Adam Kleen Enterprise (AKE) was initially set up as a convenient shop selling laundry related items by
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 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
31 December 2020
Accounts Balances (RM)
Account Receivable 180,875
Merchandise Inventory 404,813
Office Supplies 4,000
Sale Supplies 6,875
Pre-paid Insurance 72,975
Office Equipment 288,750
Accumulated Depreciation - Office Equipment 85,113
Delivery Van 378,875
Accumulated Depreciation - Delivery Van 151,125
Account Payable 329,275
Salaries Payable 10,625
Interest Payable 7,037
Unearned Revenue 19,350
Notes Payable 281,250
Capital, Mr. Adam 684,000
Withdrawal, Mr. Adam 27,500
Sales Returns and Allowances 3,525
Sales Discounts 7,928
Cost of Merchandise Sold 445,174
Advertising Expense 9,113
Local municipal license 2,750
Depreciation Expense - Office Equipment 3,000
Depreciation Expense - Delivery Van 3,875
Delivery Van Repairs & Maintenance 3,125
Sales Salaries Expense 41,563
Sales Supplies Expense 8,560
Insurance Expense 5,625
Office Salaries Expense 12,162
Office Supplies Expense 3,862
Rental Expense 10,625
Utilities Expense 3,237
Interest Expense 1,875
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 RM180,000 was paid by cash.
5. Total cash receipts and disbursements from business operation were RM315,000 and RM255,000 respectively.
1. You are required to prepare the Financial Statements for AKE based on the balances as shown in the trial balance as of 31 December 2020.
Additional information was available after the Financial Statements in Part A were completed. Critically analyze, the effect of each of the following items separately on the affected accounts, net income/loss, and accounting equation of AKE:
(a) Depreciation to both office equipment and delivery van for a total of RM35,000.
(b) Unpaid salaries of RM20,000.
(c) Available balance of office supplies in hand was RM300.
(d) A total of RM7,800 of the unearned revenue was realized.
(e) A sum of RM40,500 insurance was not recorded.
(f) The billing department failed to send invoices to clients for a total sum of RM24,400.
(g) A new rental expense for equipment machines was journalized as a debit to office equipment for RM15,800 and a credit to Account Payable for RM15,800.
(h) Suppliers’ invoices amounting to RM135,000 were journalized as a debit to Merchandise Inventory for RM135,000 and a credit to Account Payable for RM153,000.
1. With the rapid expansion of AKE business, Adam is contemplating on the idea of opening one more branch at strategic location in a new housing area. The options available are either to rent the premise or to buy them. For the rental option, it will cost AKE about RM3,500 a month
for a single unit. On the other hand, the price of a single shop lot is RM450,000. The deposit required is RM50,000 for a unit while the balance will be financed through bank loan for 20 years with an estimated monthly loan instalment of RM2,800. Critically assess these two options 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. Analyze and explain to Adam what benefits and shortcomings of these two options.