was running out of liquid assets and has therefore been depending on bank overdraft to finance his daily working capital requirement. He has been a long time bank customer and getting the bank overdraft facility is not too difficult for him to obtain. It is indeed, the company practice to use only one current account, and at the moment his business is supported by an overdraft facility. Within one month of operation in December 2020, the owner has instructed his Senior Finance Officer to lay out and pr
Q1
Mr Mortar Mathias has been in the merchandizing business for quite sometimes, but he has not been able to reconcile his consumable stocks for sales properly. At the later stage of the operation last year, he realized that he was running out of liquid assets and has therefore been depending on bank overdraft to finance his daily
It is indeed, the company practice to use only one current account, and at the moment his business is supported by an overdraft facility.
Within one month of operation in December 2020, the owner has instructed his Senior Finance Officer to lay out and present a proper financial statement with the objective of paying settling the bank overdraft from any source of cash surplus.
All transactions by cash will be transacted automatically through bank.
The
|
ASSETS |
|
|
Property |
360,000 |
|
Furniture and Fittings |
30,000 |
|
Inventories |
55,000 |
|
Trade Receivables |
65,000 |
|
510,000 |
|
|
FINANCED BY: Equity Capital |
190,000 |
|
Bank overdraft |
120,000 |
|
Trade Payables |
200,000 |
|
Total Equities and Liabilities |
510,000 |
During the month of January, the following transactions take place:
- Inventories sold for RM55,000 in cash; These inventories had cost RM32,000
- Sold inventories for RM88,000 on credit; These inventories had cost RM45,000.
- Received cash for trade receivables totaling RM40,000.
- The owners of the business brought in another RM120,000 as part of business capital, which was placed in the business bank account.
- The owners brought a reconditioned pickup, valued at RM60,000 into the business also beginning of the month. All Fixed Assets except property will be
depreciated at 10 % on cost per annum. It is the company policy to charge the depreciation on a pro-rate or monthly basis. - Bought inventories on credit for RM30,000.
- Paid trade payables RM35,000.
- The company faced two problems, during the debt collection. One customer with a sum owed RM1000 will be written off completely, and the other customer has been regarded as a doubtful debtor for a sum of 1 percent of trade Receivable
You are required to
- Show how much profit is made for the month of December 2020
- Show the effect of the above transaction in a new financial position (Balance Sheet) at 31 December 2020
- Explain to Mr Mortar Mathias, the effect of the
bad debts and the doubtful debts in the context of prudence principle. - Explain your observation on the position of the company’s working capital as at 31 December 2020
Question 2
UniPack enterprise produces and provides premium packed food, which it sells for RM12 each. The company uses the FIFO inventory costing method, and it computes a new monthly fixed manufacturing
|
DETAILS |
January |
February |
|
Sales |
1800 packs |
1600 meals |
|
Production |
2500 packs |
1500 meals |
|
Variable manufacturing expenses per meal |
RM 5 |
RM 5 |
|
Sales commission expense per meal |
RM 2 |
RM 2 |
|
Total fixed manufacturing overhead |
RM 1000 |
RM 1200 |
|
Total fixed marketing & administrative expenses |
RM 500 |
RM600 |
Requirements
- Compute the product cost per meal produced under absorption costing and under variable costing for January and February.
- Prepare separate monthly income statement for January and February under absorption approach.
- Without preparing the financial statement for month of January under the variable costing approach, what is the value of the operating profit?
- Prepare the financial statement for the month of February under the variable costing approach.
- Is operating income higher under absorption costing or variable costing in January? In February? Explain the pattern of differences in operating income based on absorption costing versus variable costing?
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