Revision for Final Accounts

Pujaan Hati Kanda was one of the most watched drama in 2018/2019. It was an adaptation from a novel by Aulia Iman that received a rating for 12 million viewers in Malaysia. The last episode hit a staggering 5 million viewers and a massive of 30 millions in TV3 TonTon and Youtube platform.

Here is the link that you need to print and bring to class for exercise.

Pujaan Hati Kanda exercise

Exercise - Hire purchase

Hire purchase exercise

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.        

Hire Purchase - worked example in the book of purchaser

Interest payable on hire purchase

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…..

Flexible budgets

What is a flexible budget?

Definition of a Flexible Budget

A flexible budget is a budget that adjusts or flexes with changes in volume or activity. The flexible budget is more sophisticated and useful than a static 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 are fixed costs of 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).

taken from...https://www.accountingcoach.com/blog/flexible-budget

Exercise - MFRS 138 Intangible Assets

Exercise MFRS 138 Intangible Assets

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.

Exercise - Variance Analysis

Exercise

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.