factory Electricity Set-up Cost Purchasing and Material Handling Inspection Design Supervision Salaries Insurance Maintenance machineries Factory Utilities Depreciation - machineries Depreciation factory building TOTAL PRODUCTION COST

103,125 112,750 214,875

373 224 2,981 358

127 77 1,091 122

280 168 2,244 269

470 282 3,756 451

238 1,000 1,400 2,400 2,600 1,875 8,768 13,500

82 600 1,400 2,400 2,600 1,875 8,768 13,500

180 800 1,400 2,400 2,600 1,875 8,768 13,500

300 1,600 1,400 2,400 2,600 1,875 8,768 13,500

251,591.44

106,359.56

196,979.46

309,404.04

Production Cost per unit

= RM251591.44 + RM106359.56 + RM196979.46 + RM309404.04 RM27500 + RM9400 + RM20700 + RM34650 = RM864334,50 RM92250 = RM9.37

g)

Cash Budget Wardah Apparel Sdn Bhd Cash Budget for the year ended 31 December 2011 Q1 RM Q2 RM 729,638.50 Q3 RM 101,3891.50 Q4 RM 138,2706.75

OPENING CASH BALANCE Receipt: Receipt from debtor: 80% for this quarter 18% for next quarter

16,1800

756,000 43,200

252,000 170,100

504,000 56,700

1,008,000 113,400

Total Cash Available Less: Payment : Payment to creaditors : 60% for this quarter 40% for next quarter Salary : Skilled Labour Semi-skilled Labour Manufacturing Overhead : Indirect Material Factory Electricity Set-up Cost Purchasing and Material Handling Inspection Design Supervision Salaries Insurance Maintenance machineries Factory Utilities

961,000 1,151,738.50 1,574,591.50 2,504,106.75

53,647.50 22,740

24,465 35,765

49,713.75 16,310

73,316.25 33,142.50

55,000 57,750

18,800 19,740

41,400 43,470

69,300 72,765

373 224 2,981 358

127 77 1,091 122

280 168 2244 269

470 282 3,756 451

238 1,000 1,400 2,400 2,600 1,875

82 600 1,400 2,400 2,600 1,875

180 800 1,400 2,400 2,600 1,875

300 1,600 1,400 2,400 2,600 1,875

Selling Overhead : Sales salaries Sales commission Freight outwards Advertising Travelling expenses Administrative Overhead : Licensing fees Clerical wages Manager salary Entertainment expenses Utilities Total Cash Payment 150 1,250 18,000 2,500 625 231,361.50 150 1,250 18,000 2,500 625 137,847 150 1,250 18,000 2,500 625 191,884.75 150 1,250 18,000 2,500 625 292,432.75 2,000 750 500 250 2,750 2,000 750 500 250 2,750 2,000 750 500 250 2,750 2,000 750 500 250 2,750

CLOSING CASH BALANCE

729638.50

1013891.50

1382706.75

2211674

Actual activities on quarterly basis for the year ended 31st December 2011 Q1 ACTUAL SALES : Sales (units) x Selling price (RM) TOTAL SALES VALUE (RM) 27,000.00 35.00 945,000.00 9,000.00 35.00 315,000.00 18,000.00 35.00 630,000.00 36,000.00 35.00 1,260,000.00 Q2 Q3 Q4

ACTUAL PRODUCTION : Sales (units) + Closing stock 27,000.00 1,500.00 28,500.00 - Opening stock TOTAL QUANTITY TO BE PRODUCED (1,350.00) 27,150.00 9,000.00 900.00 9,900.00 (1,500.00) 8,400.00 18,000.00 3,600.00 21,600.00 (900.00) 20,700.00 36,000.00 2,250.00 38,250.00 (3,600.00) 34,650.00

ACTUAL DIRECT MATERIAL USAGE: Quantity to be produced x Fabric per unit (m) TOTAL MATERIAL USAGE 27,150.00 1.50 40,725. 00 8,400.00 1.50 12,600.00 20,700.00 1.50 31,050.00 34,650.00 1.50 51,975.00

ACTUAL MATERIAL PURCHASE : Quantity of material to be used + Closing stock 40,725.00 895.00 41,620.00 - Opening stock TOTAL MATERIAL TO BE PURCHASED x Cost of material per meter COST OF MATERIAL TO BE PURCHASED 35,420.00 2.50 88,550.00 14,810.00 2.50 37,025.00 33,142.50 2.50 82,856.25 48,877.50 2.50 122,193.75 (6,200.00) 12,600.00 3,105.00 15,705.00 (895.00) 31,050.00 5,197.50 36,247.50 (3,105.00) 51,975.00 2,100.00 54,075.00 (5,197.50)

ACTUAL DIRECT LABOUR : Skilled worker x Rate/hour (RM/hr) TOTAL COST 5,430.00 9.50 51,585.00 1,680.00 9.50 15,960.00 4,140.00 9.50 39,330.00 6,930.00 9.50 65,835.00

Semi-skilled worker x Rate/hour (RM/hr) TOTAL COST

9,502.50 6.50 61,766.25

2,940.00 6.50 19,110.00

7,245.00 6.50 47,092.50

12,127.50 6.50 78,828.75

ACTUAL MANUFACTURING OVERHEAD: Traditional method : Supervision salaries Insurance Maintenance - machineries Utilities Depreciation machineries 5,600.00 9,600.00 5,400.00 6,000.00 35,072.00 61,672.00 RM

OAR = Budgeted overhead Basis = RM 61,672.00 30,000 MH = RM 2.06/MH

10

ABC method : Amount (RM) 1,550.00 750.00 10,000.00 Total Cost Driver 90900.00 90900.00 90900.00 Activity Pool Rate 0.0171 0.0083 0.1100

ACTIVITY Indirect materials Factory electricity Set-up cost Purchasing & material handling Inspection Design ACTIVITY Indirect materials Factory electricity Set-up cost Purchasing & material handling Inspection Design Total overhead cost No of units TOTAL OVERHEAD / UNIT

1,200.00 800.00 4,000.00 Q1 462.95 224.01 2,986.80 358.42 238.94 1,000.00 5,271.12 27,150.00 0.19

90900.00 90900.00 10.00 Q2 143.23 69.31 924.09 110.89 73.93 600.00 1,921.45 8,400.00 0.23 Q3 352.97 170.79 2,277.23 273.27 182.18 800.00 4,056.44 20,700.00 0.20

0.0132 0.0088 400.00 Q4 590.84 285.89 3,811.88 457.43 304.95 1,600.00 7,050.99 34,650.00 0.20

11

ACTUAL PRODUCTION COST Q1 Direct Material Direct Labour PRIME COST Production Overhead: Indirect Material Factory electricty Set-up cost Purchasing and material handling Inspection Design Supervision salaries Insurance Maintenance-machineries Factory utilities Depreciation on machineries Depreciation on factory building TOTAL PRODUCTION COST 462.95 224.01 2,986.80 358.42 238.94 1,000.00 1,400.00 2,400.00 1,350.00 1,500.00 8,768.00 13,500.00 249,352.87 143.23 69.31 924.09 110.89 73.93 600.00 1,400.00 2,400.00 1,350.00 1,500.00 8,768.00 13,500.00 97,409.45 352.97 170.79 2,277.23 273.27 182.18 800.00 1,400.00 2,400.00 1,350.00 1,500.00 8,768.00 13,500.00 197,021.94 590.84 285.89 3,811.88 457.43 304.95 1,600.00 1,400.00 2,400.00 1,350.00 1,500.00 8,768.00 13,500.00 310,570.24 101,812.50 113,351.25 215,163.75 Q2 31,500.00 35,070.00 66,570.00 Q3 77,625.00 86,422.50 164,047.50 Q4 129,937.50 144,663.75 274,601.25

Production cost per unit =RM 854,354.50 90,900.00 units = RM 9.40/unit

12

WARDAH APPAREL SDN BHD Actual Cash for the year ended 31ST December 2011 1st Quarter RM 161,800.00 2nd Quarter RM 720,067.63 3rd Quarter 4th Quarter RM RM 989,401.18 1,341,798.49

Opening Cash Balance Add : Receipt : Receipt from debtors : 80% for this quarter 18% for next quarter Insurance received Rent received Total Cash Available Less : Payment : Payment to creditors : 60% for this quarter 40% for next quarter Salary : Skilled labour Semi-skilled labour Manufacturing overhead : Indirect materials Factory electricity (machinery) Set-up cost Purchasing and material handling Inspection Design Supervision salaries Insurance Maintence - machineries Utilities

756,000.00 43,200.00 6,000.00

252,000.00 170,100.00 6,000.00

504,000.00 1,008,000.00 56,700.00 113,400.00 60,000.00 6,000.00 10,000.00 1,556,101.18 2,533,198.49

967,000.00 1,148,167.63

53,130.00 22,740.00

22,215.00 35,420.00

49,713.75 14,810.00

73,316.25 33,142.50

51,585.00 61,766.25

15,960.00 19,110.00

39,330.00 47,092.50

65,835.00 78,828.75

462.95 224.01 2,986.80 358.42 238.94 1,000.00 1,400.00 2,400.00 1,350.00 1,500.00

143.23 69.31 924.09 110.89 73.93 600.00 1,400.00 2,400.00 1,350.00 1,500.00

352.97 170.79 2,277.23 273.27 182.18 800.00 1,400.00 2,400.00 1,350.00 1,500.00

590.84 285.89 3,811.88 457.43 304.95 1,600.00 1,400.00 2,400.00 1,350.00 1,500.00

13

Selling overhead : Sales salaries Sales commission Freight outwards Advertising Travelling expenses Administrative overhead : Licensing fees Clerical wages Manager salary Donation Utilities Maintenance office Hire-Purchase of motor vehicle - 1st van - 2nd van Purchase of office equipment Repayment on loan for purchase factory building Tax fees Audit fees Cost of website development TOTAL CASH PAYMENT CLOSING CASH BALANCE

2,000.00 750.00 750.00 1,250.00 2,750.00

2,000.00 750.00 750.00 1,250.00 2,750.00

2,000.00 750.00 750.00 1,250.00 2,750.00

2,000.00 750.00 750.00 1,250.00 2,750.00

150.00 2,500.00 18,000.00 1,750.00 500.00 1,950.00

150.00 2,500.00 18,000.00 1,750.00 500.00 1,950.00

150.00 2,500.00 18,000.00 1,750.00 500.00 1,950.00

150.00 2,500.00 18,000.00 1,750.00 500.00 1,950.00

13,440.00

8,820.00 16,320.00

8,820.00 6,480.00 5,000.00

8,820.00 112,320.00

13,000.00 3,000.00 5,000.00 2,000.00 246,932.37 720,067.63 158,766.45 989,401.18 214,302.69 441,313.49

1,341,798.49 2,091,885.00

14

B.

FINANCIAL ACCOUNTING AND ACCOUNTING INFORMATION SYSTEM

QUESTION 1 a) Time based/hourly rate is an employee is paid on the basis of time worked and a premium is paid for working overtime and the rate is predetermined for a particular time unit spent. For example an employee is paid per hour that an employee is actual work. b) Piece rate with guaranteed day rate is the workers are actually paid on the basis of output and if piece rate wages fall below the time rate wages, the worker is paid on time rate basis such as at day rate.

15

QUESTION 2 a) i) Gross wages earned by each worker for: The first week of January MAJID Basic Wages = 48hours x RM7/hour = RM 336 Overtime Hour = 48hours - 48hours =0 Overtime Payment - Basic Overtime (100%) = NIL - Premium Overtime (50%) = NIL LEE Basic Wages = 48hours x RM3.50/hour = RM 168 Overtime Hour = 50hours - 48hours = 2 hours - Basic Overtime = 100% x RM3.50 X 2hrs = RM7 - Premium Overtime = 50% x RM3.50 X 2hrs = RM3.50 - Total Overtime Payment = RM10.50 Time Allowed = 2.25 minutes x 1500units 60 = 56.25 hours Time Taken = 48 hours Time Saved = 56.25 hours - 48 hours = 8.25 hours Bonus = 40% x 8.25 hours x RM7 = RM23.10 Gross Wages - Basic Wages - Overtime - Bonus -Total RM 336 NIL RM23.10 RM359.10 Gross Wages - Basic Wages - Overtime - Bonus -Total RM 168 RM10.50 NIL RM178.50 Time Allowed = 3.50 minutes x 800units 60 = 46.67 hours Time Taken = 50 hours Time Saved = 46.67 hours - 50 hours = NIL NIL

16

ii)

The second week of January MAJID LEE Basic Wages = 48hours x RM3.50/hour = RM 168 Excess Output Payment = 5% x 2 x RM11 = RM1.10

Basic Wages = 48hours x RM7.50/hour = RM 360 Excess Output Payment = 5% x 2 x RM11 = RM1.10

= 1600 x RM1.10 2600 =RM0.68 Gross Wages = RM 360 + RM0.68 = RM360.68

= 1000 x RM1.10 2600 =RM0.42 Gross Wages = RM 168+ RM0.42 = RM168.42

b)

The new remuneration scheme is better than do the previous scheme as when wages is given based on group bonus scheme, it will encourage team spirit among members, good group incentive scheme assist in the reduction of labor turnover, spoilage, waste and absenteeism. Besides that, good output will quality for bonus that can only be earned if each member performs his/her task satisfactorily. This built-in inspection

system reduces the amount of supervision required. In addition, higher output because slower workers will follow the act of faster workers. reduce. Thus, the cost per unit would

17

Question 3 a) Manufacturing Account Wardah Apparel Sdn. Bhd Manufacturing Account for the year ended 31st December 2011 RM Direct Material Opening Stock Add : Purchase Less : Closing Stock Cost of Raw Materials Direct Labour Skilled Worker Semi-skilled worker Prime Cost Add : Production Overhead Indirect Material Factory Electricity Set-up Cost Purchasing and Material Handling Inspection Design Supervision Salaries Insurance Maintenance Factory Utilities Depreciation of Machinery Depreciation of Factory Buildings PRODUCTION OF COMPLETED GOODS 1,550.00 750.00 10,000.00 1,200.00 800.00 4,000.00 5,600.00 9,600.00 5,400.00 6,000.00 35,072.00 54,000.00 854,354.50 172,710.00 206,797.50 720,382.50 15,500.00 330,625.00 (5,250.00) 340,875.00

18

b)

Statement of Comprehensive Income Wardah Apparel Sdn. Bhd Statement of Comprehensive Income for the year ended 31st December 2011 Notes Sales Less: Cost of sales Gross Profit W1 W2 RM 3,150,500.00 (848,054.50) 2,301,945.50

Add : Other Income Less: Distribution cost Less: Administrative expenses

W3 W4 W4

28,000.00 (131,710.00) (172,650.00)

OPERATING INCOME

2,025,585.50

Less : Financial expenses

W4

(8,310.00)

PROFIT BEFORE TAX

2,017,275.50

19

Workings : W1) Total Sales RM Q1 Q2 Q3 Q4 Total Sales 945,000.00 315,000.00 630,000.00 1,260,000.00 3,150,000.00

W2) Cost of Sales RM Opening stock of Finished goods Add : Production Cost of Completed Goods Less : Closing stock of finished goods Cost of Sales 14,850.00 854,354.50 (21,150.00) 848,054.50

W3) Other Income RM Rental received from building Total Other Income 28,000.00 28,000.00

20

W4) Expenses Expenses Office maintenance Office utilities Sales salaries Sales commissions Freight outwards Advertising Travelling expenses Licensing fees for use of universities names and logos Clerical wages Manager salary Donation Depreciation on office equipment Interest on hire purchase - first van - second van Interest on loan Loss on disposal of Motor Vehicles Audit fees Tax fees Bad debts Website Development Depreciation on motor vehicles TOTAL 172,650.00 5,000.00 3,000.00 63,000.00 2,000.00 35,750.00 131,710.00 8,310.00 65,960.00 600.00 10,000.00 72,000.00 7,000.00 250.00 3,150.00 2,160.00 3,000.00 Administration Distribution Finance Cost (RM) Cost (RM) Cost (RM) 7,800.00 2,000.00 8,000.00 3,000.00 3,000.00 5,000.00 11,000.00

21

c)

Statement of Financial Position Wardah Apparel Sdn. Bhd Statement of Financial Position for the year ended 31st December 2011 Notes RM

NON CURRENT ASSETS Property, Plant & Equipment 3 613,906.00

CURRENT ASSETS Inventories - Raw Materials - Finished Goods Accounts Receivable Bank 5,250.00 21,150.00 226,800.00 2,091,885.00

TOTAL ASSETS

2,958,991.00

EQUITY AND LIABILITIES Share Capital Reserve 4 486,603.00 2,185,260.50

NON-CURRENT LIABILITIES Loan-Public Bank Loan-Hong Leong Bank 170,000.00 68,250.00

CURRENT LIABILITIES Accounts Payable 48,877.50

TOTAL EQUITY AND LIABILITIES

2,958,991.00

22

c)

Statement of Changes in Equity Wardah Apparel Sdn. Bhd Statement of Changes in Equity for the year ended 31st December 2011 Share Capital (RM) Bal b/d Profit for the year 486,603.00 486,603.00 Retained Earnings (RM) 167,985.00 2,017,275.50 2,185,260.50 Total (RM) 654,588.00 2,017,275.50 2,671,863.50

23

e)

Statement of Cash Flow (direct method) Wardah Apparel Sdn. Bhd Statement of Cash Flow for the year ended 31st December 2011 RM RM

Cash Flows from Operating Activities Cash receipts from customers Cash paid to supplier Cash paid to employees Payment for other expenses Net Cash Flows from operating activities 2,903,400.00 (304,487.50) (475,107.50) (88,700.00) 2,035,105.00

Cash Flows from Investing Activities Purchase of motor vehicle Purchase of office equipment Proceeds from disposal on motor vehicles Cash receipt from rental Net Cash Flows from investing activities (22,500.00) (5,000.00) 60,000.00 28,000.00 60,500.00

Cash Flows from Financing Activities Finance Cost Repayment of bank loan Repayment of hire purchase Net Cash Flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents and the beginning of period Cash and cash equivalents at the end of the period (8,310.00) (10,000.00) (147,210.00) (165,520.00) 1,930,085.00 161,800.00 2,091,885.00

24

Workings : Payment for other expenses Expenses Manufacturing Operating Total Expenses RM 133,972.00 312,670.00 446,642.00 RM

Less : Depreciation on machineries Depreciation on factory building Supervision Salaries Sales Salaries Clerical wages Manager salary Depreciation on office equipment Depreciation on motor vehicle Loss on disposal Bad debts Interest on hire purchase - 1 st van - 2nd van Interest on loan Cash Payment (35,072.00) (54,000.00) (5,600.00) (8,000.00) (10,000.00) (72,000.00) (250.00) (35,750.00) (65,960.00) (63,000.00) (3,150.00) (2,160.00) (3,000.00) (357,942.00) 88,700.00

25

Notes to the Accounts

1. Significant Accounting Policies 1.1 Property, Plant and Equipment Property, plant and equipment are initially stated at cost less accumulated depreciation. The cost of property, plant and equipment comprises purchase costs, together with any incidental cost of acquisition. Freehold land is not depreciated as it has an infinite life. Depreciation of other property, plant and equipment are as follows are: Freehold building Office Equipment Plant and Machinery Motor Vehicles 15% on cost 5% on cost 20% on net book value 10% on cost

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

1.2

Inventories Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the price in the ordinary course of business, less the costs of completion and selling expenses.

1.3

Trade receivables Trade receivables are carried at invoiced amount less allowance for doubtful debts. Allowance for doubtful debts is made for any debts considered to be doubtful of collection based on a review of outstanding amounts at balance sheet date. Bad debts are written off in the financial year in which they are identified.

26

1.4

Cash and cash equivalent For purpose of the cash flow statements, cash and cash equivalents comprise cash in hand and bank balances.

1.5

Revenue recognition. Revenue from the sale of goods is recognized when significant risks and reward of ownership of the goods are transferred to the buyer. Rental income is recognized on the accrual basis in accordance with the substance of the relevant agreements.

2. Profit before taxation Profit before tax is arrived after charging: Depreciation on office equipment Interest on hire purchase Interest on loan Audit Fees Tax Fees RM 250 5,310 3,000 3,000 5,000

and after crediting: Rental Income 28,000

27

3.

Property, Plant and Equipment Cost (RM) Depreciation Current Year (RM) Land Building Machineries Motor Vehicles Office Equipment Total 88,618 198,000 175,360 272,000 5,000 738,978 0 (54,000) (35,072) (35,750) (250) (125,072) Carrying Amount (RM) 88,618 144,000 140,288 236,250 4,750 613,906

4.

Statement of Changes in Equity Share Capital (RM) Bal b/d Profit for the year 486,603.00 486,603.00 Retained Earnings (RM) 167,985.00 2,017,275.50 2,185,260.50 Total (RM) 654,588.00 2,017,275.50 2,671,863.50

28

C.

FINANCIAL MANAGEMENT

QUESTION 1
Ratios Formula LIQUIDITY RATIOS i) Current ratios Current asset Current liabilities 2,345,085.00 48,877.50 47.98 x Workings Result

ii)

Quick ratios

Current asset-inventories-prepayment Current liabilities

2,323,935.00 48,877.50

47.55 x

EFFICIENCY RATIOS i) Inventory turnover Cost of goods sold Average Closing stock 848,054.50 (14,840+21150)/2 848,054.50 18,000.00 226,800.00 567,000/360 226,800.00 1,575.00 Sales Net fixed assets 3,150,000.00 613,906.00 5.13 x 47.11 x

ii)

Average collection period (days)

Accounts receivables Credit sales/360

144 days

iii)

Fixed assets turnover

iv)

Total assets turnover

Sales Total assets

3,150,000.00 2,958,991.00

1.06 x

LEVERAGE RATIOS i) Debt ratio Total debt Total assets 287,127.50 2,958,991.00 10%

ii) Times interest earned Earning before interest and taxes Interest expenses 2,025,585.50 8,310.00 243.75 x

29

PROFITABILITY RATIOS i) Gross profit margin Gross profit Sales 2,301,945.50 3,150,000.00 73%

ii)

Net profit margin

Net profit Sales

2,017,275.50 3,150,000.00

64%

iii)

Return on equity

Earnings After Tax Common equity

2,017,275.50 2,671,863.50

76%

iv)

Return on asset

Earnings After Tax Total assets

2,017,275.50 2,958,991.00

68%

Comment for the performance of the company financial ratios : Liquidity Ratios The current ratio for Wardah Apparel is high and it is good because for every RM 1 of current liabilities, the company has RM 47.98 of current assets to cover its short term obligation. For the quick ratios, it is high and good because for every RM 1 of current liabilities, the company has RM 47.55 of current assets after deducting the least liquid current assets to cover its short term obligation. Efficiency Ratios The firm has high inventory turnover ratio which is 47.11. This means, the company is able to turnover its inventory as it shows higher sales value. The average collection period of the firm is 144 days which is not good for the firm because the company takes a longer time to collect its debts. Fixed asset turnover ratio and total asset turnover ratio for the company shows high ratio which is the company is able to utilize its assets efficiently to generate sales.

30

Leverage Ratios The debt ratio of the company is 10%, therefore the company only use 10% of external source of financing in finance its capital and it is good situation for the company because the company is not bear a higher debt. The time interest earned for the company is very good because the company is capable to pay its interest obligation.

Profitability Ratios Gross profit margin, net profit margin, return on assets, and return on equity of the company shows higher ratio which are 73%, 64%, 76% and 68% respectively. All these ratios indicate that the company are in profitable condition by having high sales and efficient in managing their assets.

31

QUESTION 2 a) Depreciation of warehouse

= Cost of project Useful life = RM2,000,000 5 years = 400,000.00

b)

Average annual profit 5 years

Total after tax accounting profit for n years n

350,000+67,5000+1,200,000+850,000+550,000 5 years

3,625,000 5 years

725,000.00

c)

Average amount invested in the project = Initial outlay + expected salvage value
2 = 2000000+2000 2 = 2,002,000 2 = 1,001,000.00

d)

Accounting Rate of Return (ARR)

= Average annual profit for the year Average amount invested in the project = 725,000 1,000,100 = 72%

32

e)

Encik Munaim should consider proceeding with the Wardah Smart Online project if its accounting rate of return (AROR) is higher or equal to the firms minimum acceptable AROR. In this case, Encik Munaim should accept the project since the AROR is 72%.

33

D.

AUDITING

QUESTION 1 The course of action that should be taken by an auditor if he has approached to be nominated as an auditor is that he must request permission from prospective client to communicate with the existing auditor before accepting any nomination as an auditor. The purpose of communication is to obtain information about the client and to know for any professional reasons for the proposed changes before the new auditor can decide whether to accept the nomination or not. QUESTION 2 No. 1. Weaknesses Time recording system There is no verification by the supervisor when the shift workers clock in their time work. 2. Overtime working There is no supervisor or person who monitors their overtime working. 3. Details of hours works There is no approval by an authorized person of the details of hours work before being send to the payroll department. 4. Receipt of the email There is no person who monitors the receipt of the email by the payroll department and no cancellation has been made There is a possibility that the file of termination of employees may still exist or the email was not being received by the payroll department. There is a possibility that the employee lying on the time and payment of wages will be overstated. There is a possibility that inaccuracy of data might happened. There should be a supervisor who monitors the overtime work of workers. There should has an approval by an authorized person on the details of hours work. There should be a person who monitors the receipt of email or segregation of duties. Possible Losses There is a possibility that the employee lying on the time or might change the figure. Recommendation There should be a supervisor who monitors the clock in time workers.

34

QUESTION 3 No. Substantive Analytical Procedures 1. Compare payroll expenses account balances with previous year (adjusted for pay rate increases and increases in volume). 2. Compare payroll tax expenses as a percentage of salaries wages with previous year (adjusted for changes in the tax rates). 3. Compare on reasonableness of the managers salary for the managers position. The manager will be given respective salary with his position. No misstatement of payroll tax expense and payroll tax liability. Expectation Expect that the pay rate remain unchanged from the previous year.

QUESTION 4 Four procedures used in collecting audit evidence in respect of testing the accuracy of the accuracy of the time recording system at Wardah Apparel Sdn. Bhd. 1. Observation Observe whether the workers are clock in on work time. 2. Documentation Examine the clock in time with the time recorded in the system. 3. Reperformance Recalculate the accuracy of the time recorded. 4. Inquiries from client Ask for a written confirmation from the supervisors.

QUESTION 5 Five ledger accounts that are likely to be affected by the payroll and personnel cycle : 1. Cash in bank. 2. Accrued wages, salaries, bonuses, and commissions. 3. Direct labour. 4. Accrued payroll tax expenses. 5. Payroll tax expenses.

35

QUESTION 6 Five types of audit procedures that the auditor can use to determine whether the payroll transactions are recorded at the proper amounts: 1. Analytical procedures. 2. Reperformance. 3. Physical examination. 4. Confirmation from third parties. 5. Documentations.

36

QUESTION 7 Wardah Apparel Sdn. Bhd. Audited Statement of Comprehensive Income For The Year Ended 31st December 2011 Workings Sales Less : Cost of Goods Sold GROSS PROFIT Add : Other Income Less : Distribution Cost Less : Administrative expenses OPERATING INCOME Less : Financial Expenses Add : Finance Income PROFIT BEFORE TAX Less : Tax expenses PROFIT AFTER TAX 4 3 4 4 1 2 RM 3,150,500.00 (842,554.50) 2,307,945.50 24,000.00 (131,710.00) (174,400.00) 2,025,835.00 (8,310.00) 2,017,525.50 (586,465.63) 1,431,059.88

37

WORKINGS

RM

Working 1 : Q1 Q2 Q3 Q4 945,000.00 315,000.00 630,000.00 1,260,000.00 3,150,000.00 Add : Credit Sales TOTAL SALES 500.00 3,150,500.00

Working 2 : Opening stock of finished goods Add : Production Cost of Completed Goods Less : Closing stock of finished goods COST OF GOOD SOLD 14,850.00 848,854.50 (21,150.00) 842,554.50

Working 3 : Rental income Less : Prepaid rental OTHER INCOME 28,000.00 (4,000.00) 24,000.00

38

Working 4 : EXPENSES Administration cost Office maintenance Office utilities Sales salaries Sales commissions Freight outwards Advertising Travelling expenses Licensing fees for use of universities names and logos Clerical wages Manager salary Donation Depreciation on office equipment Interest on hire purchase 1
st nd

Distribution cost

Finance Cost

7,800.00 2,000.00 8,000.00 3,000.00 3,000.00 5,000.00 11,000.00

600.00 10,000.00 72,000.00 7,000.00 250.00 3,150.00 2,160.00 3,000.00 65,960.00 3,000.00 5,000.00 63,000.00 2,000.00 35,750.00 350.00 700.00 700.00 174,400.00 131,710.00 8,310.00

van

- 2 van Interest on loan Loss on disposal of motor vehicles Audit fees Tax fees Bad debts Website development Depreciation on motor vehicles Telephone Water and electricity Entertainment expenses TOTAL

39

Wardah Apparel Sdn. Bhd. Audited Statement of Financial Position As At 31st December 2011 Notes RM

NON CURRENT ASSETS Property, Plant and Equipment CURRENT ASSETS Inventories Raw Materials Finished Goods Account Receivables Bank Prepaid Insurance TOTAL ASSETS 5,250.00 21,150.00 227,300.00 2,091,885.00 4,800.00 2,964,291.00 3 613,906.00

EQUITY Share capital Reserve NON CURRENT LIABILITIES Loan from Public Bank Loan from Hong Leong Bank CURRENT LIABILITIES Accounts Payable Prepaid Rental Income Accrued Telephone Expenses Accrued Water and Electricity Tax Payable TOTAL EQUITY AND LIABILITIES 48,877.50 4,000.00 350.00 700.00 586,465.63 2,964,291.00 170,000.00 68,250.00 4 486,603.00 1,599,044.88

40

Wardah Apparel Sdn. Bhd. Audited Cash Flow Statement For The Year Ended 31st December 2011 RM Cash Flows from Operating Activities Cash receipts from customers Cash paid to supplier Cash paid to employees Payment for other expenses Net Cash Flows from operating activities 290,3400.00 (304,487.50) (475,107.50) (88,700.00) 2,035,105.00 RM

Cash Flows from Investing Activities Purchase of motor vehicle Purchase of office equipment Proceeds from disposal on motor vehicles Cash receipt from rental Net Cash Flows from investing activities (22,500.00) (5,000.00) 60,000.00 28,000.00 60,500.00

Cash Flows from Financing Activities Finance cost Repayment of bank loan Repayment of hire purchase Net Cash Flows from financing activities (8,310.00) (100,00.00) (147,210.00) (165,520.00)

Net increase in cash and cash equivalents Cash and cash equivalents and the beginning of period Cash and cash equivalents at the end of the period

1,930,085.00 161,800.00 2,091,885.00

41

Working : Payment for Other Expenses Manufacturing expenses Operating expenses TOTAL EXPENSES

RM

RM

133,972.00 314,420.00 448,392.00

Less : Non Cash Item Depreciation on machineries Depreciation on factory building Supervision Salaries Sales Salaries Clerical wages Manager salary Depreciation on office equipment Depreciation on motor vehicle Loss on disposal Bad debts Interest on hire purchase 1st van - 2 van Interest on loan Accrued Telephone Expenses Accrued Water and Electricity Entertainment expenses Cash Payment for Other Expenses
nd

(35,072.00) (54,000.00) (5,600.00) (8,000.00) (10,000.00) (72,000.00) (250.00) (37,570.00) (65,960.00) (63,000.00) (3,150.00) (2,160.00) (3,000.00) (350.00) (700.00) (700.00) (359,692.00) 88,700.00

42

Notes to the Accounts

1. Significant Accounting Policies 1.1 Property, Plant and Equipment Property, plant and equipment are initially stated at cost less accumulated depreciation. The cost of property, plant and equipment comprises purchase costs, together with any incidental cost of acquisition. Freehold land is not depreciated as it has an infinite life. Depreciation of other property, plant and equipment are as follows are: Freehold building Office Equipment Plant and Machinery Motor Vehicles 15% on cost 5% on cost 20% on net book value 10% on cost

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

1.2

Inventories Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the price in the ordinary course of business, less the costs of completion and selling expenses.

1.3

Trade receivables Trade receivables are carried at invoiced amount less allowance for doubtful debts. Allowance for doubtful debts is made for any debts considered to be doubtful of collection based on a review of outstanding amounts at balance sheet date. Bad debts are written off in the financial year in which they are identified.

43

1.4

Cash and cash equivalent For purpose of the cash flow statements, cash and cash equivalents comprise cash in hand and bank balances.

1.5

Revenue recognition. Revenue from the sale of goods is recognized when significant risks and reward of ownership of the goods are transferred to the buyer. Rental income is recognized on the accrual basis in accordance with the substance of the relevant agreements.

2. Profit before taxation Profit before tax is arrived after charging: Depreciation on office equipment Interest on hire purchase Interest on loan Audit Fees Tax Fees RM 250 5,310 3,000 3,000 5,000

and after crediting: Rental Income 24,000

44

3.

Property, Plant and Equipment Cost (RM) Depreciation Current Year (RM) Land Building Machineries Motor Vehicles Office Equipment Total 88,618.00 198,000.00 175,360.00 272,000.00 5,000.00 738,978.00 0 (54,000.00) (35,072.00) (35,750.00) (250.00) (125,072.00) Carrying Amount (RM) 88,618.00 144,000.00 140,288.00 236,250.00 4,750.00 613,906.00

4.

Statement of Changes in Equity Share Capital (RM) Bal b/d Profit for the year 486,603.00 486,603.00 Retained Earnings (RM) 167,985.00 1,431,059.88 1,599,044.88 Total (RM) 654,588.00 1,431,059.88 2,085,647.88

5.

Capital Commitment Wardah Apparel Sdn Bhd is considering in the future expansion program that cost RM 2,000,000 that will start from 2012 until 2017.

45

Independent Auditors Report

to the members of Wardah Apparel SdnBhd

Report on the Financial Statements We have audited the financial statements of Wardah Apparel SendirianBerhad, which comprise the statements of financial position as at 31 December, 2011, and the statements of comprehensive income, statements of changes in equity and statements of cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information. Managements Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

46

Independent Auditors Report

to the members of Wardah Apparel SdnBhd

(contd)

Opinion In our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Company as at 31 December, 2011 and of their financial performance and cash flows for the year then ended.

Report on other legal and regulatory requirements In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following: (a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company have been properly kept in accordance with the provisions of the Act. (b) We are satisfied that the financial statements of the Company that have been consolidated are in form and content appropriate and proper and we have received satisfactory information and explanations required by us for those purposes. Other matters This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

Zahriyah& Partners Chartered Accountants

Zahriyah Chartered Accountant

Perak, Malaysia Date: 21 May, 2012

47

E. TAXATION 1. The relevant capital allowances that entitled to claim by Wardah Apparel Sdn Bhd. Wardah Apparel Sdn Bhd Computation of Capital Allowances for the year ended 31st December 2011 MOTOR VEHICLES (2nd Hand Van Non Commercial Vehicle Restricted to RM50,000) Y/As 2009 QPE Initial Allowances (20%) Annual Allowances (20%) Residual Expenditure as at 31 Dec 2009
st

QUALIFYING PLANT EXPENDITURE

RM 50,000.00 (10,000.00) (10,000.00) 30,000.00

2010

Annual Allowances (20%) Residual Expenditure as at 31 Dec 2010

st

(10,000.00) 20,000.00

2011

Annual Allowances (20%) Residual Expenditure as at 31 Dec 2011

st

(10,000.00) 10,000.00

MOTOR VEHICLE (Commercial use) 1st Van Y/As 2011 QPE Deposit Add: Monthly Installment (RM 2,625 x 10 months) QUALIFYING PLANT EXPENDITURE RM 105,000.00 10,500.00 26,250.00 36,750.00 Initial Allowances (20%) Annual Allowances (20%) Residual Expenditure as at 31 Dec 2011
st

7,350.00 7,350.00 22,050.00

48

MOTOR VEHICLE (Commercial use) 2nd Van Y/As 2011 QPE Deposit Add: Monthly Installment (RM 1,800 x 6 months) QUALIFYING PLANT EXPENDITURE RM 120,000.00 12,000.00 28,800.00 40,800.00 Sale Proceeds Balancing Charge

(60,000.00) 19,200.00

MACHINE A Y/As 2008 QPE Initial Allowances (20%) Annual Allowances (14%) Residual Expenditure as at 31 Dec 2008
st

QUALIFYING PLANT EXPENDITURE

RM 80,000.00 16,000.00 11,200.00 52,800.00

2009

Annual Allowances (14%) Residual Expenditure as at 31 Dec 2009

st

11,200.00 41,600.00

2010

Annual Allowances (14%) Residual Expenditure as at 31 Dec 2010

st

11,200.00 30,400.00

2011

Annual Allowances (14%) Residual Expenditure as at 31 Dec 2011

st

11,200.00 19,200.00

49

MACHINE B Y/As 2008 QUALIFYING PLANT EXPENDITURE QPE Initial Allowances (20%) Annual Allowances (14%) Residual Expenditure as at 31 Dec 2008
st

RM 200,000.00 40,000.00 28,000.00 132,000.00

2009

Annual Allowances (14%) Residual Expenditure as at 31st Dec 2009

28,000.00 104,000.00

2010

Annual Allowances (14%) Residual Expenditure as at 31 Dec 2010

st

28,000.00 76,000.00

2011

Annual Allowances (14%) Residual Expenditure as at 31st Dec 2011

28,000.00 48,000.00

MACHINE C Y/As 2010 QPE Initial Allowances (20%) Annual Allowances (14%) Residual Expenditure as at 31 Dec 2010
st

QUALIFYING PLANT EXPENDITURE

RM 40,000.00 8,000.00 5,600.00 26,400.00

2011 Annual Allowances (14%) Residual Expenditure as at 31 Dec 2011

st

5,600.00 20,800.00

50

OFFICE EQUIPMENT Y/As 2011 QPE Initial Allowances (20%) Annual Allowances (10%) Residual Expenditure as at 31 Dec 2011
st

QUALIFYING PLANT EXPENDITURE

RM 5,000.00 1,000.00 500.00 3,500.00

51

INDUSTRIAL BUILDING ALLOWANCES Y/As 2008 QUALIFYING BUILDING EXPENDITURE QBE (Purchase Price) RM 360,000.00

Cash Payment Installment

160,000.00 10,000.00 170,000.00

Initial Allowances (10%) Annual Allowances (3%) Residual Expenditure as at 31 Dec 2008 2009 Installment
st

(17,000.00) (5,100.00) 147,900.00

10,000.00 157,900.00

Annual Allowances (3%) 2010 Residual Expenditure as at 31 Dec 2009

st

(5,100.00) 147,900.00

Installment

10,000.00 157,900.00

2011

Annual Allowances (3%) Residual Expenditure as at 31st Dec 2010

(4,737.00) 153,163.00

Installment

10,000.00 163,163.00

Annual Allowances (3%) Residual Expenditure as at 31 Dec 2011

st

(4,895.00) 158,268.00

52

The relevant capital allowances that entitled to claim by Wardah Apparel Sdn Bhd: CAPITAL ALLOWANCES RM Motor Vehicles Machineries Office Equipment 24,700.00 44,800.00 1,500.00 71,000.00 RM

INDUSTRIAL BUILDING ALLOWANCES Building TOTAL 4,895.00 75,895.00

53

QUESTION 2 The amount of actual tax payable by Wardah Apparel Sdn. Bhd. Wardah Apparel Sdn Bhd Computation of Tax Liability for the year ended 31st December 2011 RM Profit before tax Less : Non Business Income Rental income Add : Non Allowable Expenses Insurance premium paid to Malaysian Insurance Company Clerical wegas paid to disabled employees Entrance fees paid to Persatuan Perniaga Islam Malaysia Purchase a secondhand car Cash donation to Persatuan Kanak-kanak Autisme Malaysia and Persatuan Perniaga Islam Malaysia Zakat Office maintenance Office utilities Sales salaries Sales commissions Freight outwards Advertising Travelling expenses Licensing fees for use of universities names and logos Clerical wages Manager salary Depreciation on office equipment Depreciation on motor vehicles Depreciation on building 35,072.00 Depreciation on machineries Interest on hire purchase 1 van
st

RM

2,017,525.50 24,000.00 (d/d) (d/d) 100.00 200,000.00 5,500.00 1,500.00 NIL NIL NIL NIL NIL NIL NIL 600.00 NIL NIL 250.00 35,750.00 1,000.00 7,200.00

54,000.00 NIL

54

Interest on hire purchase 2nd van Interest on loan Loss on disposal of Motor Vehicles Audit fees Tax fees Bad debts Website Development Telephone Water and Electricity

NIL NIL 65,960.00 NIL NIL NIL NIL NIL NIL 2,416,257.50 (32,200.00) 32,200.00

Adjusted Income Add: Balancing Charge Less : Capital Allowances Industrial Building Allowances Statutory Income Add: Other Source Of Income Rental Income Aggregate Income Less : Approved donations Chargeable Income Less: Tax Rate Tax Payable

2,384,057.50 19,200.00 (71,000.00) (4,895.00) 2,327,362.50 24,000.00 2,351,362.50 (5,500.00) 2,345,862.50 0.25 586,465.63

55

QUESTION 3 The chargeable income for Encik Munaim and he has elects for separate assessment.

Encik Munaim Computation of Chargeable Income for the year ended 31st December 2011 En.Munaim RM Section 4 (b) : Employment Income Section 13 (1)(a) Salary Travelling allowances - exempt School fees of child Reimbursement of driver salary 72,000.00 NIL 1,000.00 8,400.00 81,400.00 Section 13 (1)(b) Domestic servant Corporate membership 4,800.00 600.00 5,400.00 Section 13 (1)( c ) Living accomodation (800 x 12) Statutory Employment Income Aggregate Income Less: Relief Personal relief Child relief - First child (22) - Second child (20) - Third child (10) Basic supporting equipment restricted RM 5,000 Chargeable Income (9,000.00) (5,000.00) NIL (1,000.00) (5,000.00) 76,400.00 9,600.00 96,400.00 96,400.00 RM En. Munaim's wife RM

56

QUESTION 4 The responsibility of Wardah Apparel Sdn Bhd with regards to the submission of relevant forms to the Inland Revenue Board Malaysia: Wardah Apparel Sdn Bhd is responsible to furnish an estimate of income tax payable for a Year Assessment in a CP 204 not later than 30 days before the beginning of the basis period which means not later than 1st December 2010. Upon receiving the Form CP 204, the authorities will issue a notice of payment (CP 205) and a 12 monthly payment slips (CP 207), with the relevant information of the companies. The monthly installment will due on the 10th of every month commencing from the second month of the basis period. Failure to pay the tax installment on the 10th day following the month will subject to 10% penalty on the amount unpaid. Therefore, the installment begins 10th February 2011 and ends on 10th January 2012. If there is difference between tax estimate and actual income tax payable exceeds the 30% margin of error, 10% penalty will be imposed. Hence, to avoid such penalty, revision of estimates is essential, by submitted the CP 204A, in the sixth month, or the ninth month or in the both months of the basis period for this YA 2011.

57

QUESTION 5 a) Since the Wardah Apparel Sdn Bhd considered constructing a building to be used as a factory, thus, it is qualified to be treated as qualifying industrial building. b) Capital expenditure that incurred in constructing the building is also qualified as qualifying building expenditure. For example, the cost of clearing the old site, architects fees, the cost of construction, cost of installing fittings and other cost that related in construct the factory building. c) If the company considered purchasing building to be used as factory, therefore the purchase price of the building shall be qualified building expenditure (QBE). d) When the only part of the building is used as an industrial building, the whole building extension is to treated as industrial building if the capital expenditure on the construction of the part of the building which is not in use (non-qualifying part) is less than 10% of the cost of constructing the whole building. If the cost of construction of the non-qualifying part exceeds 10% of the cost of constructing the whole building, then the industrial building allowance is given on that proportion of the building that is in use (qualifying part) as an individual building (Para 66,sch 3). e) Where capital expenditure is incurred on preparing, cutting, tunneling or leveling land in order to prepare a site for the installation of the machinery or plant to be used for purposes of a business and if such expenditure exceeds 75% of the aggregate cost of that plant or machinery and the cost of installation, then the aggregate expenditure is treated as qualifying building expenditure. On the other hand, if the cost of preparing, cutting,

tunneling or leveling land is less or equal to 75%, then only the cost of plant and machinery will be the qualified plant expenditure. The cost of preparing, cutting, tunneling or leveling land would not be given any tax relief. f) When the building was put into use in 2009, the building allowance was start to be claimed at year end 2009 as well. Since the building was subsequently disposed to another company in 2010, therefore, no building allowance can be claimed for the year of 2010. Hence, the disposal value of a building is an amount equal to its market value at the date of disposal.

58

REFERENCE

Alvin, A.A., Randal, J.E., & Mark, S.B. (2011) . Auditing and assurance services in malaysia an integrated approach . (11th ed.) . (Selangor) : Pearson Prentice Hall. Choong, K.F. (2011) . Malaysian taxation principles and practice . (17th ed.) . ( K.L ) : Infoworld. Frank, W., & Alan, S. (11th ed.) . (Harlow) : Pearson Education Limited. Jane, L., & Tan, L.L. (2011) . Company and group financial reporting. (7th ed.) . (Selangor) : Pearson Prentice Hall. Rodziah, A.S., Rohani, A.W., Shelia, C., & Mohd, N.H. (2010) . Financial management for beginners. (3rd ed.) . (Selangor) : McGraw-Hill. Roshayani, A., Laily, U., Siti Maznah, M.A., & Kamaruzzaman, M. (2009) . Financial accounting an introduction. (3rd ed.) . (Selangor) : McGraw-Hill.

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