GSM5301 Accounting for Decision MakingMID TERM EXAMINATION

7 July 201210 am -12 noon

Instruction: Answer ALL questions. Show all workings and answers in answer book provided.

QUESTION 1 (30 marks)

A. Describe the nature and purpose of the information contained in the financial statements to a potential investor.

(8 marks)

B. Mira & Associates Consulting is an engineering consulting firm incorporated on 1 July 2005. For the year ending 30 June 2012, the following transactions occur:

a) Paid annual fire insurance premium of RM12,000 for the office on 1st July 2011.b) Billed clients RM53,800 for jobs completed and received cash RM50,000 from

clients. Included in cash receipts was RM5,000 paid in advance for job yet to be started at the year-end.

c) Mira completed a building renovation design for her brother. The fee for such design is RM28,000. Mira have not billed his brother for any professional fee.

d) Unpaid utilities amount to RM24,750 at year-end.e) Purchased furniture and fixtures of RM76,000 and office equipment of

RM120,000 on 1 September 2005. Depreciation charge is calculated using straight line method at the following rate:

Furniture and fixtures – 10%Office Equipment – 15%

Analyse each of the above in terms of its effects on the accounting equation for the accounting period ended 30 June 2012. Your answer should include the use of relevant accounts.

(22 marks)

QUESTION 2 (30 marks)

A. CCin Sdn Bhd has been in business for one year and has sales margin of 50%. During the year, Ccin Sdn Bhd sold goods for RM210,000. RM130,000 of these sales were made to credit customers, of which RM100,000 had been received by the end of the year. The remaining RM80,000 were cash sales. Expenses paid during the year amounted to RM20,000 and RM2,000 accrued expenses at the year end.

Required:

a) Explain to the management of Ccin Sdn Bhd the difference between cash and accrual basis accounting.

(5 marks)

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b) How much profit did Ccin Sdn Bhd make for the year under the accrual basis and under the cash accounting basis?

(10 marks)

B. Explain, using the relevant accounting principles (concepts), on the following accounting practices:

a) The value of inventory is disclosed at its historical cost. The net realisable value is lower than the cost of inventory.

b) Advance payment for sales is recorded as sales revenue.c) Business owner’s property is shown as assets in the balance sheet of business.d) The accountant changes the depreciation method again this year.e) The estimated warranty cost related to the sale of computer is ignored.

(15 marks)

QUESTION 3 (40 marks)

A. TechTren is a private limited company in Petaling Jaya selling computers. On 1 January 2012, TechTren has 10 computers at RM550 each. During the year ended 31 December 2012, the following transactions took place:

31-01-2012 Bought 35 computers at RM600 each01-03-2012 Bought 28 computers at RM710 each15-03-2012 Sold 21 computers at RM750 each05-05-2012 Bought 15 computers at RM730 each30-09-2012 Sold 18 computers at RM775 each10-10-2012 Sold 10 computers at RM735 each

TechTren’s only fixed asset is a delivery van purchased on 1 February 2012 for RM22,000 each. It is expected to be used in the business for 5 years and then sold for RM7,000.

Other business expenses of RM3,500 were for the rental of office space, electricity, telephone and miscellaneous expenses.

TechTren’s financial accountant is considering using the following accounting policies to produce financial statements for 2012:

For depreciation of fixed assets – straight line or reducing balance methodFor inventory – FIFO or LIFO cost using periodic method in both cases.

Required:

a. Compute the profitability of TechTren for 2012 using straight line method and FIFO.(14 marks)

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b. Explain the effect of choice of accounting policies for depreciation and inventory on the financial statements of TechTren.

(6 marks)

B. Jambagan sells all types of lights to residents in Bandar Tun Hussein Onn, Cheras. Its current financial year-end is 31 December 2012. An incomplete balance sheet of Jambangan for financial year 2011 and 2012 is given below:

2012 2011Property, Plant and Equipment Building

At cost 700,000 700,000Accumulated depreciation 290,000 245,000

EquipmentAt cost 365,000 260,000Accumulated depreciation 205,000 105,000

Required:

a. What is the total depreciation expense for 2012?(10 marks)

b. If the building is depreciated on a straight-line basis over its useful life of 15 years and was purchased at the beginning of year, compute the residual value.

(10 marks)

End of examination paper

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