Question 3

The following are extracted from the financial statements of Forum Bhd., for 2018, 2017, and 2016.

	2018	2017	2016
Net sales	RM233,000	RM204,000
Cost of sales	(124,000)	(110,000)
Selling and administrative expenses	(95,000)	(81,500)
Other income:
Interest	(3,700)	(3,050)
Other	100	1,175
Earnings before tax and extraordinary credit	RM 10,400	RM 10,625
Provision for income tax	(4,800)	(4,740)
Earnings before extraordinary credit	5,600	5,885
Extraordinary credit	-	1,510
	RM 5,600	RM 7,395
Total assets	RM202,000	RM173,000	RM161,000
Long-term debt	24,600	17,400	15,200
Common equity	123,000	116,800	112,800
Preferred stock	4,000	4,000	4,000
Preferred dividends	280	280	280

Required:

(a).	Compute the following ratios for 2018 and 2017: (20 marks)
	(i)	Net profit margin
	(ii)	Total asset turnover
	(iii)	Return on assets
	(iv)	Return on investment
	(v)	Return on total equity
	(vi)	Return on common equity
	(vii)	Gross profit margin
(b)	Discuss the trend in profitability and identify specific causes for the trend.

(5 marks)

[Total : 25 Marks]

Question 4

(a) The income statement and other selected data for Patuh Bhd is shown below.

Patuh Bhd
Accrual Basis Income Statement
For the Year Ended December 31, 2019
Net sales	RM900,000
Expenses
Cost of goods sold	550,000
Selling and administrative expense	133,000
Total expenses	RM683,000
Income before income taxes	217,000
Income taxes	65,400
Net income	RM151,600

Other data:

1.	Cost of goods sold includes depreciation expense of RM20,000.
2.	Selling and administrative expense includes goodwill amortization of RM10,000.
3.	Decrease in deferred income taxes (a liability account), RM5,000.
4.	Increase in accounts receivable, RM20,000.
5.	Increase in accounts payable, RM10,000.
6.	Increase in inventories, RM30,000.
7.	Decrease in income taxes payable, RM20,000.

Required:

(i)	Prepare a cash basis income statement. (14 marks)
(ii)	Prepare the cash flows from operating activities using the indirect approach. (9 marks)

(b) Depreciation is often considered a major source of funds. Do you agree? Discuss. (2 marks)

[Total : 25 Marks]