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Question:Success Rainbow Pvt Limited (SRL) is engaged in the manufacturing and selling of roofing

sheets to both local and export markets. SRL produces three main categories of roofing sheets, namely,

  •  Color up sheet
  •  Supreme sheet
  •  Normal sheet
  • Out of the three categories of roofing sheets, Supreme has the highest demand due to its durability. The government has announced that from 2020 it is going to ban all manufacturing companies which use "sabbic" as a raw material, since processing of sabbic pollutes the environment. SRL uses sabbic to make Supreme, a durable sheet. Currently the company's research & development (R&D) department is researching on other raw materials that can give Supreme the same durability. During the year they have incurred significant costs in this regard. The R&D is funded by a related party loan.
  • Steel sheets are the main raw material used in the manufacturing process. It is imported from China and one shipment takes 20 days to arrive in Malaysia. However when the goods are manufactured as per the production budget, the existing stocks may not be sufficient at times. In such instances, the purchasing clerk has to place orders from India at a higher price than from China. The orders placed from India are received within a week.
  • The purchasing and inventory process of steel sheets is as follows:
  • The marketing team prepares a monthly production budget and sends it to the production
  • manager.
  • When stock level falls below a certain level, the stores clerk prepares and sends purchase
  • orders to the purchasing department.
  • The purchasing clerk places orders with suppliers by faxing the purchase order.
  • When goods are received by the stores, the stores clerk updates bin card and raises the
  • goods received note (GRN) for the quantity of stocks received as per the supplier's delivery
  • note.
  • The stores clerk updates the stock module based on the supplier's delivery note.
  •  A copy of the GRN is sent to the accounts department.
  • The accounts department staff updates the general ledger for stocks and payables based on
  • the supplier invoices.
  • In addition to the general ledger, the accounts department maintains a separate stock ledger,
  • since the stock module maintained by the stores is not linked to the general ledger.


At the month end, the invoices are settled by bank draft.

The statutory audit of SRL is currently done by Billa & Co. Chartered Accountants, who have been reappointed for the year ended 31 March 2016. In addition, the board of directors has requested Billa & Co. to perform a detailed system study of sales, purchases and collection, and recommend improvements to the system of internal controls.



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Required:



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Income statement for the year ended 31 March
2016
2015
$'000
$'000
Revenue
164,739
125,976
Less: Cost of sales
(92,659)
(55,284)
Gross profit
72,080
70,692
Other income
505
Administrative & establishment expenses
(22,479)
(13,876)
Selling & distribution expenses
(7,989)
(6,785)
Operating profit /(loss)
41,612
50,536
Finance cost
(1,541)
(1,389)
Profit/(loss) before taxation
40,071
49,147
Tax expense
(1,356)
(987)
Profit/(loss) for the year
38,715
48.160
Success Rainbow (Pvt) Limited
Statement of financial position as at 31 March
2016
2015
$'000
$'000
ASSETS
Non-current assets
Property, plant & equipment
3,442
2,818
Capital work in progress
31,777
35,219
2,818

Screenshot 2019-08-03 at 08.33.14.png

Current assets
Inventories
9,913
12,649
Trade debtors and other receivables
97,104
59,210
Short term investments
28,332
Amounts due from related parties
22,374
26,380
Cash at bank and in hand
125
1,723
129,516
128,294
Total assets
164.735
131.112
EQUITY & LIABILITIES
Capital & reserves
Stated capital
31,000
31,000
Retained earnings
105,441
87,997
136,441
118,997
Non-current liabilities
Amounts due to related parties
8,841
3,644
Interest bearing liabilities
1,915
1,236
10,756
4,880
Current liabilities
Bank overdraft
7,670
676
Creditors and accrued expenses
1,509
1,583
Interest bearing liabilities
8,359
4,976
17,538
7.235
Equity & Liabilities
164,735
131,112

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