Salma Bhd purchased a new car on 1 January
2019 from Ashikin Bhd on a hire purchase terms under which Salma Bhd paid a
deposit of RM200,000 to be followed by four equal annual instalments of RM315,471 each, payable on 31 December. Interest is charged on outstanding balance at 10%
per annum. Cash price of the car is RM1,200,000.
The accounting year of both companies ends
on 31 December. Depreciation on the car is at 20% per annum on straight-line
basis. All the sums due were paid on due dates.
Required:
Show the relevant journal ledger entries in
the books of Salma Bhd
Prepare an extract of
Statement of Profit and Loss Account and Statement of Financial Position for
the year 2021 and 2022.
When we deal with a hire purchase, we must be ready to be charged
interest. This is because the amount cost of asset acquired is not being paid
fully. Therefore the balance is being charged interest to compensate the ‘loss’
on income by the seller in the sense that they could get the full amount of the
money when they sold the asset to you. By taking such risk because you and the
seller had made a hire purchase agreement on the transaction they charged you
interest. From here they made some profit from it. It is riba’ right?
Go for Islamic
financing….
Here are some
examples on the hire purchase transaction
Example 1.
Sabrina wants to purchase a computer costing RM2,000 in 2019. She has
done her calculation and she can’t afford to pay on a lump sum payment. So she
decided to go for instalments. The hire purchase price is RM2,300 payable in two
instalments at the end of each year. Minimum payment is RM1,000 plus interest.
The interest on hire purchase is 10% per annum.
Year 1
Cash price
RM2,000
Add:
interest 10%
200
Amount owing at the end of
year 1
2,200
Less: 1st
instalment
(1,200)
Balance at the end of the
year 1
1,000
Year 2
Add:
interest 10%
100
Amount owing at the end of
year 2
1,100
Less: 2nd
instalment
(1,100)
Balance at the end of year
2
-nil-
That
is what we call unequal
instalments. The situation was based on the sentence ‘Minimum
payment is RM1,000 plus interest’. So the minimum payment was added to the
reducing interest charged each year.
Example 2
We use the same situation as example 1 but this time we change the
persons name. I guess many people will have the chance the computer.
Sofea wants to purchase a computer. The cost is still RM2,000 but cash.
Since she had no money to pay in full so she decided to pay by instalments. The
hire purchase price is not mentioned but the agreement shows that she has to
pay equal instalment of RM1,152 each year for two years. Interest of 10% per
annum applies on the balance of each year.
So here we go…
Year 1
Cash price
RM2,000
Add:
interest 10%
200
Amount owing at the end of
year 1
2,200
Less: 1st
instalment
(1,152)
Balance at the end of the
year 1
1,048
Year 2
Add:
interest 10%
104
Amount owing at the end of
year 2
1,152
Less: 2nd
instalment
(1,152)
Balance at the end of year
2
-nil-
We call the above method is equal instalments. By adding all together we can
see that the total payment paid in order for Sofea to own the computer is
RM2,304, quite same with the hire purchase price indicated in example 1.
The journal entries.
In the book of purchaser. (for example 1)
Purchased the computer at
cost
Dr
Asset - Computer
2,000
Cr
HP creditor
2,000
Hire purchase interest (1st
year)
Dr
HP Interest
200
Cr
HP creditor
200
1st instalment
Dr
HP creditor
1,200
Cr
Bank
1,200
Hire purchase interest (2nd
year)
Dr
HP Interest
100
Cr
HP creditor
100
2nd instalments
Dr
HP creditor
1,100
Cr
Bank
1,100
You can apply the same for the second example. Actually I’m just tired
to do that. Learn ok?
What about in the book of seller?
Coming
to you this summer at the cinema near you and watch out what will happen to the
seller…..
A flexible budget is abudgetthat adjusts or flexes with changes in volume or activity. The flexible budget is more sophisticated and useful than astatic budget. (The static budget amounts do not change. They remain unchanged from the amounts established at the time that the static budget was prepared and approved.)
For costs that vary with volume or activity, the flexible budget will flex because the budget will include a variable rate per unit of activity instead of one fixed total amount. In short, the flexible budget is a more useful tool when measuring a manager's efficiency.
Example of a Flexible Budget
Let's assume a company determines that its cost of electricity and supplies will vary by approximately $10 for each machine hour (MH) used. It also knows that other costs arefixed costsof approximately $40,000 per month. Typically, the machine hours are between 4,000 and 7,000 hours per month. Based on this information, the flexible budget for each month would be $40,000 + $10 per MH.
Now let's illustrate the flexible budget by using different levels of volume. If 5,000 machine hours were necessary for the month of January, the flexible budget for January will be $90,000 ($40,000 fixed + $10 x 5,000 MH). If the machine hours in February are 6,300 hours, then the flexible budget for February will be $103,000 ($40,000 fixed + $10 x 6,300 MH). If March has 4,100 machine hours, the flexible budget for March will be $81,000 ($40,000 fixed + $10 x 4,100 MH).
On 1 July 2018, Batu Muda United acquired
copyrights of the football merchandise for RM20,000,000. The copyright
agreement was for a five-year period. During the initial six-month period of
the agreement, the club was unable to continue due to financial problems.
However, the club still needs to incur the costs for time losses.
Required:
Based on the above, describe whether the
copyrights are intangible assets based on MFRS 138 Intangible Assets.
Irfan Gadget Sdn
Bhd manufactures products for children and babies. Below is the budgeted cost
information of one of its products which is baby car seat for the month of July
2018 based on the budgeted production and sales of 4,000 units.
RM
Direct material:
Welding rods
(12,000 kg) 240,000
Fabrics (8,000
meters) 80,000
Direct labour
(8,000 hours) 160,000
Variable overhead 80,000
Fixed overhead 40,000
The variable
overhead cost is absorbed based on direct labour hours while the fixed overhead
cost is absorbed based on number of units produced. The standard selling price
of the baby car seat is RM200 per unit.
The actual data for
the month is as follows:
Units produced and sold 5,000
Selling price per unit RM180
Direct material:
Welding rods purchased and
used 12,500 kg@ RM18 per kg
Fabrics purchased and used 8,750 meters @ RM8 per meter
Direct labour 10,000
hours @ RM15 per hour
Variable overhead cost RM100,000
Fixed overhead cost RM40,000
Required:
a.Prepare
a standard cost for one unit of baby car seat.
b.Analyse
the following:
i)Direct
material price variance for welding rods
ii)Direct
material usage variance for fabrics
iii)Direct
labour rate variance
iv)Direct
labour efficiency variance
v)Variable
overhead expenditure variance
vi)Variable
overhead efficiency variance
vii)Fixed
overhead expenditure variance
viii)Fixed
overhead volume variance
ix)Sales
margin price variance
x)Sales
margin volume variance
c.Construct
a statement reconciling budgeted profit and actual profit for the month of July
2018 assuming Irfan Gadget Sdn Bhd has the following additional variances:
i.Direct
material usage variance of RM50,000 (F) for welding rods.
ii.Direct
material price variance of RM17,500 (F) for fabrics.
