Abdul Ghani performs house cleaning services and has his own home cleaning business. He is the sole owner of his business and is also the only one performing the cleaning services. Hence, he has not employed anyone to help him with his cleaning jobs. He travels to his customers’ homes using his motorbike which he bought for the purpose of his cleaning business. Abdul Ghani has no knowledge of double entry bookkeeping. Although he has kept minimum records of his transactions, he records everything correctly. As such, he has come to you, an accountant in a small accounting company, to seek help in preparing his accounts as well as providing him with any accounting advice that is necessary for the business to run smoothly.

The following balances were extracted from the books of Abdul Ghani. His year end is 28 February and the following balances relate to the year ended 28 February 2021.

Balances for the year ended 28 February 2021:

(RM)

Ladders and cleaning tools 850

Stock of cleaning materials and cloth at period end 3,400

Cash & bank balances 2,430

Customer owing 220

Accounts to be paid 300

Own wages 10,700

Cleaning revenues 17,944

Cleaning materials and cloth 100

Motorbike (net book value at 28 February 2021) 2,230

General & sundry expenses 210

Insurance 350

Accounting fees 250

Motor expenses 100

Temporary loan from Abdul Karim (brother) 2,000

Following a discussion with Abdul Ghani the following points have come to light. These items have not been included as he was not sure how to record them.

• Bank charges are to be charged for the year of RM45 – they are to be processed by the bank in June 2021.
• Insurances have been prepaid by RM50.
• There is a high probability that none of the amounts owed by the customers can be recovered but Abdul Ghani is very optimistic and wants to keep on trying and therefore wants a provision to be made of 50% of the balances.
• The accounting fees above of RM250 relate to the last accounting period, however, it was paid in this accounting period. Accounting fees for the current year ended 2021 are to be RM285.
• The ladders and tools, were all bought at the beginning of the accounting year, and will only last for two years and are to be depreciated using the straight line method with no disposal value.

In addition, for a long time now, Abdul Ghani has been thinking of surprising his wife with a new pair of gold earrings and bicycles for his kids. He is planning to use some money from the business bank account for these surprise gifts. He has asked you whether he can classify these as business expenses since it is his own business after all and his family deserves some form of compensation for the time he has lost with them due to his busy schedules.

a. In order to convey meaningful information, accountants must adjust accounting figures before preparing the financial statements. As such, you as the accountant must prepare all the necessary workings and ledger accounts, showing all year-end adjustments. (6.5 marks)

b. Prepare the Statement of Profit or Loss for the year ended 28 February2021. (10 marks)

c.  Prepare the Statement of Financial Position as at 28 February 2021 clearly showing Abdul Ghani’s opening capital, working capital (net current assets) and the net profit for the year. (10 marks)

d.  Abdul Ghani has heard about a treatment of fixed assets which he thinks is ‘consumables’. He wonders if his ladders could be treated as consumables and not depreciated. Write a report, using a fictitious name and address to Abdul Ghani to answer his query. In the report, you are also required to explain what drawings are in relation to a small business and answer his query concerning his gifts to the family as well as why he cannot include his own wages within expenses since they have been paid out from the business.