Three good friends from a primary school in Taiping in 1970’s met during a school reunion held in Kula Lumpur. They are all now having good job except for Joe who has been retrenched due to the relocation of the employer’s plant from Malaysia to Cambodia. Sehar and Hock Seng decided to help Joe by forming a business partnership to operate a restaurant called Kita Punya Warong (KPW). On 1 June 2019, KPW started its operation with the following capital investment structure: Joe (RM) Sehar (RM) Hock Seng (RM) Cash - 30,000 50,000 Vehicle 10,000 15,000 - Equipment 20,000 15,000 20,000 Note Payable - 20,000 - Additional information: Interest on cash capital investment is 10% while any withdrawals made are charged at 5% per annum respectively. A cash loan by Sehar to KPW is given a 7% interest per annum until it is fully paid. Joe was given a salary of RM2,500 until end of 2019. Starting from January 2020, he received a salary of RM3,000 per month. On 1 January 2020, both Sehar and Hock Seng withdrew cash RM10,000 and RM15,000 respectively from KPW. KPW’s first year operation has recorded a net profit of RM144,000. Joe, Sehar and Hock Seng agreed to share KPW’s profit and loss based on 2:3:5 ratio. Prepare the journal entry to record the partners’ initial investments in KPW and profit and loss appropriation of KPW for the year ended 31 May 2020. Identify and explain the difference between cumulative and non-cumulative preference shares. and two main differences with regards to the share price under the new Companies Act (2016) in comparison to former Companies Act.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Three good friends from a primary school in Taiping in 1970’s met during a school reunion held in Kula Lumpur. They are all now having good job except for Joe who has been retrenched due to the relocation of the employer’s plant from Malaysia to Cambodia. Sehar and Hock Seng decided to help Joe by forming a business partnership to operate a restaurant called Kita Punya Warong (KPW).

On 1 June 2019, KPW started its operation with the following capital investment structure:

	Joe (RM)	Sehar (RM)	Hock Seng (RM)
Cash	-	30,000	50,000
Vehicle	10,000	15,000	-
Equipment	20,000	15,000	20,000
Note Payable	-	20,000	-

Additional information:

Interest on cash capital investment is 10% while any withdrawals made are charged at 5% per annum respectively.
A cash loan by Sehar to KPW is given a 7% interest per annum until it is fully paid.
Joe was given a salary of RM2,500 until end of 2019. Starting from January 2020, he received a salary of RM3,000 per month.
On 1 January 2020, both Sehar and Hock Seng withdrew cash RM10,000 and RM15,000 respectively from KPW.
KPW’s first year operation has recorded a net profit of RM144,000.
Joe, Sehar and Hock Seng agreed to share KPW’s profit and loss based on 2:3:5 ratio.

Prepare the journal entry to record the partners’ initial investments in KPW and profit and loss appropriation of KPW for the year ended 31 May 2020.

Identify and explain the difference between cumulative and non-cumulative preference shares. and two main differences with regards to the share price under the new Companies Act (2016) in comparison to former Companies Act.

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