QUESTION 1

Overall, there are 3 statutory bodies will require the preparation of financial statements

by public limited companies are Companies Commission of Malaysia, Securities

Commission and Banking and Fin Act.

Securities commission is a public sector body established under the Securities

Commission Act, 1993. It main functions are the encouragement and promotion of the

development of the capital market in Malaysia and to maintain the confidence of

investors.

Meanwhile, the Companies Commission of Malaysia is developed to amalgamate the

activities of the former Registrar of Companies and Registrar of Businesses. It also

regulates matters relating to corporations, companies and businesses.

Lastly, the Banking and Financial Act was established the Financial Reporting

Foundation (FRF) and the MASB. The respective section 27 deals with compliance with

approved accounting standards of the MASB for all companies.

QUESTION 2(A)

Adjusting entries are journal entries usually made at the end of an accounting period to
allocate income and expenditure to the period in which they actually occurred. The
revenue recognition principle is the basis of making adjusting entries that pertain to
unearned and accrued revenues under accrual-basis accounting. They are sometimes
called Balance Day adjustments because they are made on balance day. Basically,
there five types of adjusting entries, namely
(a) Accrued revenues
(b) Unearned revenues
(c) Accrued expenses
(d) Prepaid expenses
(e) Others such as depreciation of fixed assets, allowances for bad debts, and
inventory adjustments.

There must be adjustments made to bring some of the accounts up to date. Accruals,
deferrals etc. must be brought up to date so the financial statements, etc. will present an
accurate balance. Other wise, the income statement, or balance sheet might be
overstated or understated. In which case, an accurate evaluation of the business or
corporation would not be possible.

At the mean time, the adjustments entries are made to ensure that the company's
financial records adhere to the revenue recognition and matching principles.
Adjusting entries are necessary because a single transaction may affect revenues or
expenses in more than one accounting period and also because all transactions
have not necessarily been documented during the period.
QUESTION 2(B)

It is important to determine whether the prepayment should be recognized as current

asset or as an expense when preparing adjusting entries because if it is consider as
current assets, then it will be categorized in depreciation expense and the entry is made
at the end of the accounting period and acknowledges the usage of the assets as
expenses. Meanwhile, it is expense, then it will be considered as prepaid expenses
whereby refers to all expenses that have been paid in advance by cash but the benefits
from the expenses has not been received or obtained. Adjusting entries must be made
at the end of the accounting period to recognize assets that have been written off as
expenses.

In the conjunction, different kinds of categories will need to do different kind of adjusting
entries. As a conclusion, it produces a different types and results of adjusting entries.
QUESTION 2(C)

The two types of adjusting entries required reversing entries are:

(a) Depreciation expenses
(b) Prepaid expenses

QUESTION 2(D)

(I) The unexpired portion of advertising expenses was RM800

28 February 2009 Advertisement Expenses Dr. RM800

Advertisement Prepayment Cr. RM800

(II) The amount of salesman’s commission owing at the last date of financial period was
RM700

28 February 2009 Salesman’s Commission Dr. RM700

Salesman’s Commission Payment Cr. RM700

(III) RM 600 of the insurance expenses is meant for the next financial period

28 February 2009 Insurance Expense Dr. RM600

Insurance Payment Cr. RM600

(IV) Office Machinery repairs owed were RM300

28 February 2009 Office Machinery Maintenance Expense Dr. RM300
Cash Cr. RM300
(VI) There were RM300 of selling expenses owing at 28th February 2009

28 February 2009 Selling Expenses Dr. RM300

Cash Cr. RM300

(VI) RM100 of the miscellaneous expenses was yet to be used.

28 February 2009 Miscellaneous Expenses Dr. RM800

Cash Cr. RM800

(VII) Mortgage interest of RM1, 500 is yet to be paid.

28 February 2009 Mortgage Interest Expenses Dr. RM1500

Mortgage Interest payment Cr. RM1500

(VIII) A total of RM400 of interest on bank loan is still unpaid.

28 February 2009 Bank Interest Expenses Dr. RM400

Bank Interest Payment Cr. RM400

(IX) As at 28th February 2009, RM200 of bank interest revenue was earned but yet to be
received.

28 February 2009 Cash Dr. RM200

Received Bank interest Cr. RM200
QUESTION 2(E)

Date Description RM (Debit) RM (Credit)

28 Feb 09 Unused Advertising 800
Advertising 800
28 Feb 09 Salary expense 700
Salary accrued 700
28 Feb 09 Insurance expense 600
Insurance repayment 600
28 Feb 09 Mortgage interest expense 1500
Mortgage interest repayment 1500
28 Feb 09 Bank Interest expense 400
Bank interest repayment 400
28 Feb 09 Unearned bank Revenue 200
Bank Revenue 200
TOTAL 4200 4200

QUESTION 2(F)

28 February 2009
Dr. Advertising 800
Bank Interest Revenue 200
Cr. Revenue Summary 1000
(Closing all revenue accounts)

Dr. Revenue Summary 3200

Cr. Salary expense 700
Cr. Mortgage interest repayment 1500
Cr. Insurance interest repayment 600
Cr. Bank Interest repayment 400
(Closing all expenses accounts)

QUESTION 2(G)

Account Title Debit (RM) Credit (RM)

Advertising expense 800
Advertising Payable 800
Account Title Debit (RM) Credit (RM)
Salary expense 600
Salary payable 600

Account Title Debit (RM) Credit (RM)

Mortgage Interest expense 1500
Mortgage interest payable 1500

Account Title Debit (RM) Credit (RM)

Bank Interest expense 400
Bank Interest payable 400

REFERENCES

(1) Jack Le Moine. (2004). Adjusting Entries.

http://www.lemoineandjames.com/gaap/73aje.html (5 March 2010)
(2) Wikipedia (2010). Adjusting Entries. http://en.wikipedia.org/wiki/Adjusting_entries
5 March 2010)

(3) Wiley Publishing, Inc. (2010). Adjusting Entries.

http://www.cliffsnotes.com/WileyCDA/CliffsReviewTopic/Adjusting-
Entries.topicArticleId-21081,articleId-21016.html (5 March 2010)

(4) Internet Center for Management and Business Administration, Inc. (2010).
Reversing Entries. http://www.netmba.com/accounting/fin/process/reversing/
(5 June 2008)

(5) QuickMBA. (2010). Closing Entries.

http://www.quickmba.com/accounting/fin/closing-entries/ (5 March 2010)

(6) NetMBA.(2010). Reversing Entries.

http://www.netmba.com/accounting/fin/process/reversing/ (5 March 2010)