1. The construction industry was enjoying good time three years ago.  During those year, your company bought few excavators to stay competitive in the market. Unfortunately business environment changed abruptly because of covod-19 pandemic. Movement Control Order caused construction industry to face greatest challenges in Malaysian history. A number of the excavators owned by your company are idling at the store. Each excavator was bought at the purchase price of RM 500,000 three years ago. Your company planned to use the excavator for five years before disposing it. The five years old excavator is expected to fetch a price of RM 50,000. The market value of the excavator depreciated by 40% in the first year. Your company has decided that the actual depreciation cost shall be reflected in the account.

1. Based on the above scenario, prepare 5 years depreciation schedule accordingly.

                                                                                                                                  

2. Three years later, the market situation becomes very bad. Your company decided to sell excavator to improve the liquidity status of the company. Unfortunately, the excavator can only be sold at RM10,000 even though it is only three years old. Advice your directors on what will happen to the company’s income statement and balance sheet account. Show your analysis.

3. The management is having problems to control the cost of machineries. The only way to move forward is to put all machineries under one unit as profit centre and let the manager of that unit be responsible for the profitability of the unit. Recommend briefly on how the performance of this unit should be monitored in term of cost and profit.

4. Propose five different ways of allocating general overhead cost to the unit in Question 1(c)

 

2.

After graduating from University Putra Malaysia, you are appointed as Project Manager in a construction company.  You are a member of a decision making committee of the company.  Your company has been awarded a project with a contract period of 4 years. A big portion of the project involved earthwork and required heavy machineries. You are invited by the directors of the company to explain and advise on financial matters related to the project and the company. You are expected to give recommendation on the following issues in the meeting:-

1. Your company is planning to buy a machinery at a price of RM600,000. The supplier is offering a hire and purchase scheme for 4 years full financing at a flat rate of 5%.  Advice the company on the estimated monthly installment.

2. The directors asked you on the feasibility to buy an excavator. The cost of the excavator is RM600,000. The salvage value after the completion of the project is RM200,000. Operation cost including operator’s salary, maintenance and other related cost is estimated at RM 5,000 per month. You have to pay a rental RM 800 per day if the company does not have its own excavator. Show your analysis to justify your recommendation.

3. Your company is planning to build a new office. The proposed 3 story building construction cost is RM 4 million. Your company is planning to rent out the ground floor at a rate of RM 4,000 per month. Your company will occupy the top two floors. The bank is offering 100% long term loan for 20 years. The bank is charging your company with an interest rate 6% per year.  Advice the extra monthly cash your company should allocate to pay the loan.

 

4. Your company is planning to buy a new machinery in the next 4 years. This is expected to cost you around RM 600,000 at that time. You are ask to recommend on the amount of money for the company to set aside every month in an account that earns an interest 4% per annum calculated monthly. How much the company need to save monthly so that it can buy the machinery without taking any loan from the bank? Show your calculation.

5. You plan to take a bank loan to finance the project. Propose one type of loan that will be suitable for the purpose. Give reason to your proposal

 

 

3.

The country is expected to face financial crisis next year because of the corvid 19 pandemic, over supply of property and other economic factors. Your company which is specializing in housing construction is expected to be badly affected because of fewer jobs available in the market. As the director of the company, you have to decide on the company’s tendering strategy to remain competitive in the market. The company’s overhead cost is around RM 1,200,000 per year. The shareholders request that the company pay 10% dividend for their RM,3,000,000 shares in the company. With the existing set up, your company can only undertake a total value of job not exceeding RM50,000,000.

1. Propose a suitable profit and markup for each project to meet the company’s financial obligation. Assume that the company will be able to secure RM40,000,000 worth of job.

2. Your company has added profit and overhead mark-up of 8% to the direct cost for a job tendered last month. The job was awarded to the lowest bidder with the price of RM 18 million. Your company’s tender price for the job was RM 20.0 million. Recommend the profit and overhead markup to be applied by your company to be the lowest bidder.

3. Previous records show that the company’s material cost control is not satisfactory. Suggest a material procurement and cost control procedure to improve the situation. Explain the process and the documents involved along the process.

4. Identify 2 other special challenges faced by the construction industry that make construction business a risky venture.

4.

You are working as a general manager in a construction company. One of the company’s project is estimated to cost RM 8.8 million. It is an emergency job and need to be completed in 5 months’ time. The project started at the beginning of the year. The client promised to pay the whole contract amount 2 month after the completion of the project. Your company has decided to pay all parties involved in the project by cash. 4 major activities were identified under the work breakdown structure:-

• Activity A with the budgeted cost of RM 2,000,000 is scheduled to begin at the beginning of month 1 and finish at the end of month 4.
• Activity B with a budgeted cost of RM 1,600,000 is scheduled to begin at the start of month 1 and complete at the end of month 2.
• Activity C with a budgeted cost of RM 2,400,000 is scheduled to begin at the start of month 3 and finish at the end of month 5.
• Activity D with a budgeted cost of RM 2,800,000 is scheduled to begin at the start of month 3 and finish at the end of month 5.

At the end of month 4, Activity A is 90% completed, Activity B is 80% completed, Activity C is 90% completed and Activity D is 30%. The actual cost spent on the project is RM 6,050,000.

1. Analyse and explain the status of the project at the end of month 4. The status must include:-

• The overall progress against schedule
• The actual cost against budget and
• The expected completion date of the project

Show your calculation to support your explanation.

2. Determine the estimated cost at completion and the estimated cost to complete the project.

3. What is the assumption used to determine the above estimate? Explain how the estimate can go wrong.

4. Recommend a suitable accounting method to be used for the above project. Give reason for your recommendation.

 

5.

Your company is getting a housing renovation job which has to be completed in 4 month time. The planned financial progress is as shown in the following table:-

Month	Progress (RM)
1	100,000
2	245,000
3	250,000
4	195,000

 

You plan to submit the invoice at the end of every month to the client. Your client has agreed with the terms and conditions as follows:-

• The owner pays the bill one month after receiving it from the company.
• A 10% retention fund will be deducted from each payment. The retention fund will be paid one month after the completion of the project.

Your company pays its sub-contractor after receiving payment from the owner minus 5% retention of the sub-contractor‘s payment. The retention will be paid one month after the project is completed. Full payment for the labour is made every week. The supplier is giving one month credit term for the material supplied to the company. 

Your estimator has prepared the cost schedule for a project as shown in the following table:-

Month	Material (RM)	Labour (RM)	Sub- Con (RM)
1	30,000	45,000	25,000
2	50,000	40,000	110,000
3	60,000	85,000	100,000
4	10,000	40,000	100,000

 

1. Prepare monthly cash flow at the end of every month. Assume that you have to pay the labour cost before you receive the payment for each month.

2. Recommend to the company the maximum cash invested for the project.

3. Give two suggestions to reduce the cash requirement for the project.

4. Determine the gross profit margin of the project.

Answer rating: 100% (QA)

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