question archive BACKGROUND Adam Kleen Enterprise (AKE) was initially set up as a convenient shop selling laundry related items by Adam Bollan
BACKGROUND Adam Kleen Enterprise (AKE) was initially set up as a convenient shop selling laundry related items by Adam Bollan. Despite having good results in the national-level examination and was even offered a place at a public university, he decided to pursue his ambition of becoming a successful entrepreneur. It all started with a humble beginning of selling detergents and fabric softeners. Soon, it was followed by personalized delivery to the doorsteps of his customers based on the latter schedules. This has certainly created a satisfied and growing number of newer customers and within a year, AKE has doubled the items in the shop to meet higher demands. AKE was a given a breakthrough when it successfully won a tender to provide detergents and softeners for a laundry service contractor of a local government hospital. From here, there was a no turning back for Adam as he steered AKE into other related services such as selling specially packed detergents and fabric softeners, medical disposables, and other relevant rental services. When the Covid- 19 pandemic hit the country, AKE was given another business opportunity of supplying personal protective equipment (PPE) to the hospital employees. Adam Kleen Enterprise Trial Balance 31 December 2020 Accounts Credit Balances Debit Balances 567,000 180,875 404,813 4,000 6,875 72,975 288,750 Cash Account Receivable Merchandise Inventory Office Supplies Sale Supplies Pre-paid Insurance Office Equipment Accum.Depre. - Office Equip. Delivery Van Accum. Depre. - Delivery Van Accounts Payable Salaries Payable Interest Payable Unearned Revenue 85,113 78,875 151,125 329,275 10,625 7,037 19,350 281,250 684,000 27,500 929,887 3,525 7,928 454,637 1,913 7,550 Notes Payable Capital, Mr. Adam Withdrawal, Mr. Adam Income Summary Sales Sales Returns and Allowances Sales Discounts Purchases Purchases Returns and Allow. Purchase Discounts Freight-in Advertising Expense Depre. Expense - Office Equip. Depre. Expense - Delivery Van Del. Van Repairs & Maintenance Sale Salaries Expense Sale Supplies Expense Insurance Expense Office Salaries Expense Office Supplies Expense Rental Expense Utilities Expense Interest Expense 9,113 2,750 3,000 3,875 3,125 41,563 8,560 5,625 12,162 3,862 10,625 3,237 1,875 2,507,125 2,507,125 Additional information: The following items are related to cash transactions throughout the year. Cash and cash equivalents as of 1 January 2020 was RM554,500. 1. Adam made a total cash withdrawal of RM27,500 in 2020. 2. AKE received cash RM10,000 from the disposal of an old van. 3. An additional cash of RM150,000 was brought in by Adam to increase his stake in AKE. 4. AKE bought a piece of land for future operational expansion. A total amount of RM180,00 was paid by cash. 5. Total cash receipts and disbursements from business operation were RM315,000 and RM255,000 respectively. PART B: Additional information was available after the Financial Statements in Part A were completed. Critically analyse the effect of each of the following items separately on the performance (net income/loss) and accounting equation of AKE: Depreciation to both office equipment and delivery van for a total of (a) RM35,000. (b) (c) (d) (e) (f) Unpaid salaries of RM20,000. Available balance of office supplies in hand was RM300. A total of RM7,800 of the unearned revenue was realized. A sum of RM40,500 insurance already expired. The billing department failed to send invoices to clients for a total sum RM24,400. A new rental service for drying machines was not recorded for a total of RM15,800 Suppliers' invoices amounting to RM135,000 were misplaced and only discovered. of (g) amount (h) recently PART C: 1. With the rapid expansion of AKE business, Adam is contemplating on the idea of opening 3 more branches at strategic locations in some new housing residentials. The options available are either to rent the premises or to buy them. Critically assess and explain to Adam how each of the options will be impacting the operational costs of AKE. 2. Adam is undecided whether to buy a higher volume of cleaning inventories for a better price from the suppliers or keep its existing practice of buying as-when- needed basis. The former will require additional space to store the inventories while the latter is sufficient with the existing facility. Analyse and explain to Adam what benefits and shortcomings of these two options.