SAMSAM Tech Bhd is a company that specializes in supplying computers and IT equipment. The company started in 2012, and after eight years of incorporation, SAMSAM Tech has successfully dominated the Malaysia market, however, during the past three years, the company sales dropped due to the individuals and organizations less purchasing power. In 2016, the sales drop by 15%. Comparing the sales performance in 2012, the sales reported in 2017 and 2018 shown a constant drop in sales by 6% and 9% respectively. Since its incorporation, SAMSAM Tech practices: Company uses cash sales to all individual buyers. The Credit term 5/15, n/60 is given to organizations that purchase above RM40,000. The Credit term of 5/10, n/30 is given to organizations that purchase above RM2,000. For government organizations that make purchases via LPO (Local Purchase Order), they are charged 15% higher than normal prices and no credit terms are provided. (LPO: Local Purchase Orders are typically used when a buyer wants to purchase supplies or inventory on account. This means the seller/supplier delivers or ships the purchased items prior to payment. Payment may take weeks or months.) Company purchases inventory from one supplier. Deposits (40% from sales) are collected from every credit sale. (No deposit is collected for purchases via LPO). Company uses gross method is used in recording purchase discount. Company uses perpetual inventory system. The provision of doubtful debts is 3% of annual credit sales. Followings are the balances of accounts (partial) as at 31 December 2019. Account receivables: RM500,980 Account payables:RM670,000 Subsidiary account receivables: Putra Heritage Bhd: RM43,200 Warisan Tiong Chun: RM56,896 Subsidiary account payables: RIZTech Bhd: RM500,760 Cheap & Good Stationery Bhd: RM169,240 11 Sekolah Kebangsaan Dua Nilam: RM300,000 Polytech Gua Gayung: RM100,884 Provision of doubtful debt: RM10,000 Followings are the transactions for 2020. Month Transaction January On 2 January, Delima Sakura Bhd purchased 2 units of laptop with a total price of RM8,000 (exclusive of 6% GST) by cash. On 5 January, Putra Heritage Bhd paid for the purchases made on 22 December 2019. On 14 January SAMSAM Tech received payment from Sekolah Kebangsaan Dua Nilam. The purchase by Sekolah Kebangsaan Dua Nilam was made on 31 December 2019 via LPO. On 25 January, Warisan Tiong Chun made a payment for the purchases that took place on 13 November 2019. February Mr. Asuka Borhan, a student of UMM, purchased computer accessories with a total price of RM350 (exclusive of 6% GST). March On 1 March, Polytech Gua Gayung made payment for the purchases that was made on 31 December 2019. On 23 March, Mesra Alam Klinik bought 3 sets of new desktop and a new portable printer by cash. The price for each desktop is RM2,200 and printer is RM800. The price is exclusive of 6% GST. April On 30 April, SAMSAM Tech Bhd purchased 200 units of laptop, 200 units of wireless mouse, 50 units of LCD monitor, 35 units of printer, 40 units of wireless keyboards and 30 units of web camera from its supplier. SAMSAM Tech Bhd pays cash. The price (exclusive of 6% GST) of each items bought are: Laptop: RM2,500 Wireless mouse: RM30 LCD monitor: RM1,500 Printer: RM200 Wireless keyboard: RM125 Web camera: RM270 June On 13 June, Husnin Sdn Bhd bought two printers and a laptop, on account, that each price is RM700 and RM3,300 respectively. The price is exclusive of 6% GST. July On 12 July, there is no payment received from Husnin Sdn Bhd. August On 4 August, SAMSAM Tech placed an order of two units of custom made office partition and three units of exhibition racks from Jenting 12 Emas Sdn Bhd. Jenting Emas Sdn Bhd informed SAMSAM Tech that the products will take about two months to be ready for delivery. September SAMSAM Tech cannot contact Husnin Sdn Bhd. From investigation done SAMSAM Tech reasonably believed that Husnin Sdn Bhd has ceased its operation and the amount due is uncollectible. October On 1 October, SAMSAM bought a new van. A full loan of RM78,800 was made with Bank Kesatria to finance the purchase. Interest rate of the bank loan is 3%.The due date for the loan is 1 October 2024. On 5 October, SAMSAM Tech received a call from Jenting Emas Sdn Bhd that the partition and exhibition racks are not ready for delivery. It will take another 3 months for the items to be ready. November SAMSAM launched its first IT Gadget Magazine. Marketing was conducted in a few nearby shopping complexes. The account clerk, Mr. David credited the cash account of RM17,000 in recording the marketing expense transaction. The first magazine will initially be sold in January 2020. December SAMSAM received RM60 from Up2Date Sdn Bhd for the annual subscription of IT Gadget magazine starting January 2020. Additional information: Year 2016 2017 2018 2019 Current ratio 3.5 2.8 2.4 1.9 Debt ratio 0.22 0.29 0.35 0.51 Ending inventory 99,567 121,200 187,300 220,000 END OF CASE CASE INSTRUCTIONS: (a) Prepare the necessary journal entries for the above transactions. (b) Study the credit terms provided by the SAMSAM Tech. What are the strengths and/or the weaknesses of the credit terms? You may point out the: i. discount rate (is the rate too low/too high?), ii. period (is the period too short/too long?), iii. amount of purchases been provided discount rate (is the amount reasonable?), iv. other points. (c) Mr. Haris, the account assistant, was asked by Madam Huzaini, the Director, to give his opinion on the credit sales practices of the company. Based on your answer in (b), suggest to Mr. Haris the possible ways that SAMSAM Tech can do to help increase more sales in the future. 13 (d) SAMSAM Tech currently charge 15% higher than normal prices to government organizations that make a purchase using LPO. In your opinions, does the rate is reasonable? Justify your answer. (e) Madam Huzaini asked Mr. Nabil, the financial controller, to give his opinion regarding the companys plan to make RM500,000 bank loan. The plan was initiated with an aim to expand business. The money will be used for marketing purpose and also to inject new capital for business operation. If you are Mr. Nabil, what will you report to Madam Huzaini regarding the plan? Do you think there is a good chance for the bank to approve the loan? Justify your answer.