QUESTION 4 (20 MARKS)

Assume that Covidabravo Sdn. Bhd. is a large merchandising wholesale business operating

in Malaysia. The company is affected by the Covid-19 pandemic. Hence, the top

management has called for ideas on potential strategies recommendation to overcome

potential negative impact of the pandemic on profitability and solvency of the company.

As one of the bright new management executives, you are eager to present your

recommendation in the next coming online management meeting. To do that, you need to

show some calculations, based on prior years' financial statements, that support your

recommendations. You concentrated your study of financial statements on the company's

statement of profit or loss and other comprehensive income.

The statement of profit or loss and other comprehensive income for Covidabravo Sdn. Bhd.

of selected prior years is presented below:

Covidabravo Sdn. Bhd.

Statement of Profit or Loss and Other Comprehensive Income

Year Ended 31 December

2019 2018 2017

RM (000) RM (000) RM (000)

Sales** 32,376 30,601 27,799

Cost of merchandise sold 17,405 16,534 15,353

Gross profit 14,971 14,067 12,446

Sales expense 3,278 3,213 3,031

Administrative expense 7,191 6,679 5,735

Total selling and administrative expense10,469 9,892 8,766

Interest expense 19 28 33

Other income 140 58 -103

Income before income taxes 4,623 4,205 3,544

Income tax expense 863 932 851

Net income 3,760 3,273 2,693

**Assume that all sales are on account.

Below is the excerpt of Covidabravo Sdn. Bhd.'s statement of financial position's data.

2019 2018

Assets RM (000) RM (000)

Current Assets:

Cash and equivalents 3,138 3,852

Short-term investments 2,319 2,072

Accounts receivable (net) 3,241 3,358

Inventories 4,8384,337

Prepaid expenses and other current assets1,4891,968

Total current assets 17,46418,174

Property, plant and equipment 3,5203,011

Intangible assets (net) 412412

Total Assets 21,39621,597

The following is additional information (in thousands) related to the company:

RM (000)

Accounts receivable at 31 December 2017 3,117

Merchandise inventories at 31 December 20174,142

Total assets at 31 December 2017 18,594

Accounts payable at 31 December 2017 2,131

Total current liabilities at 31 December 2017 6,332

Stockholders' equity at 31 December 2017 12,000

REQUIRED:

(a) Determine the following measures for the fiscal years ended 31 December 2019 and

2018. Round ratios and percentages to one decimal place.

(i) Accounts receivable turnover

(ii) Number of days' sales in receivables

(iii) Inventory turnover

(iv) Number of days' sales in inventory

(v) Ratio of sales to asset

(10 Marks)

(b) What conclusion(s) can be drawn from each of the analysis done in part (a)?

(5 Marks)

(c) Based on your answer in part (b), recommend TWO (2) potential strategies that can

be used to maintain or improve the efficiency of inventory, sales and accounts

receivables management to minimise the impact of Covid-19 pandemic on its

profitability and cash flows.

(5 Marks)

QUESTION 5 (20 MARKS)

TG Sdn. Bhd. is an electrical manufacturing company located in Pagoh. It is a wellestablished company with a favorable reputation for the quality of their products. The

company manages to increase its production to meet their customer's demand. Among the

company's goals is to have a better management in controlling product costs. Presented

below is the information for the year ended 31 December 2019:

RM

Sales 6,300,000

Sales Expenses 210,000

Administration Expenses 135,000

Income Tax Expenses 75,000

Direct Material Purchased 1,650,000

Direct Labour 840,000

Indirect Labour 360,000

Depreciation Expenses - Factory Machine 45,000

Utilities Expenses 135,000

Depreciation Expenses - Factory Building 90,000

Insurance Expenses 60,000

Supplies Expenses 75,000

Other Expenses 90,000

Finished Goods Inventory, 31 December 2019 390,000

Work-in-process Inventory, 31 December 2019 162,000

Direct Material Inventory, 31 December 2019 105,000

Additional information:

1. The opening inventory on 1 January 2019 for finished goods, work-in-process and

direct materials are RM540,000, RM195,000 and RM90,000, respectively.

2. Utility, insurance, supplies and other expenses for factory and office are allocated

as below:

Factory Office

Utility expenses 40% 60%

Insurance expenses 50% 50%

Supplies expenses 20% 80%

Other expenses 10% 90%

REQUIRED:

(a) Prepare the Statement of Cost of Goods Manufactured for the year ended 31

December 2019.

(12 Marks)

(b) Prepare the Statement of Profit or Loss and Other Comprehensive Income for the

year ended 31 December 2019.

(8 Marks)