Q2 In 2018, Therapy 4U Berhad reported sales of RM7.5 million, with a net income of RM150 000 after paying its shareholders dividend of 15%. The company anticipates its sales will increase 25% in 2019 with a profit margin of 4%; however, no dividend will be paid due to its expansion needs. Assume the company is at full capacity, therefore, its assets and spontaneous liabilities will increase proportionately with an increase in sales. Therapy 4U Berhad has the following financial information of December 31, 2018: Assets: Current assets RM 130 000 Fixed assets Liabilities RM 720 Account payables 000 480 000 Accruals Notes payable Long-term debt 110 000 120 000 450 000 RM 810 000 Equity Common stock Retained earnings RM 200 Total claims 000 310 000 80 000 RM1 200.000 Total assets Determine the amount of retained earnings available for Therapy 4U Berhad in 2019. (2 marks) (b) Construct Therapy 4U's pro-forma statement of financial position (balance sheet) using the percentage of sales method. (10 marks) (c) Calculate Therapy 4U's new additional fund needed (AFN) using the AFN formula when (i) sales increased to 30% instead of 25%. (2 marks) (ii) profit margin is expected to decrease to 3.5% due to increases in the operating expenses, with no changes in its sales as noted in (i). (2 marks) (iii) dividends are paid at a payout ratio of 8% in order to satisfy its shareholders, with no changes in its sales and profit margin as noted in (i) and (ii). (iv) sales and profit margin as noted in ) and (ii). dividends are paid at a payout ratio of 8% with changes in its (3 marks) (d) What could you conclude from your answers in (c)? What actions should Therapy 4U Berhad take in order to reduce its AFN? (3 marks) (25 marks) Q2 In 2018, Therapy 4U Berhad reported sales of RM7.5 million, with a net income of RM150 000 after paying its shareholders dividend of 15%. The company anticipates its sales will increase 25% in 2019 with a profit margin of 4%; however, no dividend will be paid due to its expansion needs. Assume the company is at full capacity, therefore, its assets and spontaneous liabilities will increase proportionately with an increase in sales. Therapy 4U Berhad has the following financial information of December 31, 2018: Assets: Current assets RM 130 000 Fixed assets Liabilities RM 720 Account payables 000 480 000 Accruals Notes payable Long-term debt 110 000 120 000 450 000 RM 810 000 Equity Common stock Retained earnings RM 200 Total claims 000 310 000 80 000 RM1 200.000 Total assets Determine the amount of retained earnings available for Therapy 4U Berhad in 2019. (2 marks) (b) Construct Therapy 4U's pro-forma statement of financial position (balance sheet) using the percentage of sales method. (10 marks) (c) Calculate Therapy 4U's new additional fund needed (AFN) using the AFN formula when (i) sales increased to 30% instead of 25%. (2 marks) (ii) profit margin is expected to decrease to 3.5% due to increases in the operating expenses, with no changes in its sales as noted in (i). (2 marks) (iii) dividends are paid at a payout ratio of 8% in order to satisfy its shareholders, with no changes in its sales and profit margin as noted in (i) and (ii). (iv) sales and profit margin as noted in ) and (ii). dividends are paid at a payout ratio of 8% with changes in its (3 marks) (d) What could you conclude from your answers in (c)? What actions should Therapy 4U Berhad take in order to reduce its AFN? (3 marks) (25 marks)
