Sample Cases

Topics: Procurement, Invoice, Accounts receivable Pages: 8 (1557 words) Published: May 21, 2015
CASE 1: EXPENDITURE CYCLE

Question - Part I

The MDEKA Sdn Bhd is a manufacturer of agriculture equipments servicing the southern region of peninsular Malaysia. The management generally has been pleased with the overall operations of the company to date.

Procurement System

However, the present procurement system has evolved through practice rather than having been formally designed. The management is of the opinion that the present procurement system is inadequate and needs revising to ensure the objectives of the procurement system are met. With the intention of understanding the current procurement system, the development team has analyzed and identified several documents that are crucial to the system. The documents identified are:

1. Vendor Invoice
2. Purchase Order
3. Disbursement Voucher
4. Purchase Requisition
5. Packing Slip
6. Receiving Report
7. Cheque

The management of MDEKA intends to redesign the procurement system from the point in time when an item needs to be ordered until payment is made. The system should be designed to ensure that all the proper controls are incorporated into the system.

Required:

a) Identify the internally generated documents and indicate the number of copies of each document that would be needed. Why?

b) Describe the application controls that should be place if each of these internally generated paper documents were replaced by electronic forms.

Suggested Solutions

Part I

(a)
Document
Source
# of copies
Purpose
Purchase order
Internal
5
1 - vendor
2 - accounts payable
3 - receiving
4 - requesting department
5 - purchasing
Purchase requisition
Internal
2
1 - purchasing
2 - requesting department
Receiving report
Internal
3
1 - to accounts payable via inventory stores
2 - purchasing
3 - files in receiving
Check
Internal
2
1 - original to vendor
2 - copy in voucher pkg.
Disbursement voucher
Internal
1
authorizes payment of invoice(s)

(b)A large number of controls are possible, including:

Document
Application Controls
Purchase Order
Validity checks on item number and vendor number; limit checks on amount; completeness check

Purchase Requisition
Validity checks on item, clerk, and supervisor numbers; completeness checks; reasonableness test comparing date needed to date requested

Receiving Report
Validity checks on vendor, item, and employee numbers; completeness check

Check
Sequence check on check number; validity check on vendor, invoice, and employee numbers; limit check on amount

Disbursement voucher

Validity checks on purchase order, receiving report, and vendor numbers

Question - Part II

MDEKA recently purchased over RM1 million worth of office equipment under its “special ordering” system, with individual orders ranging from RM500 to RM5000. Special orders are for low volume items that have been included in an authorized users’ budget. As part of their annual budgets, department heads request equipment and specify estimated cost. The budget, which limit the types and ringgit amounts of office equipment a head department can requisition. The special ordering system functions as follows:

Upon receiving a purchase requisition, one of the five purchasing agents verifies that the requester is indeed a department head. The purchasing agent next selects the appropriate supplier by searching the various catalogs on file. The purchasing agent then phones the supplier, requests a price quote and places a verbal order. A prenumbered purchase order is processed, with the original sent to the supplier and copies to the department head, receiving and account payable. One copy is also filed in the open-requisition file. When the receiving department verbally informs the purchasing agent that the item has been received, the purchase order is transferred from the open to the closed fie. Once a month, the purchasing agent reviews the open file for follow up purposes.

The...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Sample Paper
  • Statistics
  • Communication Research notes sample Essay
  • Essay about Hospital Case Study Statistics
  • Essay on Survey Sample Size
  • Chapter 4 Case Study Sport Marketing Essay
  • Essay on Case Assignment 1
  • Essay about Kensington Tablet Cases Make Holiday Shopping a Snap

Become a StudyMode Member

Sign Up - It's Free