CONFIDENTIAL 2 AC/OCT 2010/FAR360

PART A

Answer ALL questions.

1. Accountancy is the art of communicating financial information about a business entity

to users. The communication is generally, in the form of financial statements which
includes five (5) statements.

Required:

a) State and describe any FOUR (4) of the statements.

(8 marks)

b) Explain the following FOUR (4) accounting principles that need to be followed when
presenting financial statements in accordance to Financial Reporting Standards
(FRS) 101 Presentation of Financial Statements:

• Going concern
• Consistency
• Accrual basis
• Materiality
(8 marks)

2. Payback period and net present value (NPV) are among the common techniques that
are used for capital budgeting. Discuss each of these techniques.
(6 marks)

3. Management accountant must be able to justify any kind of cost as either direct or
indirect. Distinguish between direct and indirect cost. Please provide TWO (2)
examples of each cost.
(4 marks)

4. Break-even analysis or cost volume profit relationship as it is also known is

concerned with relationships between cost, volume and profit. Briefly explain FOUR
(4) uses of break-even analysis.
(4 marks)

5. MIA By-Laws (on professional ethics, conduct and practice) provides a set of
principles and rules that offer guidance to the members. Explain the following
fundamental principles stipulated under the by-laws:

a. Professional competence and due care

(4 marks)
b. Confidentiality
(4 marks)

6. Financial analysis is the assessment of a firm’s past, present and anticipated future
financial performance that is made based on the firm’s financial statements. Explain
THREE (3) purposes of analyzing the financial statements.
(3 marks)

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7. Under self assessment system, companies are required to furnish an estimate of

income tax payable for a year of assessment (YA) in a prescribed form (CP 204) not
later than 30 days before the beginning of the basis period. Briefly explain the penalty
to be imposed by Inland Revenue Board for underestimation of income tax payable.
Determine the timing for the submission of the tax return form.
(5 marks)

8. Double deduction refers to expenses incurred that are given twice deduction in
calculating income tax expense of a company. State TWO (2) conditions that a
company needs to fulfill in order to obtain this relief? Provide TWO (2) examples of
expenses qualified for double deduction.
(4 marks)
(Total: 50 marks)

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PART B

QUESTION 1

Sejiwa Sdn Bhd is a newly established company which concentrates in producing two types
of television models TV-52 and TD-54. The company was incorporated in early 2009 and is
currently operating from its permanent premise located in Oakland, Seremban. The
company has two production cost centers (Department A and B) and one service cost center
(Department S) in its factory.

Encik Lokman, Chief Executive Officer (CEO) was so excited to know the actual
performance of the company. The list of account balances of the company for the year
ended 31 December 2009 are as follows:

RM
Plant and machinery at cost 250,000
Motor vehicles at cost 75,000
Sales 1,006,170
Direct factory wages 90,000
Raw material purchased 480,000
Light and power 95,000
Rent and insurance 85,000
Indirect factory wages 20,000
Machinery repairs 30,000
Motor vehicles expenses 35,000
Administration expenses 10,000
Administrative salaries 50,000
Sales and distributions staff salaries 15,000
Share capital 3,500,000
Account receivables 160,000
Account payables 270,000
Bank 100,950

The following are the additional information for the above balances:

1. The closing inventory as at 31 December 2009 for raw materials is RM30,000, work
in progress is RM40,000 and no finished good in hand.

2. It is the policy of the company to depreciate its assets using the straight line method.
The company estimates the plant and machinery and motor vehicles will be used in the
business for 10 years and 5 years respectively. Both of the assets have no residual
values.

3. Insurance paid during the year amounted to RM50,000 which is included in the rent
and insurance account. This payment is for one year’s premium beginning 1 April 2009.

4. 30% of depreciation of motor vehicles and motor vehicle expenses and three quarter
of expenses for light and power, rent and insurance will be charged to factory.

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5. Goods manufactured during the year are to be transferred from the factory to income
statement at cost plus 10% mark-up.

Required:

a) As an accountant of the company, you are required to prepare the manufacturing

account and income statement of the company for the year ended 31 December 2009.
(16 marks)

b) In addition to question 1(a), Encik Lokman is also concerned about the sales of the
products and his target to achieve 10% of the market share within the television
industry. He would like to know the detail information about the costs of the products.
This will help him to make better decision whether the company sells its products at
accurate price in order to attract more customers.

Sejiwa Sdn Bhd calculates the departmental predetermined overhead absorption rate
for each of its production cost centers on the basis of budgeted machine hours.
According to the production manager, the budgeted machine hours was used because
the company highly depends on machine to manufacture the products. The budgeted
production overhead data for the year 2009 is as follows:

Department A Department B Department S

Allocated costs RM105,000 RM115,000 RM80,000
Reapportioned costs RM52,000 RM28,000 (RM80,000)
Machine hours 21,750 hours 15,250 hours
Direct labour hours 7,700 hours 37,300 hours

The following information is also related to the production of TV-52 and TD-54:

TV-52 TD-54
Prime costs RM 85 RM 150
Machine hours:
Department A 5 hours 8 hours
Department B 2 hours 6 hours
Profit mark-up 25% from production cost 25% from production cost

However, En. Remy, the finance manager, believes that the company’s current product
costing system produces misleading costs information. He argues that the company has
over and under estimated its product cost for TV-52 and TD-54 respectively. He
suggests to use the activity based costing system to allocate the overhead cost into
product cost as an alternative method. The following cost pools and cost drivers are
established:

Cost pools Cost drivers RM .

Order processing No. of order processed 30,250
Machine processing Machine hours worked 210,000
Product inspection Inspection hours 59,750
300,000

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Data relevant to these activities are as follows:

Products Total units No. of cost driver volume consumed

produced 2009 Orders Machine Inspection
processed hours worked hours
TV-52 5,000 350 35,000 10,000
TD-54 500 200 7,000 15,000

Required:

i. Calculate the overhead absorption rate for each production cost center for the
period using the company’s current policy. (Answers to be rounded to two
decimal places in RM)
(2 marks)

ii. Calculate the unit selling price for both TV-52 and TD-54 using traditional costing
system and activity based costing system (show all working).
(13 marks)

iii. Advice Encik Lokman on how the company’s traditional costing system distorts
product costs and selling prices.
(5 marks)

c) Yusof Kadir & Co. Chartered Accountants has been approached by the management
of Sejiwa Sdn Bhd to become the company’s external auditor.

Required:

i. Discuss briefly the procedures to be carried out by the auditor prior to accepting
the appointment.
(5 marks)
ii. Discuss the main contents of an engagement letter.
(6 marks)

iii. State three (3) reasons why the auditor should properly plan an engagement?

(3 marks)
(Total: 50 marks)

END OF QUESTION PAPER

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