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Advanced Financial Accounting and Corporate Reporting - Semester-5
Advanced Financial Accounting and Corporate Reporting - Semester-5
Working Notes:
Date of acquisition October 1, 2015
Acquisition 80%
Rs. '000'
WN-1: Goodwill:
Immediate cash paid (23 x 500,000 x 80%) 9,200 0.25 + 0.25
Contingent consideration 1,000 0.5
Non-controlling interest (19 x 500,000 x 20%) 1,900 0.25 + 0.25
12,100
Net Assets:
Share capital 5,000 0.5
Reserves 7,500 0.5
Add: Post acquisition losses {(10,000 7,500) 4)} 625 13,125 0.25 + 0.25
Negative goodwill (1,025) 0.5
DISCLAIMER: These suggested answ ers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistans website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS FALL 2015 EXAMINATIONS 2 of 9
ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING SEMESTER-5
Marks
Rs. '000'
WN-2: Group Retained Earnings:
Excellent Limited 30,000 0.5
Loss on financial assets (2,392) 0.5
Interest on financial assets 609 0.5
Post-acquisition adjusted losses of Fair Limited {(2,500 x 80%) 4} (500) 0.25 + 0.25
Negative goodwill 1,025 0.5
Decrease in contingent consideration (1.0 m 0.8 m) 200 0.5
Share of profit from Creative Limited 200 0.5
29,142
WN-3: Non-Controlling Interest in Statement of Financial Position:
At date of acquisition 1,900 0.5
Post-acquisition losses (2,500 4 x 20%) (125) 0.25 + 0.25
1,775
WN-4: Investment in Creative Limited
Investment (50,000 x 10) 500 0.5
Share of profit for the year (400,000 x 50%) 200 0.5
700
DISCLAIMER: These suggested answ ers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistans website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS FALL 2015 EXAMINATIONS 3 of 9
ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING SEMESTER-5
Marks
Question No. 2
DISCLAIMER: These suggested answ ers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistans website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS FALL 2015 EXAMINATIONS 4 of 9
ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING SEMESTER-5
Marks
Rupees
Carrying
Tax Base Difference
Value
Liabilities
Provision for warranty 2,000,000 - (2,000,000) 01(0.5 each)
Advance interest 250,000 - (250,000) 01(0.5 each)
Accrued fines and penalties 1,000,000 1,000,000 - 01(0.5 each)
Deductible temporary difference (2,250,000) 0.5
Tax rate 33%
Deferred tax assets (742,500) 0.5
Deferred tax liability as on June 30, 2015 594,000 0.5
Opening balance of liability 300,000 0.5
Deferred tax expense for the year ended June 30, 2015 294,000 0.5
(ii) A provision for unrealised profit on the unsold inventory will be made in the consolidated
accounts. The amount of provision will be calculated as:
Rs. 5,000,000 x 25 125 x 70% = Rs. 700,000 1.5
Since tax has already been recorded on such profit in the financial statements of Beej. In
the following year when the stock is sold outside the group, the provision will be released,
but the profit will not be taxed. Due to the timing difference deferred tax asset will be
calculates as: 01
33% x Rs. 700,000 = Rs. 231,000 1.5
Deferred tax assets are recognised to the extent that they are recoverable. This will be the
case if it is more likely than not that suitable tax profits will exist from which the reversal of
the timing difference giving rise to the asset can be deducted. The asset is carried forward
on this assumption. 01
Question No. 3
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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistans website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS FALL 2015 EXAMINATIONS 5 of 9
ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING SEMESTER-5
Marks
(b) Challenger Limited
Consolidated Statement of Profit or Loss and Other Comprehensive
Income for the Year ended June 30, 2015
Working
Rupees
Notes
Revenue (10,200,000 + 5,437,500 432,000) WN-3 15,205,500 01(0.5 each)
Cost of Sales (6,375,000 + 2,900,000 432,000 86,400) WN-2 (8,929,400) 01(0.25 each)
WN-3
Gross Profit 6,276,100
Admin and Selling Cost (1,836,000 + 1,450,000) WN-3 (3,286,000) 0.5
Impairment of Goodwill (2,000 x 75) (150,000) 0.5
Operating Profit 2,840,100
Financial Charges (102,000 + 217,500) WN-3 (319,500) 0.5
Foreign Exchange Loss recognized WN-1 (7,685) 0.5
Profit before tax 2,512,915
Tax (566,100 + 348,000) WN-3 (914,100) 0.5
Profit after Tax 1,598,815 0.5
Other Comprehensive Income (Items that may be
subsequently be reclassified to Profit or Loss):
Exchange Differences on Foreign Operations WN-4 327,735 0.5
Total Comprehensive Income for the Year 1,926,550 0.5
Profit for the year Attributable to:
Owners of the Parent 1,470,236 0.5
Non-Controlling Interest
(514,315 x 25%) WN-4 128,579 0.5
1,598,815
Total Comprehensive Income for the year Attributable to:
Owners of the Parent 1,733,537 0.5
Non-Controlling Interest [(514,315 x 25%) + 64,434] WN-4 193,013 0.5
1,926,550
Working Notes:
WN-1: Intercompany Sales by Challenger Limited:
Exchange
SGD Rupees
Rate
Sale as on January 1, 2015 (432,000 72) 6,000 432,000 72.00 0.5
Payment made on June 30, 2015 (432,000 75) (6,106) 432,000 70.75 0.5
Foreign exchange loss (106)
Exchange gain/ (loss) to be recognized in Consolidated Statement of Profit or Loss:
Foreign exchange loss on intercompany sale (106) 72.50 (7,685) 0.5
DISCLAIMER: These suggested answ ers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistans website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS FALL 2015 EXAMINATIONS 6 of 9
ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING SEMESTER-5
Marks
WN-3: Translation of Statement of Profit or Loss and Other Comprehensive Income of
Titan:
SGD Rate Converted in Rs.
Revenue 75,000 72.5 5,437,500 0.5
Cost of sales (40,000) 72.5 (2,900,000) 0.5
Gross profit 35,000 72.5 2,537,500
Admin and selling cost (20,000) 72.5 (1,450,000) 0.5
Operating profit 15,000 72.5 1,087,500
Financial charges (3,000) 72.5 (217,500) 0.5
Exchange loss (106) 72.5 7,685 0.5
Profit before tax 11,894 72.5 862,315
Tax (4,800) 72.5 (348,000) 0.5
Profit for the year 7,094 72.5 514,315 0.5
Question No. 4
600,000
Earning per share = = 4.00 1.0
150,000
1,600,000
Earning per share = = 2.00 1.0
800,000
2,850,000
Diluted earning per share = = 2.15 1.0
1,325,000
(ii) The effect of converting the 12% convertible preference shares has resulted to increase
the EPS since the incremental EPS Rs. 4.00 is greater than the basic EPS Rs. 2.50. The
12% preference shares is not dilutive hence is excluded from diluted EPS calculation. The
8% preference shares is dilutive as calculated above. 2.0
DISCLAIMER: These suggested answ ers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistans website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS FALL 2015 EXAMINATIONS 8 of 9
ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING SEMESTER-5
Marks
Question No. 5
(a) (i) Environmental Reporting is the disclosure of information in the published annual report 03
or elsewhere, of the effect that the operations of the business have on the natural
environment.
The sustainability report combines environmental, social and economic reporting in one
report. Environmental reports were the first step in reporting an entitys impact on its
environment. There are two main vehicles that companies use to publish information
about the ways in which they interact with the natural environment:
The published annual report (which includes the financial statements).
A separate environment report (either as a paper document or simply posted on the
company website).
DISCLAIMER: These suggested answ ers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistans website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS FALL 2015 EXAMINATIONS 9 of 9
ADVANCED FINANCIAL ACCOUNTING AND CORPORATE REPORTING SEMESTER-5
Marks
(b) (i) Re-measurement Component:
Rs. 000
Net obligation at July 1, 2014 60,000 0.5
Net interest component expense (9.25% 60) 5,550 01
Service cost:
Current service cost 15,000 0.5
Past service cost Additional contribution 8,000 23,000 0.5
Contributions made during the Year (10,000) 0.5
Benefits paid (Rs. 5 m assets Rs. 5 m obligation) - 01
Re-measurement gain (bal fig) (3,550) 01
Net obligation as of June 30, 2015 75,000
Iceberg Limited
Extract from the Statement of Comprehensive Income
For the year ended on June 30, 2015 Rs. 000
Profit or Loss:
Service Cost (23,000) 0.5
Net Interest Component (5,550) 0.5
(28,550) 0.5
Other Comprehensive Income:
Net Re-measurement Component 3,550 0.5
Total Charge for the Year (25,000) 01
(iii) Explanation: 03
The discount rate has been applied to the opening balance of the net obligation
Rs. 60 m. The net interest expense is calculated @ 9.25% p.a. and charged to
profit or loss.
In this case the service cost will consist of current service cost Rs. 15 m and the
past service cost being additional contribution of Rs. 8 m as a result of the
amendment in the pension scheme. This will also be charged to profit or loss.
Any difference in return on assets in excess of the amount identified by application
of the discount rate to the fair value of plan assets. This will be part of the re-
measurement component.
Contribution paid into the plan of Rs. 10 m will reduce the net obligation.
Benefits paid of Rs. 5 m will impact the both plan assets and obligation hence will
have no impact on the net obligation.
The statement of financial position as at June 30, 2015 will show net plan
obligation (liability) amount of Rs. 75 m.
THE END
DISCLAIMER: These suggested answ ers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistans website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.