CONFIDENTIAL 2 AC/APR 2010/FAR360

PART A

Answer ALL questions.

1. The preparation of the financial statements involved the application of various accounting
concepts. Explain by giving one (1) example to each of the following accounting
concepts:

a) Materiality concept
b) Prudence concept
(6 marks)

2. Explain the differences between capital expenditure and revenue expenditure and
provide one (1) example for each type of expenditure.
(6 marks)

3. Cost-volume-profit (CVP) analysis is a technique which analyses cost behaviour to

assess the effect of different activity levels on costs, revenues and profits. In
particular, it will identify the activity level at which there is neither a profit nor a loss
(the breakeven activity level). Identify three (3) major assumptions inherent in the
CVP analysis.
(6 marks)

4. Activity-based costing (ABC) is a costing system which assigns costs based on activities
that drive costs rather than on the volume or number of units produced. Explain three
(3) potential benefits which might result from the introduction of ABC system.
(6 marks)

5. Capital budgeting techniques can be divided into two categories, namely the non-
discounted cash flow methods and discounted cash flow methods. One of the
methods under the discounted cash flow category is the net present value method.
Explain two (2) advantages and two (2) disadvantages of using net present value
method in the capital budgeting decision-making process.
(8 marks)

6. Discuss the situations where donation can be considered as approved donation in the
tax computation of a company.
(6 marks)

7. In the context of tax computation, explain how to find accounting profit from an adjusted
income.
(4 marks)

8. An auditor may apply various audit procedures to obtain audit evidences to support
his/her opinion on the financial statements. Explain any four (4) of audit procedures
that auditor may apply in doing so. For each procedure, provide one example of its
uses during the course of an audit.
(8 marks)
(Total: 50 marks)

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CONFIDENTIAL 3 AC/APR 2010/FAR360

PART B

Answer ALL questions.

QUESTION 1

Terbilang Sdn Bhd is a medium-sized manufacturing company producing spare parts for a
national car manufacturer, Neutron Bhd. The company commenced its business in 2006.
The Income Statements and Balance Sheets of the company for the year ended 31
December 2008 and 2009 are as follows:

Terbilang Sdn Bhd

Balance Sheets as at 31 December

2009 2008
ASSETS RM'000 RM'000 RM'000 RM'000
Non-current assets
Property, Plant & Equipment 950 550
Intangibles 330 -

Current assets
Inventory 240 130
Receivables 202 90
Bank - 442 205 425

Total assets 1,722 975

EQUITY AND LIABILITIES

Equity
Ordinary Share Capital 600 550
Revaluation reserve 50 50
Retained earnings 188 100
Total equity 838 700

Liabilities
Non-current liabilities
Long term loans 420 80

Current liabilities
Bank Overdraft 197 -
Payables 187 145
Tax payable 80 464 50 195

Total equity and liabilities 1,722 975

Terbilang Sdn Bhd

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CONFIDENTIAL 4 AC/APR 2010/FAR360

Income Statements for the year ended 31 December

2009 2008
RM'000 RM'000

Sales revenue 1,867 1,300

Cost of sales (940) (680)
Gross profit 927 620
Interest income 3 2
Administration costs (349) (223)
Distribution costs (185) (115)
Profit from operations 396 284
Finance costs (70) (25)
Profit before tax 326 259
Taxation (88) (58)
Profit for the year 238 201

Additional information

(i) Dividends declared and paid during the year ended 31 December 2009 were
RM150,000.

(ii) There were no amounts outstanding in respect of interest payable or receivable as at

31 December 2008 and 2009.

(iii) Total depreciation for the year 2009 was RM125,000. No disposal of assets during
the year ended 31 December 2009.

(iv) Bad debt written off during the year ended 31 December 2009 were RM50,000 due
to long outstanding of the debts.

(v) The company acquired additional loan facility from Mine Bank during the year ended
31 December 2009 amounting to RM400,000.

(vi) The only revaluation of non-current assets was of a piece of freehold land.

Required:

a) Prepare a Cash Flow Statement for Terbilang Sdn Bhd for the year ended 31 December
2009 in accordance with FRS 107 – Cash Flow Statements, using the indirect
method.
(20 marks)

b) Comment on the financial position of Terbilang Sdn Bhd as shown by the cash flow
statement you have prepared.
(5 marks)

c) Discuss three (3) benefits of preparing the Cash Flow Statement.

(3 marks)
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CONFIDENTIAL 5 AC/APR 2010/FAR360

d) Calculate the following financial ratios for 2008 and 2009, which could be used to
analyse the financial performance and liquidity of Terbilang Sdn Bhd. State the
formula used in calculating the ratios.

i. Gross profit margin

ii. Current ratio
iii. Acid-test ratio
iv. Debtor’s collection period
v. Creditor’s days
vi. Return on capital employed
(9 marks)

e) Using the ratios you have calculated in part (d), comment on the performance and
liquidity of Terbilang Sdn Bhd.
(6 marks)

f) What additional information would be essential to help you to interpret the ratio and to
conclude the overall performance of Terbilang Sdn Bhd?
(3 marks)

g) Discuss two (2) limitations of financial ratio analysis.

(4 marks)
(Total: 50 marks)

END OF QUESTION PAPER

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