Mr. Bekal operates Changlun AutoParts Enterprise, an online automotive distributorship that is in its third year of operation. The followingStatement of Profit or Loss and Other Comprehensive Incomewas prepared for the year ended 30 September 2019.

Changlun AutoParts Enterprise

Statement of Profit or Loss and Other Comprehensive Income

For the Year Ended 30 September 2019

Revenues:

Sales

1,350,000

Rent revenues

15,000

Total revenues

1,365,000

Expenses:

Cost of merchandise sold

810,000

Selling expenses

140,000

Administrative expenses

90,000

Interest expense

4,000

Total expenses

1,044,000

Net income

MYR321,000

Mr Bekal is considering a proposal to increase net income by offering sales discounts of 2/15, n/30 and by shipping all merchandise FOB shipping point. Currently, no sales discounts are allowed, and merchandise is shipped FOB destination. It is estimated that the new terms will increase sales by 10%. The ratio of the cost of merchandise sold to sales is expected to be 60%. All selling and administrative expenses are expected to remain unchanged, except for store supplies and miscellaneous selling expenses, which are expected to increase proportionately with increased sales. The amounts of these items for the year ended 30 September 2019, were as follows:

Store supplies expense

12,000

Miscellaneous expenses

6,000

The rent revenue and interest expense will remain unchanged. The shipment of all merchandise FOB shipping point will eliminate all delivery expenses, which for the year ended 30 September 2019, were MYR12,000.

REQUIRED:

1.discuss the potential benefits and limitations** of the above proposal. Your presentation must emphasis on justifications whether the employment of FOB shipping point and the sales discounts will assist in achieving thetargeted 10% increase in sales and net income for the business.

2.support your arguments with written determination (calculation) of the net income that Changlun AutoParts Enterprise could generate next year under the new proposal, assuming that all sales are collected within the discount period.

3.Recommend potential strategies related to trade/cash discounts, credit terms and shipping terms you think could be used to improve the sales and income of the business.

4.Your discussion should include a short criticise on the use of single step Statement of Profit or Loss and Other Comprehensive Income while highlighting the benefits of using multiple-steps statement for improved decision making.