Past Paper FAR1
Past Paper FAR1
com
Certificate in Accounting and Finance Stage Examination
The Institute of 4 September 2019
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Q.1 The following information pertains to Wednesday Limited (WL) for the year ended
30 June 2019:
(i) Shareholders' equity as at 1 July 2018:
Rs. in million
Share capital (Rs. 100 each) 200
Share premium 85
Retained earnings 124
Revaluation surplus 65
(ii) On 30 November 2018, WL issued 30% right shares at a premium of
Rs. 120 per share.
(iii) Cash dividend and bonus shares for the last two years:
Final dividend *Interim dividend
For the year ended
Cash Bonus Cash Bonus
30 June 2018 18% - 20% -
30 June 2019 - 25% - 10%
*Declared with half yearly accounts
(iv) Profit for the year amounted to Rs. 95 million.
(v) Revaluation surplus arising during the year amounted to Rs. 35 million whereas
transfer of incremental depreciation for the year was Rs. 9 million.
Required:
Prepare WL’s Statement of Changes in Equity for the year ended 30 June 2019. (07)
(Column for total and comparative figures are not required)
Q.2 Discuss how the following should be dealt with in the financial statements of relevant
entities according to IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance:
(a) The government makes a grant to an entity which is planning to develop teaching
software for children with learning difficulties. The purpose of the grant is to help the
entity to meet its general financing requirement in the initial phase. There are no
further conditions attached to the grant. (01)
(c) Free technical advice has been provided by the government’s export promotion
department to help an exporter to market his new technology in North America. (01)
Q.3 Tuesday Manufacturers Limited produces a single product. The following costs were
incurred in the month of June 2019:
Rs. in '000
Direct labour 2,075
Depreciation on plant and machinery 380
Distribution costs 589
Factory manager’s salary 247
Indirect labour 848
Indirect material consumed 345
Raw material purchases 3,845
Selling costs 1,248
Other production overheads 580
Other administration overheads 388
Required:
Compute cost of goods sold for the month of June 2019. (07)
Q.4 Select the most appropriate answer(s) from the options available for each of the following
Multiple Choice Questions (MCQs).
(i) An entity made a profit of Rs. 480,000 for the year 2018 based on historical cost
accounting principles. It had opening capital of Rs. 1,100,000. During 2018, specific
price indices increased by 15% while general price indices increased by 12%. How
much profit should be recorded for 2018 under real financial capital maintenance
concept?
(a) Rs. 480,000 (b) Rs. 315,000
(c) Rs. 348,000 (d) Rs. 645,000 (01)
(ii) Morning Football Club has a monthly subscription fee of Rs. 800 per member. The
club has 240 members on 31 December 2018. No fresh members were admitted
during 2018 but 30 members left the club on 1 July 2018. As at 31 December 2018,
the club has received subscription in advance amounting to Rs. 60,000. The club’s
subscription income for 2018 would be:
(a) Rs. 2,448,000 (b) Rs. 2,388,000
(c) Rs. 2,160,000 (d) Rs. 2,100,000 (02)
(iii) Which of the following can NOT be a ‘qualifying asset’ under IAS 23 Borrowing
Costs?
(a) Inventories
(b) Manufacturing plants
(c) Assets that are ready for their intended use when acquired
(d) Investment property (01)
(iv) Afternoon Limited (AL) uses cost model for its property, plant and equipment and
fair value model for its investment property. AL has an office building which was
being used for administrative purposes. At 1 July 2018, the building had a carrying
amount of Rs. 20 million. On that date, the building was let out to a third party and
therefore reclassified as an investment property. The building had a fair value of
Rs. 23 million on 1 July 2018 and Rs. 23.4 million on 30 June 2019.
What would be the increase in the profit or loss and other comprehensive income for
the year ended 30 June 2019?
Profit or loss Other comprehensive income
(a) Nil Rs. 3.4 million
(b) Rs. 0.4 million Rs. 3 million
(c) Rs. 3.4 million Nil
(d) Rs. 3 million Rs. 0.4 million (02)
(v) Which TWO of the following fall under the definition of investment property?
(a) Property occupied by an employee
(b) A building owned by an entity and leased out under an operating lease
(c) Property being constructed on behalf of third party
(d) Land held for long term appreciation (01)
(vi) Under IAS 36 Impairment of Assets, if the fair value less costs to sell of an asset
cannot be determined then:
(a) the asset is not impaired
(b) the recoverable amount is the value in use
(c) the net realizable value is used
(d) the carrying value of the asset remains the same (01)
(vii) Which TWO of the following would be external indicators that one or more of an
entity's assets may be impaired?
(a) An unusually significant fall in the market value of one or more assets
(b) Evidence of obsolescence of one or more assets
(c) A decline in the economic performance of one or more assets
(d) An increase in market interest rates used to calculate value in use of the assets (01)
(viii) Which of the following future cash flows should NOT be included in the calculation
of value in use of an asset?
(a) Cash flows from disposal
(b) Income tax payments
(c) Cash flows from the sale of inventory produced by the asset
(d) Cash outflows on the maintenance of the asset (01)
(ix) Night Limited has a current ratio of 1.8. This ratio will increase if Night Limited:
(a) receives cash in respect of a short term loan
(b) receives cash from an existing receivable
(c) pays an existing trade payable
(d) purchases inventory on credit (01)
Section B
Q.5 Following are the extracts from the financial statements of Sunday Traders Limited (STL)
for the year ended 30 June 2019:
Additional information:
(i) 72% of sales were made on credit.
(ii) Depreciation expense for the year amounted to Rs. 750 million which was charged to
distribution and administrative cost in the ratio of 3:1.
(iii) Distribution cost includes:
Rs. 40 million in respect of loss on disposal of equipment. The written down
value at the time of disposal was Rs. 152 million.
impairment loss on vehicles amounting to Rs. 24 million.
(iv) Loan instalments (including interest) of Rs. 1,984 million were paid during the year.
(v) Other income comprises of:
increase in fair value of investment property amounting to Rs. 220 million.
rent received from investment property amounting to Rs. 184 million.
Required:
Prepare STL’s statement of cash flows for the year ended 30 June 2019 using direct method. (19)
The total cost of Rs. 660 million incurred on the plant was paid as under:
Description Payment date Rs. in million
1st payment 1 February 2018 140
2nd payment 1 April 2018 214
3rd payment 1 September 2018 146
4th payment 1 December 2018 160
The plant was financed through a bank loan of Rs. 500 million obtained on
1 March 2018. The loan carries a mark-up of 18% payable annually. The surplus
funds available from the loan were invested in a saving account and earned
Rs. 17 million during capitalization period.
(iv) On 31 December 2018, the revalued amount of office building was assessed at
Rs. 178 million by Precise Valuers, an independent valuation firm. Value in use of
the office building as at 31 December 2018 was estimated at Rs. 186 million.
ML accounts for revaluation on net replacement value method and transfers the
maximum possible amount from revaluation surplus to retained earnings on an
annual basis.
Required:
In accordance with IFRSs, prepare a note on ‘Property plant and equipment’ for inclusion
in ML’s financial statements for the year ended 31 December 2018.
(Comparatives figures and column for total are not required) (17)
Q.7 Friday Traders (FT) is engaged in the business of supplying Blenders and Juicers. FT
purchases its products from Sigma Electronics. FT is presently negotiating with a bank for a
long term loan and has been asked to provide the latest financial statements. Since FT does
not maintain proper accounting records, you are requested to prepare the financial
statements from the following information:
(ii) Sales of Blenders are made on credit while Juicers are sold on cash basis.
(iii) Upto last year, FT was earning a gross profit of 30% on cost of Blenders and 35% on
sale value of Juicers. With effect from 1 January 2018:
FT increased sales prices of both the products by 20%; and
Sigma Electronics increased the prices of Juicers only by 40%.
(iv) 60% of the amount of purchases made during the year represents blenders.
(v) Summary of bank transactions during the year:
Rs. in '000
Receipts from credit customers 6,570
Payments:
Sigma Electronics 8,850
Insurance for one year starting 1 February 2018 204
Rent 826
Equipment 550
Salaries and wages 685
11,115
Required:
(a) Prepare statement of profit or loss account for the year ended 31 December 2018. (10)
(b) Prepare statement of financial position as at 31 December 2018. (08)
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Financial Accounting and Reporting-I Page 7 of 7
Q.8 Thursday Enterprise (TE) is a supplier of product Zee and has provided you the following
information:
(a) On 1 August 2018, TE entered into a six months contract with customer Alpha for
sale of Zee for Rs. 250 per unit, under the following terms and conditions:
if Alpha purchases more than 5,000 units during the contract period, the price
per unit would be retrospectively reduced to Rs. 215 per unit.
TE’s unconditional right to receive consideration would be established upon:
− completion of quality control procedures by Alpha for the first order. The
procedure would take a week after receiving the goods.
− placement of order by Alpha for subsequent orders.
At the inception of the contract, TE concludes that Alpha’s purchases will not exceed
the 5,000 units threshold for the discount.
Delivery date
Order date Units Payment date
(Transfer of control)
10 August 2018 3,000 28 August 2018 12 September 2018
25 December 2018 4,000 15 January 2019 10 January 2019 (10)
(b) On 1 February 2019, TE entered into a six months contract with another customer
Beta for sale of Zee for Rs. 250 per unit, under the following terms and conditions:
if the Beta purchases more than 15,000 units during the contract period, the price
per unit would be retrospectively reduced to Rs. 215 per unit.
TE’s unconditional right to receive consideration would be established upon
delivery of goods to Beta.
At the inception of the contract, TE concludes that Beta will meet 15,000 units
threshold for the discount.
Beta placed the following orders:
Delivery date
Order date Units Payment date
(Transfer of control)
14 February 2019 10,000 28 February 2019 20 March 2019
1 June 2019 8,000 15 July 2019 18 July 2019 (05)
Required:
In respect of the above contracts, prepare journal entries to be recorded in the books of TE
for the years ended 31 December 2018 and 2019.
(Entries without date will not be awarded any marks)
(THE END)
On 31 December 2018, Z retired from the partnership. The following has been agreed in this
respect:
(i) Goodwill of the firm has been determined at Rs. 380,000. It has been estimated that
the value of goodwill after Z’s retirement would be Rs. 300,000. Goodwill is to be
written off from the books.
(ii) Machines would be adjusted to 85% of the book value whereas equipment would be
appreciated by 20%.
(iii) Trade debtors amounting to Rs. 100,000 would be written off. Existing percentage of
provision for doubtful debts would be maintained.
(iv) An accrual for repairs and maintenance amounting to Rs. 41,000 would be recorded
in the books.
(v) Z’s balance would be settled as follows:
Immediate cash payment of Rs. 150,000.
A vehicle would be given at an agreed value of Rs. 120,000 (book value
Rs. 70,000).
Fully depreciated items of furniture would be given at an agreed value of
Rs. 35,000.
Remaining balance would be paid after 6 months along with interest at 10%.
(vi) To determine new profit sharing ratio, Z’s share would be divided equally between X
and Y.
(vii) Y’s capital would be adjusted in new profit sharing ratio on the basis of X’s capital.
Any excess or deficiency would be adjusted through cash.
Required:
Prepare partners’ capital and revaluation accounts on the retirement of Z. (12)
Q.2 (a) Compare ‘Regression analysis’ with ‘High-low analysis’ for cost estimation. (03)
(b) Describe the behaviour of each of the following costs graphically by denoting
‘Per unit cost’ on vertical axis and ‘Level of activity’ on horizontal axis:
(i) Factory building rent – Fixed amount per month.
(ii) Direct labour cost – Increases proportionately with production.
(iii) Supervision cost – One supervisor is required for every 20 direct workers.
(iv) Direct material cost – Bulk discount is available on all purchases once the total
purchases exceed a certain level. (05)
Q.3 Following are the summarised financial statements of Keyboard Limited (KL):
Current assets:
Inventory 4,000 4,500 3,000
Debtors 4,200 3,200 1,800
Cash - 800 2,100
8,200 8,500 6,900
20,700 19,300 18,700
Current liabilities:
Creditors 3,500 4,400 4,200
Bank overdraft 1,500 - -
Accrued expense 900 900 300
5,900 5,300 4,500
20,700 19,300 18,700
Required:
(a) Compute working capital cycle in days and liquidity ratios for 2018 and 2017. (11)
(b) Suggest three possible measures that can be taken by KL to improve working capital
cycle days. (03)
Q.4 (a) List the criteria that must be met to account for a contract with customer under
IFRS 15 ‘Revenue from Contracts with Customers’. (04)
(b) Guitar World (GW) normally sells Machine A13 for Rs. 1.7 million. Maintenance
services for such type of machines are provided separately at Rs. 25,000 per month.
Details of two contracts for sale of Machine A13 are as follows:
(i) On 1 July 2018, GW signed a contract with Energene Limited to sell Machine
A13 with one year free maintenance services at a lumpsum payment of
Rs. 1.8 million. The amount was received upon delivery of machine on
1 August 2018.
(ii) On 1 October 2018, GW sold Machine A13 to Vitalene Limited for
Rs. 1.95 million. As per the contract, payment would be made after 2 years.
Maintenance services would also be provided for Rs. 25,000 per month for
two years which would be paid at the end of each month.
Required:
With reference to IFRS-15 ‘Revenue from Contracts with Customers’, explain how
the above contracts should be recorded in GW’s books for year ended
31 December 2018. (Show supporting calculations but entries are not required) (11)
Plant Equipment
Acquisition
Date of acquisition 1 January 2015 1 July 2015
Cost Rs. 500 million Rs. 360 million
Estimated useful life 10 years 12 years
Residual value Rs. 60 million Nil
Depreciation method Straight line method Straight line method
Additional information:
(i) PL uses revaluation model for subsequent measurement and accounts for revaluation
on net replacement value method.
(ii) There is no change in useful life of plant. The remaining useful life of equipment was
estimated as 15 years and 10 years in 2016 and 2018 respectively.
(iii) PL transfers maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
(iv) PL’s financial year ends on 31 December.
Required:
(a) Calculate depreciation on each asset for 2015 to 2018. (08)
(b) Prepare entries to record revaluation in 2018. (Entries to record depreciation expense,
incremental depreciation and elimination of accumulated depreciation are not required.
Further, entries prior to 2018 are also not required.) (08)
Q.6 Violin Family Club was formed in 2016. Following are the details of assets and liabilities of
the club as on 31 December 2017:
Additional information:
(i) Some of the balances as on 31 December 2018 are as follows:
Assets Rs. in '000 Liabilities Rs. in '000
Subscription in arrears for 2018 30 Accrued electricity 35
Canteen stock 247 Canteen creditors 142
(ii) Break-up of the subscription received during 2018 is as follows:
Related to year Rs. in '000
2017 60
2018 920
2019 75
The club’s management has decided to write-off the remaining subscription in arrears
relating to the year 2016 and 2017.
(iii) A scheme was introduced in 2016 under which a person is awarded life time
membership upon payment of Rs. 120,000. Life memberships received in the years
2016, 2017 and 2018 were 5, 8 and 6 respectively. Life memberships are credited to
‘Life Membership Fund’ upon receipt and are transferred to income equally over
10 years, starting from the year of admission.
(iv) The club operates a canteen. Till last year, the canteen earned a gross profit of 20% of
sales. Effective 1 January 2018, selling prices were increased by 10%.
(v) Details of some payments during 2018 are as follows:
Rs. in '000
Canteen creditors 512
Salaries 285
Equipment 66
Electricity 263
(vi) Equipment acquired during the year is only 30% paid and the remaining amount is
payable in February 2019.
(vii) Wages of canteen staff are paid on 5th of each month.
(viii) The club operates from a rented place. The rent is paid quarterly in advance on
1 March, 1 June, 1 September and 1 December. As per agreement, annual rent was
increased by Rs. 6,000 with effect from 1 September 2018.
(ix) Balance of snooker tables as at 31 December 2017 represents the book value of
5 similar tables purchased in 2016. One of the tables was sold to a member for cash
during the year for Rs. 212,000.
(x) Snooker tables are depreciated at 12.5% on straight line method while furniture &
equipment are depreciated at 20% using reducing balance method. Full year
depreciation is charged in the year of addition whereas no depreciation is charged in
the year of disposal.
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Financial Accounting and Reporting-I Page 5 of 5
Required:
(a) Prepare income and expenditure account for the year ended 31 December 2018. (12)
(b) Prepare statement of financial position as on 31 December 2018. (09)
Q.7 Junior Accountant of Drum Limited has prepared the following statement of cash flows for
the year ended 31 December 2018:
Junior Accountant informed you that he has taken the difference of opening and closing
balances of each balance sheet item and classified each difference as either operating,
investing or financing cash flows. He further informed that the statement is tied up with the
cash balances appearing in the balance sheet. He has ignored the following information:
(i) Depreciation on building and equipment amounted to Rs. 480,000 and Rs. 810,000
respectively.
(ii) During the year, an equipment costing Rs. 560,000 and having a book value of
Rs. 310,000 was sold for Rs. 440,000.
(iii) Provision for doubtful debts was increased by Rs. 140,000.
(iv) Dividend amounting to Rs. 700,000 was paid during the year.
(v) Interest and tax expenses for the year amounted to Rs. 378,000 and Rs. 650,000
respectively.
(vi) Trade and other payables as at 31 December 2018 included Rs. 950,000 for purchase
of land and building.
Required:
Prepare statement of cash flows for the year ended 31 December 2018, in accordance with
IAS 7 ‘Statement of Cash Flows’ using indirect method. (14)
(THE END)
Revaluation
Rs. in '000 Rs. in '000
Machine (400×0.15) 60 Equipment (180×20%) 36
Provision for doubtful debts 10
Trade debtors 100 (100×10%)
Accruals 41 Vehicle (120–70) 50
Furniture 35
Revaluation loss of 70
X 28
Y 21
Z 21
201 201
W-1: Ratios X Y Z
Old profit share 4/10 3/10 3/10
Share of Z divided equally between X and Y 3/20 3/20 –3/10
New profit share 11/20 9/20 -
(b)
Ans.4 (a) The general IFRS 15 model applies only when all of the following conditions are met:
(b) (i) The contract contains two distinct performance obligations i.e. selling the machine
and providing the maintenance services as:
the customer can separately benefit from the machine without the
maintenance services from GW (or GW sells maintenance services separately)
and
the machine and maintenance services are separately identifiable in the
contract.
Thus GW will allocate the transaction price between the two performance
obligations as follows:
Revenue related to sale of machine would be recognized at a point in time i.e. upon
delivery on 1 August 2018.
While revenue related to maintenance service would be recognized over time i.e. as
the services are rendered.
(ii) The contract contains two distinct performance obligations i.e. selling the machine
and providing the maintenance services.
The difference between promised consideration and cash selling price of Rs.
250,000 would be recognized as interest revenue over two years using the implicit
rate of 7.1% [(1.95÷1.7)1/2–1].
Debit Credit
Date Description
------ Rs. in million ------
31-Dec-2018 Revaluation loss (P&L account) 18.00
Revaluation surplus 84.00
Plant 102.00
Current assets:
Canteen stock 247
Prepaid rent 25
Subscriptions in arrears 30
Bank (W-3) 1,094
1,396
2,788
General funds
Opening balance (2,024–378)–1,344(W-2) 302
Excess of income over expenditure 233
535
Liabilities
Canteen creditors 142
Accrued electricity 35
Subscription in advance (W-1) 75
Creditors for equipment (220–66) 154
Canteen wages payable 11
417
2,788
(THE END)
(ii) Summary of bank payments for the year ended 30 June 2018:
Rs. in '000
Suppliers 13,600
Repair and maintenance 950
Shop rent 2,000
Miscellaneous supplies 800
Utilities 1,200
(iii) Payments made out of cash sales before being deposited into the bank:
Rs. in '000
Salaries and wages 1,800
Purchase of inventory 3,000
Part payment of sales commission to riders 90
(iv) Unpaid suppliers’ bills as at 30 June 2018 include a bill of Rs. 320,000 which was
mistakenly taken at Rs. 230,000.
(v) During the year, goods costing Rs. 540,000 were withdrawn by Nezam for personal
use.
(vi) Inventory as at 30 June 2018 includes goods costing Rs. 250,000 which were badly
damaged in an accident and have no sales value.
(vii) Mark-up on goods sold are as follows:
Mark-up on cost
50% of goods – sold on cash counter 35%
20% of goods – sold for cash through riders 40%
30% of goods – sold for credit 45%
Required:
Prepare a statement of profit or loss for the year ended 30 June 2018. (13)
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Financial Accounting and Reporting-I Page 2 of 5
Q.2 Digital World (DW) closes its accounts on 30 June each year. This year physical stock
taking was delayed and carried out on 10 July 2018. The cost of physical stock on that date
was determined at Rs. 1,126,000. Following further information is available:
(i) Purchase invoices received from suppliers during 1 July to 10 July 2018 amounted to
Rs. 366,000. These include invoices amounting to:
Rs. 28,000 for goods dispatched by a supplier but not received by DW till
10 July 2018.
Rs. 20,000 for goods received on 28 June 2018.
(ii) Goods costing Rs. 44,000 were received on 8 July 2018 but the corresponding invoice
was not received till 10 July 2018.
(iii) Details of credit notes from suppliers are as follows:
(iv) Selling price of goods dispatched to customers from 1 July 2018 to 10 July 2018
amounted to Rs. 375,000. This included:
Rs. 62,500 relating to goods invoiced but not received by customers till
10 July 2018.
Rs. 34,000 relating to goods not invoiced till 10 July 2018.
Required:
Compute the value of stock as at 30 June 2018. (10)
Q.3 (a) List the five steps involved in recognizing revenue under IFRS 15 ‘Revenue from
Contracts with Customers’. (03)
(b) On 1 June 2018 Ravi Limited (RL) delivered 500 units of one of its products to Bravo
Limited (BL) at Rs. 200 per unit. BL immediately paid the amount and obtained
control upon delivery. BL is allowed to return unused units within 30 days and receive
a full refund. RL’s cost of the product is Rs. 150 per unit and it uses perpetual system
for recording inventory transactions.
Required:
Prepare necessary journal entries in the books of RL on 1 June 2018 and 30 June 2018
under each of the following independent situations:
(i) Based upon historical data, RL estimates that 5% units will be returned on
expiry of 30 days. (05)
(ii) The product is new and RL has no relevant historical evidence of product
returns or other available market evidence. (04)
Q.4 Royal Fashions (RF) and Imperial Garments (IG) are two partnership businesses. Partners
of both firms were sharing profits in their capital ratios. It has now been decided to merge
the two businesses with effect from 1 July 2018 under the name of Quality Apparels (QA).
The respective statements of financial position as at 30 June 2018 were as under:
RF IG RF IG
Capital and liabilities Assets
Rs. in million Rs. in million
Capital accounts: Land 14 18
A 24 - Buildings 8 13
Z 16 - Machines 17 20
B - 27 Inventory 9 12
G - 33 Trade debtors - net of 2%
Trade payables 18 14 provision 12 15
Accruals and other payables 5 6 Cash 3 2
63 80 63 80
Following terms and conditions have been agreed for the merger:
(i) Total capital of QA will be Rs. 100 million. Capital as well as profits will be shared
equally by all the partners in the new firm. Any excess or deficiency in partners’
capital accounts will be adjusted through cash.
RF IG
--- Rs. in million ---
Land 16.0 17.0
Machines 15.0 15.0
Inventory 10.0 12.6
Required:
Prepare capital accounts in the old and new firms. (12)
(i) The balances of cost and accumulated depreciation of machines as on 1 January 2017
were Rs. 800,000 and Rs. 333,000 respectively.
(ii) A machine acquired on 1 January 2014 having net book value of Rs. 31,935 on
1 January 2017 was sold for Rs. 34,000 on 30 April 2017. Cost of disposal incurred
was Rs. 5,000.
(iii) On 1 July 2017, a machine having fair value of Rs. 40,000 on that date was exchanged
for a new machine. The balance of the purchase price was paid through a cheque of
Rs. 80,000. The list price of the new machine was Rs. 130,000. The old machine had
been acquired at a cost of Rs. 65,000 on 1 October 2015.
(iv) Machines are depreciated at 15% per annum using the reducing balance method.
Required:
Prepare the following ledger accounts pertaining to the machines for the year ended
31 December 2017:
(a) Cost (03)
(b) Accumulated depreciation (05)
(c) Gain/loss on disposal (04)
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Financial Accounting and Reporting-I Page 4 of 5
Q.6 Following is a summarised trial balance of Omega Limited (OL) for the year ended
30 June 2018:
Rs. in million
Particulars Debit Particulars Credit
Land at revalued amount 30 Share capital 40
Buildings at revalued amount 60 Retained earnings 18
Equipment and other assets - at cost 47 Revaluation surplus 43
Trade receivables 21 Trade payables 29
Opening stock-in-trade 16 Accruals and other payables 9
Advances and other receivables 6 Accumulated depreciation:
Cash and bank balances 3 - Buildings 9
Purchases 180 - Equipment and other assets 18
Freight-in 4 Provision for doubtful receivables 4
Selling & administrative expenses Sales 235
(including depreciation expense) 39 Suspense account 1
406 406
Additional information:
(i) Cost of closing stock-in-trade was Rs. 19 million. However, following matters were
noted during physical inventory count:
Stock held under ‘Bill-and-hold arrangement’ was accepted and paid by the
customer on 25 June 2018. Proceeds amounting to Rs. 2.7 million were credited to
other payables. These goods were included in OL’s stock. Such stock items are
sold at cost plus 35%.
Stock items costing Rs. 3 million were damaged badly and could not be sold. A
claim was lodged with the insurance company which accepted the claim on
30 June 2018 to the extent of 80%.
Stock items costing Rs. 4.5 million lying with a third party were not included in
stock-in-trade.
(ii) OL’s policy for provision for doubtful trade receivables is as under:
Full provision is made for balances due for more than one year.
Provision at 5% is made on all other balances.
As on 30 June 2018, balances due for more than one year aggregated Rs. 3.4 million.
This includes a balance of Rs. 2 million which is no more recoverable and is required
to be written-off.
Suspense account represents an amount recovered from a customer whose balance
was written-off in 2016.
(iii) On 30 June 2018, a portion of land and building was sold for Rs. 30 million which had
been revalued once only on 30 June 2015. Relevant details are as follows:
As on 30 June 2015
Written down
Fair value Remaining
value
useful life
------ Rs. in million ------
Land 3 10 Indefinite
Building 13 18 20 years
Proceeds from the disposal are due to be received in September 2018. The disposal has
not yet been accounted for.
OL transfers maximum possible amount from revaluation surplus to retained earnings
on an annual basis.
(iv) Unrecorded freight-in invoices amounting to Rs. 0.5 million are pending with cashier
for payment.
(v) A cheque for Rs. 1.8 million received as advance from a customer has not been
recorded.
(vi) Income tax liability is estimated at 30% of profit before tax.
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Financial Accounting and Reporting-I Page 5 of 5
Required:
Prepare a statement of financial position as on 30 June 2018 and a statement of profit or loss
for the year ended 30 June 2018 in accordance with IFRSs. (21)
Q.7 SK Limited (SKL) deals in a single product. Following are the summarized financial
statements of SKL for the year ended 31 December 2017:
Additional information:
(i) With effect from 1 January 2017, selling price was decreased by 5% to boost sales
volume.
(ii) During the year 2017, suppliers demanded price increase of 4%. SKL resisted the price
increase. However, both parties agreed to reduce the credit period.
(iii) SKL had been running its business in a rented building whose annual rent was
Rs. 15 million. During the year, SKL purchased this building for Rs. 200 million.
Funds were arranged partially through a long-term loan. Useful life of the building is
estimated at 40 years.
(iv) 75% of the selling and administration cost incurred in 2016 was fixed cost.
Required:
(a) Compute the following ratios for 2016 and 2017:
Q.8 (a) Describe any four differences between financial accounting system and cost
accounting system. (04)
(b) Describe behaviour of each of the following costs graphically by denoting total cost on
vertical axis and level of activity on horizontal axis:
(THE END)
Note:
The suggested answers are provided for the guidance of the students. However, there are alternative
solution(s) to the questions which are also considered by the Examination Department while marking
the answer scripts.
Ans.1 FC Traders
Statement of profit or loss account for the year ended 30 June 2018
Rs. in '000
Sales:
50% cash sales at counter A×0.5×1.35 11,813
30% credit sales A×0.3×1.45 7,612
20% cash sales through riders A×0.2×1.40 4,900
24,325
Cost of sales:
Opening inventory 2,800
Purchases (14,640(W-1)+3,000) 17,640
Damaged stock (250)
Goods withdrawn (540)
Closing inventory 2,400–250 (2,150)
(A) (17,500)
Gross profit 6,825
Expenses:
Repair and maintenance 950
Shop rent 2,000+(400–200) 2,200
Misc. supplies used 800+(300–400) 700
Utilities 1,200
Staff salaries 1,800+165 1,965
Riders commission 4,900×3% 147
Depreciation – Equipment 4,000×10% 400
– Furniture & fixtures 2,500×10% 250
Damaged stock 250
(8,062)
Net loss (1,237)
(ii) Goods received on 8 July 2018 but invoice was not yet received (44,000)
(iii) Credit notes received after year-end for the goods returned on:
7-Jul-2018 9,000
9-Jul-2018 14,000
23,000
(iv) Cost of goods dispatched during 1 July - 10 July 2018 (375,000/1.25) 300,000
(vii) Closing inventory items mistakenly valued at selling price (16,600×25/125) (3,320)
Ans. 3 (a) Five steps involved in recognising revenue under IFRS 15:
(i) Identify the contract(s) with a customer
(ii) Identify the separate performance obligations
(iii) Determine the transaction price
(iv) Allocate the transaction price
(v) Recognize revenue when or as an entity satisfies performance obligations
Gain/Loss on disposals
Date Description Rs. Date Description Rs.
30 Apr 17 Cost 52,000 30 Apr 17 Accumulated dep. (W-1) 21,662
30 Apr 17 Bank (Cost of disposal) 5,000 30 Apr 17 Bank (Sale proceeds) 34,000
1 Jul 17 Cost 65,000 1 Jul 17 Accumulated dep. (W-2) 15,810
1 Jul 17 Cost (Trade in at fair value) 40,000
31 Dec 17 Loss on disposal (P&L) 10,528
122,000 122,000
Omega Limited
Statement of financial position as on 30 June 2018
Rs. in million
Non-current assets:
Property, plant and equipment (W-3) 84.70
Current assets
Stock-in-trade PL 18.50
Trade receivables (W-4) 16.72
Advances and other receivables 6+30+(3×0.8) 38.40
Cash and bank balances 3+1.8 4.80
78.42
Total assets 163.12
Equity
Share capital 40.00
Retained earnings 18+7+4.25+17.16(PL) 46.41
Revaluation surplus 43– 7(10–3)–4.25[(18–13)×(17÷20)] 31.75
118.16
Current liabilities
Trade and other payables 29+9+0.5+1.8–2.7 37.60
Tax liability PL 7.36
44.96
(ii) Liquidity:
The decrease in current ratio from 2.5 to 1.8 is net effect of the following:
Cash payment for purchase of building which significantly decreased current
assets.
Prompt payment to suppliers which decreased the current liabilities.
(ii) Utilisation
Used to prepare financial statements for Used to prepare information for management
shareholders and other external users. (Might (internal use only).
also provide some information for
management but this is not their primary
purpose).
(iv) Activities
Records revenues, expenditure, assets and Records costs of activities and used to
liabilities. provide detailed information about costs,
revenues and profits for specific products,
operations and activities.
(v) Convention
Used mainly to provide a historical record of Provides historical information, but also used
performance and financial position. extensively for forecasting (forward-looking).
(i) Factory building rent - Fixed amount (ii) Direct labour cost - Fixed per unit
per month
(iii) Supervision cost - One supervisor is (iv) Machine rental cost - Fixed monthly
required for every 20 direct workers rent and an additional cost of Rs. 100
per unit for the production exceeding
certain limit.
(THE END)
Normal
Cost per unit
Items Units selling price
(Rs.)
per unit (Rs.)
Toy cars 10,000 1,250 1,200
Doll houses 5,000 1,800 2,700
Stuffed toys 1,850 1,200 1,900
Minion costumes 870 1,500 2,500
Required:
Calculate the amount at which above inventory items should be carried as on
31 December 2017 in accordance with IAS 2 ‘Inventories’. (08)
Q.2 (a) Define ‘performance obligation’. List any six examples of promised goods and
services as per IFRS 15 ‘Revenue from Contracts with Customers’. (05)
(b) On 1 October 2017, Galaxy Telecommunications (GT) entered into a contract with a
bank for supplying 20 smart phones to the bank staff with unlimited use of mobile
network for one year. The contract price per smart phone is Rs. 34,650 and the price is
payable in full within 10 days from the date of contract. At the end of the contract, the
phones will not be returned to GT.
The entire amount received as per contract was credited by GT to advance from
customers account. The smart phones were delivered on 1 November 2017.
If sold separately, GT charges Rs. 18,000 for a smart phone and a monthly fee of
Rs. 1,800 for unlimited use of mobile network.
Required:
Prepare adjusting entry for the year ended 31 December 2017 in accordance with
IFRS 15 ‘Revenue from Contracts with Customers’. (04)
Extract from statement of profit or loss for the year ended 31 December 2017
Rs. in ‘000
Profit before taxation 8,955
Taxation (2,945)
Profit after taxation 6,010
Other information:
(i) Shares issued during the year were as follows:
10% bonus shares in March 2017.
Right shares in July 2017.
(ii) During the year, a plant costing Rs. 9,500,000 and having a book value of
Rs. 5,200,000 was disposed of for Rs. 4,800,000 of which Rs. 1,800,000 are still
outstanding.
(iii) Depreciation for the year amounted to Rs. 7,350,000.
(iv) Financial charges for the year amounted to Rs. 1,100,000. Accrued financial charges
as on 31 December 2017 amounted to Rs. 112,000 (2016: Rs. 48,000).
(v) Provision for doubtful trade receivables is maintained at 5%.
Required:
Prepare statement of cash flows for the year ended 31 December 2017, in accordance with
IAS 7 ‘Statement of Cash Flows’ using indirect method. (15)
DE is preparing its budget for the next year, therefore, it would like to determine the
relationship between production units and cost.
Required:
(a) Using regression analysis, determine the line of best fit for production units and
overheads. (Show all necessary workings) (06)
(b) Compute total prime cost and overheads for production of 650 units. (02)
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Financial Accounting and Reporting-I Page 3 of 5
Q.5 A and B were partners sharing profits and losses in the ratio of 3:2. The balance sheet as on
31 December 2017 is given below:
On 1 January 2018, they agreed to admit C for 1/4th share in the partnership. On admission
of C, it has been agreed that:
value of goodwill of the firm is Rs. 32,000. Goodwill is to be written-off from the books.
assets would be revalued as follows:
Revalued amount
Assets
(Rs.)
Fixed assets 60,000
Investments 9,000
Stock-in-trade 18,000
C has contributed Rs. 38,000 in cash. Capital accounts of the old partners in the new
partnership would be adjusted in their new profit sharing ratio on the basis of C’s capital.
Any excess or deficiency would be adjusted through cash.
Required:
Prepare partners’ capital accounts on admission of C. (12)
Fair value
Revaluation date
(Rs. in million)
31 December 2013 323
31 December 2015 208
31 December 2017 167
Required:
Prepare entries to record revaluation surplus/loss on each of the above revaluation
date. (Entries to record depreciation expense, incremental depreciation and elimination of
accumulated depreciation are not required) (11)
(b) Following information pertains to three exchange transactions relating to fixed assets:
(i) (ii) (iii)
--------- Rs. in million ---------
Cash received/(paid) 1.1 (2.1) -
Assets given-up:
Original cost 10.3 12.4 14.5
Book value 6.4 7.3 3.4
Estimated fair value 8.5 6.6 4.6
Assets received:
Estimated fair value 7.1 9.0 4.1
Additional information:
In case of transaction (i), fair values of both assets are reliably measurable.
In case of transaction (ii), fair value of the asset received is clearly more evident.
In case of transaction (iii), fair value of neither asset is reliably measurable.
Required:
Compute gain or loss on disposal of fixed assets in each of the above transactions. (06)
Q.7 Boom Limited (BL) is a manufacturer of sports goods. Following financial statements for
the year ended 31 December 2017 have been submitted to the Chief Executive Officer
(CEO).
Statement of profit or loss
Rs. in ‘000
Revenues 21,000
Cost of sales (17,500)
Gross profit 3,500
Operating expenses (1,900)
Finance cost (450)
Profit before tax 1,150
Taxation (345)
Profit after tax 805
Although performance of BL has improved from the last year, CEO wants to compare the
results with other companies operating in sports manufacturing industry. In this respect,
following industry data has been gathered:
Gross profit margin 23.5%
Net profit margin 7.7%
Current ratio 2.75
Gearing ratio 50:50
Return on non-current asset 32.9%
Return on capital employed 27.4%
Return on equity 31.3%
Required:
(a) Compute BL’s ratios for comparison with the industry. (04)
(b) For each ratio, give one possible reason for variation from the industry. (07)
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Financial Accounting and Reporting-I Page 5 of 5
Q.8 Following information pertains to Alpha Traders (AT) for the year ended
31 December 2017:
(i) 60% goods are sold for cash to walk-in customers at list price. Remaining goods are
sold to corporate customers on credit at a trade discount of 2% on list price. They only
pay through cheques.
(ii) Balances extracted from AT’s records:
31-Dec-2017 31-Dec-2016
--------- Rs. in ‘000 ---------
Furniture and fittings – net ? 10,175
Stock-in-trade 14,500 12,300
Trade debtors – gross 5,900 4,400
Prepaid rent 180 145
Cash in hand 430 750
Trade creditors 9,700 8,500
Accrued salaries 310 460
(iii) All furniture and fittings were purchased on 1 July 2015 and are depreciated using
straight-line method at 5% per annum.
(iv) Provision for doubtful debts is maintained at 4%. During the year, balances totalling
Rs. 260,000 were written-off.
(v) Summarised bank statement:
Deposits Rs. in ‘000 Withdrawals Rs. in ‘000
Opening balance 9,800 Utilities 1,400
Corporate customers 34,240 Rent, rates and taxes 2,100
Cash 56,380 Repairs & maintenance 2,800
Insurance claim 5,500 Cash 6,320
Return outward 2,170 Creditors 87,200
Delivery charges recovered 330 Delivery truck (second hand) 2,300
Miscellaneous expenses 1,300
Closing balance 5,000
108,420 108,420
(vii) Insurance claim represents cost of goods lost in transit during the year.
(viii) A cheque of Rs. 300,000 issued on 15 December 2017 against rent, has not yet been
presented whereas cheque from a debtor, deposited on 31 December 2017 amounting
to Rs. 3,200,000 is not appearing in the bank statement.
(ix) Creditors are paid through cheques only. Payments made to creditors include:
Rs. 48,000,000 after availing discount of 4%.
A cheque of Rs. 1,900,000 issued to a supplier in December 2016. No discount
was allowed by the supplier on this payment.
(x) The delivery truck was purchased on 1 March 2017. Prior to use, the truck was
repaired at a cost of Rs. 260,000. The repair work was completed on 31 March 2017.
The amount is included in payment for repairs and maintenance above. Depreciation
on delivery truck is charged on a straight-line basis at 12.5% per annum.
Required:
Prepare the following:
(a) Statement of profit or loss for the year ended 31 December 2017. (12)
(b) Statement of financial position as on 31 December 2017. (08)
(THE END)
Ans.2 SK Limited
(a) Performance obligation:
A performance obligation is a promise in a contract with a customer to transfer to the
customer either:
a good or service (or a bundle of goods or services) that is distinct; or
a series of distinct goods or services that are substantially the same and that have the
same pattern of transfer to the customer.
(∑ ) (∑ )(∑ )
(∑ ) (∑ )(∑ )
( ) ( )
4.04
( ) ( )
(∑ )(∑ ) (∑ )(∑ )
(∑ ) (∑ )(∑ )
( ) ( )
1,002
( ) ( )
Regression line:
Ans.6 SK Limited
(a) Accounting entries for revaluation of building
Debit Credit
Date Description
Rs. in million
31-Dec-2013 Building 17.00
Revaluation surplus 17.00
Ratios Industry's
(a) BL's ratios (b) Reasons for variation from industry
ratios
Gross profit 16.67% 23.50% Lower than industry
margin Purchase of raw material at higher prices
as compared to its competitors
Inability to obtain economies of scale in
production as compared to its
competitors
Higher production costs due to
inefficiencies
Deliberately keeping selling prices lower
to gain the market share
Net profit 3.83% 7.70% Lower than industry
margin BL’s gross profit margin is 6.8% lower
than industry (16.6% Vs 23.5%) whereas
net profit margin is only 3.9% lower
which indicates that BL’s operating
expenses as a percentage of sales are
approximately 2.9% lower than the
industry
Current ratio 1.50 2.75 Lower than industry
Since gearing ratio is lower than the
industry so BL might have:
obtained running finances as
compared to long-term financing
by the industry
availed extended credit terms from
suppliers
Low inventory levels are maintained by
BL
Shorter credit terms are given to debtors
Gearing ratio 37.5: 62.5 50 : 50 Lower than industry
Difficulty in raising long-term finance
from banks due to low profits
Running finance or extended credit terms
from suppliers are available for BL
Return on non- 21.33% 32.90% Lower than industry
current assets Lower profit margins
Relatively newer non-current assets have
higher carrying value
Return on 20.00% 27.40% Lower than industry
capital employed Lower profit margins
High shareholder’s equity
(The End)
On 31 December 2016, it was decided to dissolve the partnership. On the said date, the
current account balances of the partners were as follows:
A B C
Rs. 50,000 Rs. 30,000 Rs. (15,000)
Required:
Prepare the following accounts to show the effect of dissolution:
(a) Realization (05)
(b) Partners’ capital (05)
(c) Cash (02)
Required:
In accordance with International Financial Reporting Standards, prepare a note on ‘Property
plant & equipment’ (including comparative figures) for inclusion in SL’s financial statements
for the year ended 31 December 2016. (18)
Q.3 Following is the trial balance of Younus Limited (YL) as on 30 June 2017:
Debit Credit
Particular Particular
Rs. in ‘000 Rs. in ‘000
Property, plant and equipment 200,000 Share capital (Rs. 10 each) 35,000
Receivables and advances 13,000 Un-appropriated profit 66,820
Office rent 1,120 5% Bank loan 52,000
Opening stock 54,000 Trade payables 10,000
Taxation 6,000 Accumulated dep. – 30 June 2017 120,000
Cash and bank 40,000 Sales 240,000
Purchases 170,000
Selling expenses 20,000
Administrative expenses 17,000
Financial charges 2,700
523,820 523,820
The delivery truck was purchased on 1 July 2010. The cost of the delivery truck is
Rs. 5 million of which approximately Rs. 1 million is attributable to the seized engine.
Delivery trucks are depreciated over their useful life of 10 years.
(ii) Certain goods despatched on 28 June 2017 reached YL’s warehouse on 2 July 2017.
Break-up of the amount paid against these goods is as follows:
Rs. in ‘000
20% advance to supplier 500
Insurance in transit 50
Delivery charges 100
The above amounts are appearing under the head ‘Receivables and advances’.
Required:
Prepare statement of financial position as at 30 June 2017 and statement of profit or loss for
the year ended 30 June 2017 in accordance with International Financial Reporting
Standards. (20)
AKL has identified that total fixed costs increase by 20% when production exceeds
35000 units and the average variable costs for all units increase by 5% if production exceeds
75000 units.
Required:
(a) Construct total cost functions for different production ranges using high/low method.
(b) Determine the most feasible option if AKL can sell 25000, 55000 and 80000 units at
Rs. 20, Rs. 17 and Rs. 13 respectively. (09)
Q.5 Progressive Steel Limited (PSL) commenced business in 2015. The following comparative
data pertains to the year ended 30 June 2017:
PSL Industry
Description
2017 2016 2017
Gross profit margin 13% 13% 16%
Net profit margin 8% 7% 10%
Return on shareholders’ equity 22% 18% 25%
Current ratio 1.2 1.6 1.5
Debt to equity ratio 40:60 30:70 50:50
Cash operating cycle in days 119 135 118
Required:
For each ratio/data give possible reasons for variation from comparative and industry data. (12)
Q.6 (a) Jupiter Limited (JL) entered into a two year contract on 1 January 2017, with a
customer for the maintenance of computer network. JL has offered the following
payment options:
Option 1: Immediate payment of Rs. 200,000.
Option 2: Payment of Rs. 110,000 at the end of each year.
Required:
Prepare journal entries to be recorded in the books of JL under each option over the (05)
period of contract.
(b) Pluto Limited (PL) sells industrial chemicals at following standalone prices:
Rupees
Products
(per carton)
C-1 100,000
C-2 90,000
C-3 110,000
PL regularly sells a carton each of C-2 and C-3 together for Rs. 170,000.
Required:
Calculate the selling price to be allocated to each product, in case PL offers to sell one
carton of each product for a total price of Rs. 260,000. (05)
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Financial Accounting and Reporting-I Page 4 of 4
(c) An entity shall recognise revenue when (or as) the entity satisfies a performance
obligation by transferring a promised good or service to a customer. An asset is
transferred when (or as) the customer obtains control of that asset.
Required:
List the different indicators of transfer of control. (04)
Q.7 Saleem is the owner of S-Mart, a grocery store. His accountant resigned and left on
1 January 2017. Saleem suspects that the previous accountant was involved in some sort of
misappropriation. The information available with him is as follows:
(ii) Other balances extracted from the records maintained by the previous accountant:
31-Dec-2016 31-Dec-2015
Particulars
---------- Rupees ----------
Furniture and fixtures – WDV 555,000 550,000
Equipment – WDV 64,000 80,000
Vehicle – WDV 210,000 18,500
Inventory 215,000 250,000
Debtors 340,000 260,000
Advance rent - 3,000
Cash in hand 31,510 45,000
Creditors 354,500 100,000
Salaries payable 22,000 18,000
(iii) Before depositing the receipts from cash sales in the bank, Saleem took Rs. 12,000 per
month for personal use. All other payments were made through bank and the debtors
settled their accounts through cheques.
(iv) The creditors have confirmed the balances due from them. However review of the
statement provided by one of the creditors indicates that goods returned for cash
amounting to Rs. 24,000 were not recorded in the books.
(v) Unpaid invoice for furniture purchased during the year for Rs. 45,000 is included in
creditors.
(vi) The margin on cash sales and credit sales is 20% and 25% respectively. From 1 July
2016, prices to cash customers were further reduced by 6% due to which quantity sold
against cash in the 2nd half of the year increased by 25% as compared to the first half of
the year.
(vii) All the debtors confirmed their balances except an amount of Rs. 50,000. On
investigation it was found that the related goods had been issued against fake invoices.
Required:
(a) Determine the amount of suspected fraud. (04)
(b) Prepare statement of profit or loss for the year ended 31 December 2016. (11)
(THE END)
(c) Cash
Rupees Rupees
Opening balance 300,000 Settlement of liabilities 155,000
Realization of assets 775,000 Final settlement A 657,500
B 165,000
C 97,500
1,075,000 1,075,000
Page 1 of 7
Accumulated depreciation
Opening 22.50 5.00
Cancellation (22.50)
Disposal
Depreciation
(456 ÷19) 24.00
[(45×10%)+(35×10%×5÷12)] 5.96
Closing 24.00 10.96
The last revaluation was performed on 1 July 2016 by Accurate Valuers (Private) Limited, an independent
firm of valuers. Revaluations are performed annually.
Carrying value had the cost model been used instead 382.50 405.00
(450×0.80) (450×0.90)
Page 2 of 7
Current assets
Stock in trade [50,000+ (500÷0.2) + 50+ 100] 52,650
Receivables and advances [13,000–(500+50+100)] 12,350
Short term prepayments (1120 ÷ 1.6 × 0.55 ) 385
Cash & Bank 40,000
105,385
Total assets 186,585
Equity
Issued subscribed and paid up capital 35,000
Unappropriated profit (66,820+18,415) 85,235
120,235
Non-current liabilities
Long term loan (52000 – 16,000) 36,000
Current liabilities
Trade and other payables (10,000+(2,500–500) 12,000
Accrued markup (52,000 × 5% × 3 ÷12 ) 650
Current portion of long term financing (52,000 × 4 ÷ 13) 16,000
Taxation-net (7,700–6,000) 1,700
30,350
Total equity and liabilities 186,585
Younus Limited
Statement of profit or loss
For the year ended 30 June 2017
2017
Rs. in ‘000
Sales 240,000
Cost of sales (54,000+170,000–50,000 -4,500) (169,500)
Gross profit 70,500
Selling and distribution expenses (20,000 –1,200+500–100+ 4,500) (23,700)
Administrative expenses (17,000+ 735) (17,735)
Operating profit 29,065
Financial charges ( 2,700+ 650) (3,350)
Other operating income ( 800– 400) 400
Profit before taxation 26,115
Taxation (7,700)
Profit for the year 18,415
Workings: Rupees
Variable cost 150,000/30,000 5.00
Cost function
Up to 35,000 units: 200,000+5x
35,001–75,000 units: 240,000+5x
More than 75,000 units: 240,000+5.25x
Page 4 of 7
Page 5 of 7
Page 6 of 7
(THE END)
Page 7 of 7
Last year the fee was Rs. 9,000 per annum. However, the number of members was the
same.
(ii) A summary of the bank account for the year is shown below:
Deposits Rupees Withdrawals Rupees
Balance as at 1 Jan. 2016 3,700,500 Insurance 175,000
Cash deposited into bank 37,848,500 Rent and rates 4,200,000
Written off amount recovered 1,860,000 Utilities 4,365,000
Disposal of fixed assets 750,000 Freehold land purchased 17,000,000
Members subscription received Cash withdrawals from bank 6,120,000
directly in bank account 19,800,000 Payment to creditors 18,155,000
Repairs and maintenance 700,000
Exercise equipment 7,350,000
Balance as at 31 Dec. 2016 5,894,000
63,959,000 63,959,000
(iv) The club has a tuck shop which earns a profit margin of 20% of sales. All sales of tuck
shop are made on cash. During the year, stock costing Rs. 500,000 was destroyed by
fire.
(v) The opening WDV of fixed assets was Rs. 28,000,000. Exercise equipment was
purchased on 1 October 2016. Fixed assets having opening WDV of Rs. 800,000 were
disposed off on 31 March 2016. Fixed assets are depreciated @ 20% under the
reducing balance method.
(vi) The opening and closing balances of cash in hand were Rs. 300,000 and Rs. 25,000
respectively.
(vii) The following balances have been extracted through a scrutiny of the available
records:
2016 2015
------- Rupees -------
Creditors 3,330,000 2,500,000
Prepaid rent 175,000 168,000
Stock- tuck shop 2,500,000 2,300,000
Required:
(a) Determine the amount of loss incurred by the club due to fraud committed by the
previous accountant. (09)
(b) An income and expenditure account for the year ended 31 December 2016. (05)
(c) Statement of financial position as at 31 December 2016. (06)
Q.2 (a) Define the term ‘performance obligation’ and state the criteria which should be met if
goods or services promised to a customer are to be considered as distinct. (04)
(b) (i) ECL has entered into a contract with Kashif Builders for construction of a
residential project, including supply of construction material, architectural
services, engineering and site clearance. ECL and its competitors provide such
services separately also. (03)
(ii) eSolutions Limited, a software developer, entered into a two year contract with a
customer to provide software license including future software updates and post
implementation support services. The software license would remain functional
even if the updates and post implementation support services are discontinued. (03)
Required:
In view of the requirements of IFRS 15 ‘Revenue from Contracts with Customers’,
discuss whether goods and services provided in each of the above contracts represent a
single performance obligation.
(c) State the disclosure requirements for assets carried at revalued amounts, as referred to
in IAS – 16 ‘Property, Plant and Equipment’. (04)
Q.3 Nawaz Manufacturing Limited (NML) deals in various products. One of its product B2 is
produced using raw material A1. Production is carried out after receiving confirmed sales
order. Following information is available for the month of January 2017:
(i) Opening inventory of A1 was 200 kg @ Rs. 3,000 per kg.
(ii) Details of purchases made during the month ended 31 January 2017 are as follows:
Date Quantity (kg) Price per kg (Rs.)
1-Jan-17 250 2,800
15-Jan-17 250 2,900
50 kg of A1 purchased on 15 January 2017 were returned to the supplier on 16
January 2017 due to inferior quality of material supplied.
(iii) On 18 January 2017, 100 kg of A1 were destroyed. They had no scrap value.
(iv) Under normal circumstances 500 kg of A1 produce 400 liters of B2.
(v) Labour cost per liter of B2 was Rs. 700.
(vi) Overheads are estimated at 120% of labour cost. The actual overheads for the month
were Rs. 275,000.
(vii) There is no opening and closing work in progress.
(viii) Sales of B2 during the month of January were as follows:
Quantity Sales price per
Sale order date Delivery date
(liters) liter (Rs.)
2-Jan-17 4-Jan-17 100 7,000
26-Jan-17 28-Jan-17 160 6,250
(ix) NML uses weighted average method for valuation of inventory.
Required:
Prepare cost of goods sold statement for the month of January 2017 under each of the
following methods:
(a) Perpetual inventory method (10)
(b) Periodic inventory method (05)
The management is considering to increase the capacity utilization to 85%, 90% or 95%. It
is estimated that if capacity utilization is increased to 90% or more, the fixed costs would
increase by Rs. 100,000 per month.
Required:
Determine the expected cost at each of the three desired levels, using regression analysis and
identify the most beneficial option. (12)
Q.5 A & B are partners in a firm sharing profits and losses in the ratio of their capital i.e. 3:2.
The statement of financial position of the firm as at 31 December 2016 was as under:
Profits of the firm for the last three years were as follows:
On 1 January 2017, C who is the son of A, was admitted as a partner under the following
terms and conditions:
(i) Goodwill is to be valued at two years purchase of average profit of the last three years.
However, it was agreed that following adjustments would have to be incorporated
before the computation of goodwill.
− A sale return of Rs. 200,000 on 1 January 2014 was debited to fixed assets. The
firm charges depreciation @ 20% on written down value of fixed assets.
− A debtor balance of Rs. 300,000 was settled against the amount due to the same
customer, in the year 2016. This adjustment was not recorded in the books.
(ii) C’s share of profit would be 20% of which 5% share would be ceded to him by A. The
remaining share would be purchased by C from B.
(iii) Loan from C would be treated as his capital injection.
(iv) The total capital of the new firm will be Rs. 3,500,000. Any excess or shortage will be
settled through cash.
Required:
Prepare partner’s capital account. (12)
Additional information:
(i) Details of gain on sale of fixed assets are as follows:
Rupees
Gain on sale of freehold land 168,960
Loss on disposal of equipment due to fire (70,000)
98,960
The loss on disposal of equipment represents the WDV of the equipment. The
amount of insurance claim received, amounting to Rs. 30,000 was erroneously
credited to accumulated depreciation.
(ii) Repairs to building amounting to Rs. 50,000 were erroneously debited to building
account on 31 December 2016.
(iii) Transfers from capital work in progress to building amounted to Rs. 1,200,000.
(iv) The owner withdrew Rs. 150,000 per month.
Required:
Prepare statement of cash flows for the year ended 31 December 2016, in accordance with
IAS – 7 using indirect method. (12)
Q.7 (a) The following information has been gathered by an analyst, in respect of Dairy Foods
Limited (DFL) which specializes in various dairy products.
Industry
Ratio 2016 2015 2014
average
Profit margin % 11% 10% 8% 10.45%
Quick ratio 1.38 1.40 1.42 1.52
Current ratio 1.84 1.67 1.59 1.73
Days purchases in payables 80 91 89 82
In the latest annual report to the shareholders, Directors of DFL have claimed that
liquidity position of the Company has improved significantly.
Required:
Critically analyze and discuss whether you agree with the claim. (03)
(b) Extracts from latest financial statements of two companies are as follows:
Required:
Analyze the profitability, liquidity and working capital ratios of both the companies. (12)
(THE END)
Cash receipts
Collection from members [(3,300×10,000) – 19,800,000] 13,200,000
Bank withdrawals 6,120,000
Tuck shop sales (W-2) 22,856,250
42,176,250
Cash payments
Salaries (2,300,000)
Sundry expenses (640,000)
Cash deposited into bank (37,848,500)
(40,788,500)
Closing cash should have been 1,687,750
Closing cash-actual (25,000)
Loss due to fraud 1,662,750
Quarter – 1 -
Quarter – 2 (8,250,000×3/12) 2,062,500
Quarter – 3 (5,500,000×6/12) 2,750,000
Quarter – 4 (9,350,000×9/12) 7,012,500
11,825,000
W-3.1: Depreciation
Depreciation on opening WDV [(28,000,000–800,000)×20%] 5,440,000
Depreciation on disposed asset (800,000×20%×3/12) 40,000
Depreciation on addition (7,350,000×20%×3/12) 367,500
Depreciation for the year 5,847,500
(b) (i) The different services being performed under the contract are separately
identifiable but the customer cannot benefit from a services separately from the
other.
Based on this, ECL should account for services in the contract as a single
performance obligation.
Page 2 of 8
(ii) Transfer of software license, software updates and support services are distinct.
However, the software license is delivered before the other services and
remains functional without updates and technical support. Further, the
customer can benefit from each of the services either on their own or together
with other services that are readily available. Thus, the entity’s promise to
transfer the good or service is separately identifiable from other promises in the
contract.
Based on the above, the contract should not be accounted for as a single
performance obligation.
(c) When items of property, plant and equipment are stated at revalued amounts the
following must be disclosed:
Page 3 of 8
Total Incremental
Units
Capacity production cost of Total cost Cost per unit
produced in
utilization cost y=a+bx repairs (Rs.)
‘000
---------------- Rs. in ‘000 ----------------
85% 408 8,383.81 - 8,383.81 20.55
90% 432 8,817.25 100 8,917.25 20.64
95% 456 9,250.69 100 9,350.69 20.51
The most beneficial option is the production at 95% capacity level where per unit cost is at
minimum.
Page 4 of 8
*1
A: 1,941,734(W-2)×3/5, B: 1,941,734(W-2)×2/5
*2
A: 1,941,734(W-2)×55%(W-3), B: 1,941,734(W-2)×25%(W-3), C: 1,941,734(W-2)×20%(W-3)
*3
A:3,500,000×55%(W-3), B: 3,500,000×25%(W-3), C: 3,500,000×20%(W-3)
Page 5 of 8
Page 6 of 8
A.7 (a) While analyzing liquidity positions of DFL, it is noted that current ratio has steadily
increased over the years and is better than industry average. However, the quick ratio
has steadily declined and is even lower then industry average. This is a clear evidence
that the increase in liquidity is caused by an increase in inventory.
Based on the above, I do not agree with the claim of DFL’s directors.
Company B's gross profit and net profit ratio is slightly higher as compared to
Company A. The difference is not significant and may be on account of higher level
of sales resulting in lesser fixed costs per unit.
Company A’s return on capital employed ratio and return on asset employed ratio
are better than Company B, because Company B has accumulated large balances of
cash despite of availing long term loan. Had Company B had used its cash balances
to pay off the long term loan, it would have both of these ratio better than Company
A.
Liquidity Ratios A B
Current ratio (current assets ÷ current liabilities) 1.36 2.12
Quick ratio (current asset-inventory ÷ liabilities) 0.91 1.75
Company B has better current and quick ratio. However, it appears that these ratios
are better than Company A due to substantially high amount of trade debts in term
of percentage of sales as sales days. It also represents a risk that these trade debts may
prove irrecoverable. Moreover, they may be indicative of inefficient in debt collection
as well.
Company A is more effectively collecting it’s debtors than Company B. This could
also be due to the fact that Company B is following a lenient credit policy to attract
more revenue. This fact is also supported from higher stock turnover ratio of
Company B.
Company A have availed better credit facility from its creditors but it may have
forgone some settlement discounts which might have resulted in lower gross profit
ratio than that of Company B.
Page 7 of 8
(THE END)
Page 8 of 8
It had been Rahil's practice to deposit on each weekend the available balance in the till
after retaining a float of Rs. 5,000. He maintains record of sales on credit and a file of
unpaid invoices in respect of goods purchased by him.
The following information has been ascertained from the available records:
Rupees Rupees
Rahil’s capital 233,000 Fixtures and fittings – WDV 161,000
Creditors for goods 159,000 Inventory 111,000
Creditors for expenses 16,000 Debtors 55,000
Cash at bank 76,000
Cash in hand 5,000
408,000 408,000
(ii) Following is a summary of the bank statement from 1 April to 30 June 2016:
Rupees Rupees
Balance on 1 April 2016 76,000 Payment to suppliers for goods 604,000
Cheques received from customers 29,000 Rent & other expenses 37,000
Cash deposited 627,000 Balance on 30 June 2016 91,000
732,000 732,000
(iv) Fixtures and fittings are depreciated at 10% per annum using reducing balance
method.
(v) Inventory on 1 July 2016 was Rs. 58,000.
(vi) Credit sales during the quarter ended 30 June 2016 amounted to Rs. 64,000 whereas
the debtors balances as on 30 June 2016 amounted to Rs. 66,000. However, direct
confirmations from debtors showed that receivables in fact totalled Rs. 54,000.
(vii) Creditors for goods and expenses had always been paid by cheque. Unpaid invoices
for goods on 30 June 2016 totalled Rs. 181,000 and creditors for expenses
amounted to Rs. 13,000. Detailed scrutiny of records revealed that a cash receipt of
Rs. 8,000 which had been received against goods returned to a supplier had not
been recorded.
(viii) Rahil sells goods at a gross profit margin of 20% on sales.
Required:
(a) Prepare a statement showing calculation of the amount of defalcation. (11)
(b) Prepare a balance sheet as on 30 June 2016. (09)
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Q.2 Khan Limited opened a new branch at Lahore on 1 January 2016. Goods are invoiced to
branch at 25% above cost and branch sells the goods on the invoice price. Expenses of
branch are met from branch cash and the balance amount is remitted to head office (HO).
Following information is available for the year ended 30 June 2016:
Rupees
Cost of goods sent to branch 460,400
Goods received by branch till 30 June 2016 (at invoice price) 454,000
Credit sales 328,000
Debtors on 30 June 2016 35,000
Cash remitted to HO 315,000
Cash at branch on 30 June 2016 14,000
Expenses by branch 40,000
Required:
Prepare following ledger accounts:
(a) Branch Cash Account (04)
(b) Branch Stock Account (04)
(c) Branch Stock Adjustment Account (04)
Q.3 The output and production costs of a garment factory for the last 10 months are given
below:
Output Production costs
Months
(units in million) (Rs. in billion)
1 1 2.05
2 2 2.82
3 4 4.33
4 8 7.31
5 6 5.80
6 5 5.08
7 8 7.29
8 9 8.10
9 7 6.52
10 6 5.82
Required:
Determine the regression line for output and production costs. Also estimate production
costs for next month if required output is 3 million units. (08)
Q.4 Salman Limited (SL) closes its books on 30th June each year. Due to an administrative
problem, SL carried out the stock-taking on 10 July 2016. The cost of stock as verified on
10 July 2016 was Rs. 812,500.
Details of transactions from 1 July to 10 July are given below:
(i) Total sales amounted to Rs. 326,000. The goods were sold in the normal course of
business at cost plus 25% except the following:
a sale of Rs. 25,000 was made at 40% of normal selling price.
a sale of Rs. 60,000 was made at normal selling price but the goods were
slightly damaged and an expenditure of Rs. 15,000 was incurred on these
goods to bring them to saleable condition.
(ii) Purchases amounted to Rs. 246,000. All such purchases were included in stock as
on 10 July 2016.
(iii) Sales returns and purchase returns amounted to Rs. 11,000 and Rs. 6,000
respectively.
(iv) Goods with customers on sale or return basis were Rs. 50,000 (at invoice value).
The goods had been sent to the customers on 15 June 2016. The customers have the
right to return the goods within four weeks. One of the customers informed SL on
29 June 2016 that goods worth Rs. 20,000 had been destroyed in fire.
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Financial Accounting and Reporting-I Page 3 of 4
Required:
Calculate the value of stock as at 30 June 2016. (11)
Debit Credit
-------- Rupees --------
Sales 6,892,000
Purchases 4,124,000
Administrative expenses 1,855,000
Distribution costs 549,000
Property, plant and equipment
Cost 1,750,000
Accumulated depreciation at 30 June 2015 350,000
Inventories at 30 June 2015 344,000
Unappropriated profit at 30 June 2015 330,000
Mateen’s capital 2,000,000
Cash in hand 22,000
Cash at bank 14,000
Bank loan 500,000
Trade receivables 2,255,000
Trade and other payables 826,000
Provision for bad debts at 30 June 2015 15,000
10,913,000 10,913,000
(vi) Bank loan was taken on 1 October 2015 and carries interest at 8% per annum. The
loan is repayable on 30 September 2016.
(vii) Trade receivables amounting to Rs. 5,000 are required to be written off. Bad debts
are estimated at 4% of the trade receivables.
(viii) Income tax liability for the year ended 30 June 2016 is estimated at Rs. 40,000.
Required:
Prepare the following:
(a) Statement of comprehensive income for the year ended 30 June 2016; and (10)
(b) Statement of financial position as at 30 June 2016. (10)
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Q.6 (a) Car World sells new cars on deferred payment basis whereby 40% deposit is
received on sale and the balance payment is received at the end of two years. The
appropriate discount rate is 10%.
Required:
Prepare necessary journal entries to record the above transaction in the books of
Car World for the years ended 30 June 2015 and 2016. (07)
(i) Five machines were sold on a lay away basis to one of its frequent customers.
Three out of a total of five instalments had been received till the year end. (03)
(ii) A service contract for maintenance of a machine for a period of one year was
signed and SE received a non-refundable annual fee amounting to Rs. 45,000
as advance on 15 April 2016. (02)
Required:
Discuss when it will be appropriate for SE to recognise revenue in each of the above
situations.
Q.7 Kamran Enterprises (KE) provides depreciation on plant and machines at 10% on
written-down value. Depreciation is charged from the month the asset is available for use
in operations up to the month prior to its disposal. Cost of its plant & machines and the
accumulated depreciation as on 1 July 2015 were Rs. 75 million and Rs. 17 million
respectively.
The following information is available in respect of its plant & machines, for the year
ended 30 June 2016:
(i) On 1 October 2015, a second-hand machine was acquired from a Chinese company
for Rs. 15 million. The machine was renovated and overhauled at a cost of
Rs. 3 million. 25% of this expenditure was in respect of purchase of consumables.
(ii) On 1 November 2015, KE transferred a machine having a list price of
Rs. 10 million from its stock-in-trade to its Engineering Department. KE sells such
machines at cost plus 25%.
(iii) On 1 January 2016, certain worn-out parts of a plant were replaced at a cost of
Rs. 4 million. The replaced parts neither enhanced the useful life of the plant nor its
operating efficiency. The old parts were sold for Rs. 0.75 million. The plant was
purchased for Rs. 25 million on 1 January 2015.
On 1 May 2016, the plant was damaged and remained in-operative for one month.
KE spent an amount of Rs. 3 million on repairs to restore the plant in working
condition.
(iv) On 1 April 2016, a machine which was purchased on 1 July 2012 for Rs. 12 million
was completely damaged and was sold for Rs. 1.2 million.
Required:
Prepare accounting entries to record the above transactions in KE’s books for the year
ended 30 June 2016. (17)
(THE END)
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Financial Accounting and Reporting-I
Suggested Answers
Certificate in Accounting and Finance – Autumn 2016
Working Notes:
369,000 369,000
∑ ∑ ∑
∑
∑
∑ ∑
(b) The estimated production costs for next month if required output is 3 million units will be:
Value of stock as on 30 June 2016 [lower of cost (A) and NRV(B)] 850,500
*Goods destroyed in fire (Rs. 20,000) taken as sold
3,937,940 3,937,940
Workings:
W-1: Allocation of expenses Administrative Distribution
Cost of sales
expenses costs
--------------- Rupees ---------------
Balances as per trial balance 1,855,000 549,000
Opening inventories as per trial balance 344,000
Purchases as per trial balance 4,124,000
Adjustments:
Closing stock (350,000 + 47,000) [(ii) & (i)] (397,000)
Transfer of 70% rent to cost of sales (iii) 490,000 (490,000)
Prepaid and accrued expenses (iv) (131,000) 176,000
Installation charges incorrectly expensed out (v) (30,000)
Depreciation expenses (W-2) (vi) 91,684 22,921
Loss on disposal (W-2) (vi) 34,255
Bad debts expenses
[(4% × (2,250,000 70,000)) 15,000+5,000] 77,200
4,652,684 1,338,376 725,000
W-2: Depreciation and loss on disposal Rupees Dep. for the year
Property, plant & equipment as per trial balance 1,750,000
Less: Cost of generator disposed of (A) (100,000)
Less: Cost of generator purchased during the year (500,000)
Cost of PPE used throughout the year 1,150,000
Less: Opening balance of Acc. Dep. (350,000)
Add: Opening balance of Acc. Dep. relating to disposed of generator
[100,000 – (100,000 × 0.9 × 0.9 × 0.9)] (B) 27,100
WDV of PPE used throughout the year 827,100
Depreciation for the year (827,100×10%) (82,710) 82,710
Addition:
New generator 500,000
Old generator – trade-in-allowance 35,000
Installation charges 30,000
565,000
Depreciation on additions (565,000 ×10% × 6/12) (28,250) 28,250
536,750
Depreciation on disposed of generator
[(100,000 – 27,100) × 10% × 6/12] (C) - 3,645
1,281,140 114,605
991,736
(b) (i) Revenue from lay away sales is recognized when the goods are delivered against full payment.
However, based on experience, such revenue may be recognized earlier e.g. when a significant
deposit is received provided the goods are on hand, identified and ready for delivery to the buyer.
Hence the sale may be recognized in this case provided the machines are ready for delivery because
the sale is to a frequent customer and a significant portion of the sale proceeds has been received.
(ii) Although the fee is non-refundable, it will be recognized as income on the basis of matching
principle i.e. 1/12th of the annual fee will be taken to income each month.
1-5-2016 Cost of sales/Repair and maintenance / Profit & loss a/c 3,000,000
Bank/payable 3,000,000
W-1:
Written down Depreciation for the
value year
-------------Rupees-------------
Opening balance (75,000,000-17,000,000 58,000,000
Less: Disposal [12,000,000×(0.9)3] (8,748,000)
49,252,000 4,925,200
Addition
Addition on 01 October 2015 (17,250,000×10%×9/12) 17,250,000 1,293,750
Addition on 01 November 2015 (8,000,000×10%×8/12) 8,000,000 533,333
On 1 January 2015 4,000,000 200,000
Disposal
Depreciation on machine sold during the year (8,748,000×0.1×9/12) 656,100
(THE END)
Q.2 AK Limited follows a perpetual inventory system. Following information is available from
the accounting records for the month of January 2016:
Additional information:
(i) 100 units out of 4,200 units purchased on 13 January 2016 were found defective and
returned to supplier on 28 January 2016.
(ii) Inventory count conducted on 31 January 2016 revealed that 4,820 units were
physically available.
Required:
(a) Prepare inventory ledger cards for the month of January 2016 under the perpetual
system showing quantity, unit cost and value under each of the following basis of
inventory valuation:
FIFO (07)
Weighted average (06)
(b) Under weighted average method, prepare journal entries to record the defective items
returned to supplier and surplus/shortfall in the inventory due to physical count. (02)
Q.3 (a) In respect of sale of goods, give any two examples of each of the following situations:
(i) Legal title passes but the risks and rewards are retained.
(ii) Legal title does not pass but the risks and rewards are passed on to the customer. (03)
(i) Karim Industries Limited (KIL) has sold a machine on credit to Yawar
Engineering (YE). The machine would be used by YE if it is able to secure a
contract for providing services to AMZ & Company. KIL has agreed that the
machine may be returned at 90% of the price, if YE fails to secure the contract. (02)
(ii) Asif Electronics (AE) is about to sell a new type of food factory. Since customer
demand is high, AE is taking advance against orders. The selling price has been
fixed at Rs. 7,000 per unit and so far 175 customers have paid the initial 25%
deposit which is non-refundable. (02)
(iii) Nazir Engineering Limited (NEL) entered into a contract for the provision of
services over a period of two years. The total contract price was Rs. 25 million
and NEL had initially expected to earn a profit of Rs. 5 million on the contract.
However, the contract had not progressed as expected. In the first year, costs of
Rs. 12 million were incurred. Management is not sure of the ultimate outcome
but believes that at least the costs on the contract would be recovered from the
customer. (02)
(c) Abid Textile Mills Limited (ATML) sold a property to a financial institution for
Rs. 90 million when the fair value and carrying value of the property was
Rs. 100 million and Rs. 95 million respectively. However, there is an agreement
between the parties whereby ATML could repurchase the property after one year for
Rs. 99 million.
State how the above transaction should be recorded in ATML’s records. (03)
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Q.4 (a) What conditions must be satisfied if an item has to be recognised as property, plant
and equipment? Also state at what amount such item shall be carried after the initial
recognition if the entity is following the revaluation model. (03)
(b) On 1 January 2013 Delta acquired a specialized machine for its production
department. The available information is as follows:
Rupees
List price of machine 9,200,000
Freight charges 263,000
Electrical installation cost 245,000
Staff training for use of machine 351,000
Pre-production testing 193,000
Purchase of a three-year maintenance contract 528,000
Estimated residual value 175,000
Required:
For the years ended 31 December 2013, 2014 and 2015, compute the relevant
amounts to be included (under each head) in the income statement and statement of
financial position. Notes to the financial statements are not required. (10)
Q.5 Maqsood Enterprises has its head office in Karachi and ten branches all over Pakistan.
Following are the details of balances related to the Peshawar branch in the books of head
office:
31-Dec-15 31-Dec-14
------ Rupees ------
Non-current assets 750,000 700,000
Inventory 250,000 200,000
Receivables 120,000 90,000
Cash 35,000 25,000
Goods returned by the branch 29,700 -
Other relevant information is as under:
(i) Goods invoiced to Peshawar branch during the year amounted to Rs. 330,000. Goods
are sent to Peshawar branch at cost plus 10%. Branch sells these goods at a further
mark-up of 15%.
(ii) During the year, Peshawar branch sent goods which were appearing in its books at
Rs. 27,500 to Lahore branch.
(iii) During the year, certain goods were sold by the branch on 30 days credit and invoiced
at Rs. 35,420 to a customer. However, the goods were returned by the customer before
the due date of payment directly to the head office. No entry has been made in respect
of return of goods.
(iv) Branch expenses amounted to Rs. 50,000 which were paid in cash.
(v) Non-current assets are net of depreciation. During the year, head office purchased
non-current assets on behalf of Peshawar branch amounting to Rs. 62,000.
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Required:
Prepare Peshawar branch account in the books of head office for the year ended
31 December 2015 showing profit/(loss) made by the branch. (12)
Q.6 Following are the extracts from income statement of Quality Enterprises (QE) for the year
ended 31 December 2015 and its statement of financial position as at that date, together with
some additional information:
Additional information:
(i) During the year, movements in property, plant and equipment include:
Depreciation amounting to Rs. 5,280,000.
Machinery having a carrying amount of Rs. 2,481,000 was sold for Rs. 3,440,000.
Factory building was revalued from a carrying amount of Rs. 5,963,000 to
Rs. 8,000,000.
An office building which had previously been revalued, was sold at its carrying
amount of Rs. 2,599,000.
(ii) The owner of QE withdrew Rs. 300,000 per month. The amounts were debited to
unappropriated profit.
(iii) Trade debts written off during the year amounted to Rs. 200,000. The provision for
bad debts as at 31 December 2015 was Rs. 400,000 (2014: Rs. 550,000)
(iv) The interest on bank loan is payable on 30th June every year. The bank loan was
received on 1 November 2015. Interest for two months has been accrued and included
in trade and other payables.
(v) Other income includes investment income of Rs. 398,000. As at 31 December 2015,
trade and other receivables included investment income receivable amounting to
Rs. 96,000 (2014: Rs. 80,000).
Required:
Prepare a statement of cash flows for Quality Enterprises for the year ended
31 December 2015, using the indirect method. (18)
Required:
For three different levels of use i.e. 10,000, 20,000 and 30,000 km per annum, prepare a
schedule showing:
Variable, fixed and total costs
Variable, fixed and total costs per km
In respect of each type of cost, give appropriate justification for treating it as a variable or a
fixed cost. (10)
(THE END)
Seaview club
Statement of Financial Position
As at 31 December 2015
A.3 (a) Examples of the situations where legal title passes but risk and rewards are retained
An entity may retain obligations for unsatisfactory performance not covered by normal warranty
provisions;
The receipt of revenue may be contingent on derivation of revenue by the buyer for its sale of
goods.
Examples of the situations where legal title does not pass but the risks and rewards are transferred
A seller may retain the legal title to the goods to protect the collectability of the amount due but
transfer the significant risks and rewards of ownership.
In retail sale, a seller may offer a refund if the customer is not satisfied.
(b) (i) The completion of the sale transaction is uncertain because it is contingent upon purchaser
securing the contract with another company. Therefore, KIL should only recognize the revenue
when it is certain that YE will secure the contract. 10% revenue may be recognized if and when it
is confirmed that YE would not be able to secure the contract.
(ii) Revenue should be recognized when the food factory is delivered to the customer. Until then no
revenue should be recognized and the deposit should be carried forward as deferred income. 25%
advance may be transferred to other income if the parties do not claim the asset.
(iii) If the outcome of a service transaction cannot be estimated reliably, revenue should only be
recognized to the extent that expenses incurred are recoverable from the customer. Thus revenue
to the extent of Rs. 12 million may be recognised.
(c) Since the sale and repurchase prices are lower than the fair values, the substance of the arrangement
appears to be that the financial institution has granted ATML a one year loan secured on the property,
charging interest of Rs. 9 million.
A.4 (a) The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if:
(i) It is probable that future economic benefits associated with the item will flow to the entity; and
(ii) The cost of the item can be measured reliably.
After recognition as an asset, an item of property, plant and equipment whose fair value can be
measured reliably shall be carried at a revalued amount, being its fair value at the date of the
revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment
losses.
Workings
W-1: Cost price of machine Rupees
List price 9,200,000
Less: Trade discount (9,200,000×5%) (460,000)
8,740,000
Add: Freight charges 263,000
Electrical installation cost 245,000
Pre-production testing 193,000
9,441,000
(THE END)
Receipts and payments for the period from 1 July 2014 to 30 June 2015 Rs. in ‘000’
Receipts from cash sales 1,728
Receipts from debtors 4,475
Payments made to creditors 4,774
Payments for marketing expenses 205
Payments for utility expenses 240
Payments for salaries 600
Payments for other miscellaneous expenses 107
Equipment (purchased on 1 October 2014) 250
Withdrew by Razi for his personal expenditures 125
Other information:
(i) Razi makes 35% margin on gross sales price. However, during the year, he offered 5%
discount on credit sales and 10% discount on cash sales. 70% of his total sales were on
credit.
(ii) Actual bills for the year were as follows:
Rs. in ‘000’
Marketing expenses 200
Utility expenses 250
Other misc. expenses 100
Required:
Prepare income statement for the year ended 30 June 2015 and balance sheet as at
30 June 2015. Also compute the amount of cash shortage, if any. (19)
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Financial Accounting and Reporting-I Page 2 of 5
Q.2 Following is the summarised trial balance of Eagles Limited (EL) as at 30 June 2015:
Debit Rs. in ‘000’ Credit Rs. in ‘000’
Plant 2,500 Accumulated depreciation at 1 July 2014
Equipment 700 – Plant 1,000
Stock as on 1 July 2014 1,500 – Equipment 270
Trade debtors 1,300 Provision for obsolete stock at 1 July 2014 45
Cash and bank 1,759 Provision for bad debts at 1 July 2014 48
Purchases 6,987 Capital 2,500
Salaries & wages 843 Accumulated profits 960
Warehouse rent 740 Trade creditors 1,545
Repair and maintenance 500 Revenue 10,706
Utilities expenses 400 Other income 425
Insurance expenses 300 Accruals at 1 July 2014
Bad debt written off 30 – Repairs & maintenance 45
Obsolete inventory written off 40 – Utilities expenses 55
17,599 17,599
Additional Information:
(i) The sales include goods supplied on 27 June 2015 to a customer at a price of
Rs. 390,000 on a sale or return basis. The goods were returnable by 15 July 2015. EL
sells such goods at a mark-up of 30% on cost.
(ii) Other income includes proceed from sale of an equipment amounting to Rs. 100,000
received on 31 December 2014. The cost and written down value of the equipment at
1 July 2014 were Rs. 200,000 and Rs. 70,000 respectively.
(iii) Plant and equipment are depreciated at the rate of 10% and 15% respectively on
straight line basis.
(iv) Cost of stock on 30 June 2015 was Rs. 1,400,000, having net realizable value of
Rs. 1,450,000.
(v) The management estimates that:
5% of trade debts would not be recovered.
3% of the stock is obsolete.
(vi) Current warehouse rent is Rs. 600,000 per annum which was paid in advance on
1 October 2014.
(vii) Following bills for expenses were received but not entered in books:
Rs. in ‘000’
Repair and maintenance 56
Utilities expenses 67
(viii) The company revalued its non-current assets on 31 December 2014. Valuer has
suggested following fair values:
Rs. in ‘000’
Plant 1,650
Equipment 175
(ix) The tax charge for the current year after making all related adjustments is estimated at
Rs. 200,000.
(x) No entry has been made in respect of disposal, revaluation and depreciation of fixed
assets.
Required:
Prepare statement of financial position as at 30 June 2015 and statement of comprehensive
income for the year ended 30 June 2015. (Deferred tax implication is to be ignored) (19)
Q.3 (a) When a company follows revaluation model for subsequent measurement of its
Property, Plant and Equipment, it is required to provide certain additional disclosures
(as compared to cost model). Specify such disclosures as have been mentioned in
IAS 16 ‘Property, Plant and Equipment’. (03)
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Financial Accounting and Reporting-I Page 3 of 5
(b) PQR Enterprises was incorporated on 1 July 2012. The company depreciates its
property, plant and equipment on straight line basis over their useful life. It uses
revaluation model for subsequent measurement of the property, plant and equipment
and has a policy of revaluing these after every two years.
During the year there were no addition or deletion in the above assets.
As per policy, PQR transfers the maximum possible amount from the revaluation
surplus to retained earnings on an annual basis.
Required:
Prepare necessary journal entries for the year ended 30 June 2014 and 2015. (12)
Q.4 Diamond Limited has its head office in Karachi and two branches in Lahore and Quetta.
Balances of its head office and branch operations for the year ended 30 June 2015 are as
under:
Additional information:
(i) Head office transfers goods to branches at cost plus 20%.
(ii) Inventory as at 30 June 2015:
Rs. in million
Head office 375
Lahore branch 28
Quetta branch 150
(iii) Goods worth Rs. 20 million and Rs. 52 million sent to Lahore branch and Quetta
branch respectively were in transit at year-end.
(iv) Cash transfers to head office by Lahore branch and Quetta branch amounting to Rs. 10
million and Rs. 5 million respectively were in transit at year-end.
Required:
(a) Prepare statement of comprehensive income for the year ended 30 June 2015 showing
the total profit/loss as well as profit/loss earned by the head office and two branches. (10)
(b) Reconcile the balances between the head office and the two branches. (02)
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Financial Accounting and Reporting-I Page 4 of 5
Q.5 (a) Describe the term ‘revenue’ and state when and how revenue shall be recognised in the
case of royalties and dividend. (03)
(b) Adnan Limited (AL) is a supplier of machinery and spare parts. The machines supplied
are installed by AL. Following transactions took place in the last week of the
accounting year i.e. 30 June 2015:
(i) A machine was delivered to a customer. The invoiced amount was Rs. 500,000.
In accordance with the Operating Manual, the customer had to arrange a voltage
stabiliser before connecting the machine to the power supply. Machine became
operational on 1 July 2015. (02)
(ii) A specialised machine was sold to Sun Technologies (ST) for Rs. 800,000. ST
agrees to make the payment on 7 July 2015. However, ST informed AL that it
would accept the delivery in the month of August 2015. (03)
Required:
Applying the principles of IAS 18, explain when revenue from the sale of above
machines may be recorded.
(c) (i) On 31 March 2015 a machine was sold under a package deal. The package
includes a machine with free after sale service for 2 years at a total price of
Rs. 50,000. Selling price of standalone unit is Rs. 40,000. Cost of providing after
sales service is estimated at Rs. 4,000 per year. (03)
(ii) A machine was delivered to the customer on 1 July 2014. However, the invoice
was raised on 30 September 2014. According to the invoice, the total price of
Rs. 300,000 is to be paid in 2 half yearly installments of Rs. 150,000 each,
commencing from 1 January 2015. Appropriate discount rate is 10% per annum.
The present value of these two half yearly installments is to be taken as
Rs. 278,912. (03)
Required:
Prepare necessary journal entries to record the above transactions in the books of
Adnan Limited for the year ended 30 June 2015.
Q.6 A company deals in Solar Panels which are imported from China. The company follows a
perpetual inventory system and values its inventory on weighted average basis. Details of
sales and purchases during the year ended 30 June 2015 are as follows:
(i) Opening inventory on 1 July 2014 amounted to Rs. 49,000,000 and consisted of 2,450
solar panels.
(ii) Purchases during the year were as follows:
Date Quantity (Units) Price (Rs. in ‘000’)
30-Sep-2014 4,200 78,120
31-Mar-2015 4,350 87,000
Costs related to imports were 29% of purchase cost, of which 17% is refundable.
(iii) Sales during the year were as follows:
Date Quantity (Units) Price (Rs. in ‘000’)
31-Jul-2014 2,100 52,500
31-Oct-2014 2,050 48,750
28-Feb-2015 2,300 55,200
15-May-2015 2,260 53,110
(iv) Sale on 31 October 2014 includes 100 solar panels which were damaged during the
year and sold at Rs. 12,000 per unit.
(v) On 31 May 2015, 50 solar panels were totally damaged and were written off.
(vi) On 30 June 2015 there was a significant decline in the prices of solar panels as a new
type of solar panel was introduced in the market. Selling prices are now Rs. 18,500 per
unit. However, the company has made some modification in its product which will
enable it to sell it at Rs. 22,000 per unit. Cost of modification is Rs. 2,500 per unit.
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Financial Accounting and Reporting-I Page 5 of 5
Required:
Prepare disclosure of inventories in the financial position as at 30 June 2015 in accordance
with the requirements of IAS-2 ‘Inventories’. (Note: Accounting policy note and comparative
figures are not required) (13)
Q.7 A manager is interested in knowing the relationship between machine hours and production
expenses. Data collected for January 2015 to August 2015 is as follows:
Production expenses
Months Machine hours
(Rs. in million)
January 264 50
February 390 90
March 280 70
April 355 85
May 375 100
June 330 75
July 300 70
August 290 60
Required:
Develop relationship between production expenses and machine hours and predict
production expenses if machine works for 365 hours. (08)
(THE END)
(i) Correspondence between Babar and Razi has revealed that they had agreed to value
the inventory and other assets of the business at Rs. 600,000 and Rs. 120,000
respectively. However, in view of Razi’s standing in the market, the deal had been
finalised at a lump sum price of Rs. 960,000 payable in two equal instalments. The
first instalment was paid by Babar from his personal account.
(ii) Babar had opened a bank account in the name of the business. An analysis of the
bank statement revealed the following details:
Receipts Rupees
Amount deposited by Babar on 1 January 2014 from his personal account 2,000,000
Day to day collections banked at day end 3,800,000
Payments
Second instalment to Mr. Razi on 31 January 2014 480,000
Purchases 3,150,000
Lease rent 120,000
Electricity 22,000
Furniture purchased on 1 July 2014 25,000
(iii) Babar and Sami kept a notebook which shows that the following payments were
made out of daily sale proceeds before depositing them in the bank:
Rupees
Salaries and EOBI payments 184,300
Purchases 49,500
Sundry shop expenses 35,600
Drawings 192,500
(iv) On 31 August 2014, there was a burglary at the warehouse and inventory costing
Rs. 50,000 was stolen. Due to defect in the insurance policy, the insurance company
acknowledged the claim of Rs. 20,000 only, which was received on 5 November 2014.
(v) On 31 December 2014, stock on hand costed Rs. 450,000. Cash in hand, trade
creditors and accrued expenses (electricity) amounted to Rs. 34,500, Rs. 82,500 and
Rs. 5,200 respectively.
(vi) Depreciation on fixtures and fittings is to be provided at the rate of 10% per annum.
Required:
Prepare Trading and Profit and Loss Account for the year ended 31 December 2014 and
Balance Sheet as on 31 December 2014. (20)
Q.2 Trade Link Enterprises opened a branch at Lahore on 1 January 2014. The branch has
provided the following summary of transactions carried out by it during the year 2014 :
Rupees
Goods received from head office 21,732,000
Sales made during the year, of which 40% on credit 15,846,250
Realized from credit customers 4,753,875
Trade discount allowed to customers 36,220
Sales return by customers 108,660
Bad debts 9,055
Petty expenses incurred 70,629
Closing stock 6,385,000
Goods in transit from head office at year-end 250,000
Purchase of fixed assets, bills discharged by head office 1,448,800
Expenses incurred and reimbursed by head office:
Rent and utilities 537,100
Sales promotion 144,880
Payroll 724,400
Other information:
(i) Head Office invoices goods to branch at cost plus 25 percent.
(ii) The branch maintains an imprest of Rs. 100,000 and a balance of Rs. 500,000 in its
bank account. All other takings are transferred to head office.
(iii) Depreciation on fixed assets is to be charged at 15% per annum.
Required:
Prepare Lahore Branch Account in the books of Trade Link Enterprises for the year ended
31 December 2014 showing the profit made by the branch. (12)
Q.3 (a) HCL had agreed to provide services to NPL. The total contract price was Rs. 800,000
and HCL had initially expected to earn 25% profit on the contract. 50% of the work
had been completed at year end at the cost of Rs. 320,000. Soon thereafter, a dispute
arose on the quality of work and further work has been stopped pending settlement of
the dispute. HCL is however very confident of recovering the cost incurred on the
contract plus a margin of 10% above cost.
Required:
Discuss how much revenue should be recognised at the year end? (02)
(b) Saleem owns 10,000 shares in a listed company on 3 December 2014. On the same
date, the company declared a dividend of Rs. 2 per share on the basis of shares held
on 31 December 2014.
Required:
Prepare necessary journal entries relating to the dividend in the books of Saleem. (02)
(c) A company sold equipment to a customer on 1 September 2014 for Rs. 15 million. As
per market norms the company has agreed to provide free support services for the next
two years. The cost of providing the support services is estimated at Rs. 250,000 per
annum. On such services, the company usually earns a profit of 20% of cost.
Required:
Prepare journal entries relating to this transaction for the year ended
31 December 2014. (04)
(d) In the sale of goods how should the revenue be recognised when goods are shipped
subject to installation and inspection? (04)
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Financial Accounting and Reporting-I Page 3 of 5
(b) Following is the draft balance sheet of XYZ Limited as at 31 December 2014 which
was prepared by its accountant:
Rs. in Rs. in
Assets Equities and liabilities
million million
Leasehold land – cost 250 Capital 1,000
Leasehold land – accumulated amortisation (200) Accumulated profit 1,816
Building – cost 1,000 Long term bank loan 200
Building – accumulated depreciation (500) Trade payables 228
Machinery – cost 1,750 Income tax payable 85
Machinery – accumulated depreciation (1,150) Accrued interest 13
Long term deposit 70
Stocks 910
Account receivables – net of provision 361
Cash and bank 851
3,342 3,342
Additional information:
(i) Profit before tax and income tax expenses for the year amounted to Rs. 275
million and Rs. 13 million respectively.
(ii) Balances as at 31 December 2013 were as under:
Rs. in million
Stock 703
Account receivables – net of provision 418
Cash and bank 243
Trade payables 150
Income tax payable 80
Long term deposit 70
The company follows a policy of maintaining provision for bad debts equal to
5% of account receivables.
(iii) The bank loan was obtained on 1 January 2014 and carries interest @ 9% per
annum.
(iv) XYZ uses straight line method for depreciation. Rates of depreciation are as
under:
Leasehold land 2%
Building 5%
Machinery 10%
Required:
Prepare a statement of cash flow as at 31 December 2014. (20)
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Financial Accounting and Reporting-I Page 4 of 5
Q.5 (a) List the particulars that are required to be disclosed in the financial statements in
respect of inventories, according to IAS 2. (03)
(b) Soya Fry Limited manufactures Cooking Oil. Following information is available with
respect to purchases and overheads for the year ended 31 December 2014.
Details of purchases: Rs. in ‘000’
Raw material purchased (including 17% sales tax which
is refundable) 60,500
Packing material purchased 2,050
Settlement discount received on raw material purchases 400
Transportation cost relating to raw material (70%) and
packing material (30%) 300
Details of overheads:
Rent 2,700
Salaries and wages 2,500
Other variable overheads 5,000
Other fixed overheads 1,500
Other information:
(i) The break-up of rent is as follows:
Rs. in ‘000’
Factory 2,000
Warehouse (50% for raw material, 10% for
packing material and 40% for finished goods) 500
Shelf spacing in super markets 200
(ii) Break-up of salaries and wages, other variable and fixed overheads is as follows:
Allocation between
Manufacturing Administration
Salaries and wages *60% 40%
Other variable overheads 80% 20%
Other fixed overheads 60% 40%
*Manufacturing salaries includes 70% direct wages to labourers
working in the factory which vary with the level of production.
(iii) Normal production level is 45,000 units per annum. Actual production during
the year was 40,000 units.
(iv) Opening and closing inventories are as follows:
1-Jan-2014 31-Dec-2014
--------- Rs. in ‘000’---------
Packing material 700 285
Raw material 5,000 7,780
Finished goods 2,962 4,162
Work in process 1,950 3,000
Goods costing Rs. 200,000 (2013: Rs. 300,000) are considered as obsolete and
have been fully provided. Further, closing stock of finished goods include goods
costing Rs. 75,000 which were damaged due to flood and can only be sold at
60% of its cost.
Required:
Disclose the above information in the note on ‘Cost of goods sold’ as would appear in
the profit and loss account for the year ended 31 December 2014. (17)
Q.6 You have recently been appointed as chief financial officer of Al-Hafeez Limited (AHL).
While finalizing the company’s financial statements for the year ended 31 December 2014,
you have observed the following issues:
(a) Plant and equipment includes Machine A-31 at a carrying amount of Rs. 918,400
which was fabricated in-house by AHL in February 2014 by using existing plant and
machinery. The details are as follows:
Rupees
Direct material and labour 656,000
Depreciation – existing plant and machinery 24,000
Administration costs 140,000
20% profit (normally charged to its customers) 164,000
984,000
Less: Depreciation for the year (10% of the cost for 8 months) (65,600)
Carrying value of the machine at year-end 918,400
Direct material includes material lost due to fire amounting to Rs. 40,000.
The fabricated machine was transferred and available for use on 1 March 2014 and
was brought into commercial production on 1 May 2014. (07)
(b) AHL provides transportation services to its factory workers through its fleet of six
buses. The buses are depreciated on straight line basis. At the end of last year, the
buses had carrying value of Rs. 7 million and remaining useful life of 5 years.
On 1 July 2014, the local government promulgated a new legislation whereby all
public transport buses were required to undergo regular major inspection after a
period of three years. An inspection exercise of the fleet of buses was undertaken on
1 September 2014 at a cost of Rs. 1.8 million and this amount was capitalized in the
carrying amount of buses. (04)
(c) On 31 December 2014, AHL acquired a used specialized machine which has no
active market, by exchange of Machine X. The newly acquired machine was booked
at the carrying value of Machine X which was Rs. 9.5 million. However, the fair value
of Machine X on the date of sale was Rs. 8 million but no adjustment was made on
the premise that the acquisition of this specialised machine would increase efficiency
and consequently save approximately Rs. 1.5 million over its useful life. (03)
Required:
Explain the correct accounting treatment of the transactions by AHL and substantiate your
point of view with references to International Accounting Standards – 16 ‘Property, Plant
and Equipment’. Also prepare the necessary journal entries.
(THE END)
Rs. in million
Sales 737
Stock at 1 July 2013 75
Purchases 301
Manufacturing expenses 240
Selling and marketing expenses 28
Administrative expenses 51
Factory building – cost at 1 July 2013 200
Machines – cost at 1 July 2013 280
Factory building – accumulated depreciation at 1 July 2013 50
Machines – accumulated depreciation at 1 July 2013 87
Advance income tax 4
Debtors 117
Cash and bank 51
Creditors 83
Share capital 300
Unappropriated profit at 1 July 2013 90
1,347 1,347
Additional information:
(i) Depreciation on factory building and machines are provided on reducing balance
method @ 10% and 15% per annum respectively. 60% depreciation on factory
building and 100% depreciation on machines are charged to cost of sales. The balance
depreciation is charged to administrative expenses.
(ii) On 31 May 2014, a fully depreciated machine was sold for Rs. 3 million. The sale
proceeds were received on 5 July 2014. No entries have been made in respect of these
transactions.
(iii) Debtors include an amount of Rs. 28 million owed by a customer who experienced
cash flow problems prior to the year-end. The company has agreed to accept
Rs. 18 million in full and final settlement of the debt. Four other debtors aggregating
Rs. 5 million are required to be written off.
(iv) Income tax liability for the year ended 30 June 2014 is estimated at Rs. 25 million.
(v) On 20 June 2014 an advance of Rs. 12 million was received under a contract for
supply of goods in August 2014. The advance was credited to sales.
(vi) Closing stock at 30 June 2014 amounted to Rs. 114 million. It included stock costing
Rs. 20 million whereas the related invoice was booked on 4 July 2014.
(vii) In June 2014, a competitor developed a new product which has affected ABC’s ability
to sell one of its products at its normal price of Rs. 160. It is estimated that to sell the
product, the company needs to offer a discount of 25%. 150,000 units of that product
were in hand as on 30 June 2014 at a cost of Rs. 120 per unit. Its selling costs are
estimated at Rs. 20 per unit.
Required:
Prepare the statement of comprehensive income for the year ended 30 June 2014 and the
statement of financial position as at that date in accordance with International Financial
Reporting Standards. (20)
Q.2 Zeeshan Enterprise invoice goods to its Islamabad branch at cost plus 20 percent. The
expenses of the branch are paid by the head office. The branch has supplied the following
information for the year ended 30 June 2014:
Rupees
Opening stock - at invoice price 240,000
Closing stock - at invoice price 180,000
Cash sales 175,000
Credit sales 410,000
Collection from debtors 378,000
Debtors as on 30 June 2014 91,600
Goods received from head office - at invoice price 300,000
Goods returned to head office 30,000
Goods in transit from head office as on 30 June 2014 - at invoice price 36,000
Branch expenses paid by the head office 104,000
Required:
Show the Branch Account as it would appear in the books of head office for the year ended
30 June 2014 showing the profit made by the branch. (10)
Q.3 (a) List the conditions which are necessary to be fulfilled for recognizing revenue from sale
of goods under IAS 18 ‘Revenue’. (04)
(b) Attire Limited (AL) is a manufacturer of kids’ garments which are supplied to large
departmental stores. Following are some of the transactions which were carried out in
August 2014:
(i) AL delivered 2,000 garment pieces to Elegant Mart (EM). According to the terms
of sale, at the expiry of three months from the date of delivery, EM would have
the right to return the unsold garments to AL. All garments sold during this
period or retained by EM would be invoiced after three months of delivery and
would thereafter be paid within seven days.
EM has agreed to display AL’s garments at a prominent place at all its stores and
in return AL has agreed to allow a discount of 2%. (03)
(ii) AL sold 10,000 pieces of garments to Salam Garments on lay away basis. The
payment is to be made in 12 monthly instalments of Rs. 1,000,000 each. (03)
Required:
Describe how the above transactions would be accounted for in AL’s books of account.
Q.4 Shahzad Textile Mills Limited (STML) purchased a plant for Rs. 500 million on 1 July
2010. The plant has an estimated useful life of 10 years and no residual value.
STML uses revaluation model for subsequent measurement of its property, plant and
equipment and accounts for revaluations on net replacement value method. The details of
revaluations performed by an independent firm of valuers are as follows:
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the
plant to the year ended 30 June 2014. (Ignore tax implications) (15)
Q.5 Hammad Limited (HL) imports and supplies three products, Alpha, Gamma and Beta. The
opening balances and transactions for the month of June 2014 are as follows:
(i) HL’s bank charges a commission of 0.5% of invoice value for opening the letter of
credit.
(ii) Import taxes and duties were 23% of the invoice value out of which 40% are
refundable/adjustable.
(iii) The transportation charges are Rs. 1,500 per trip. 20 units of Alpha, 2 units of Gamma
or 15 units of Beta can be transported in each trip.
(iv) All goods are repacked after import. The cost of packing per unit was Rs. 300,
Rs. 1,500 and 700 respectively.
(v) HL values its stock on first-in, first-out basis.
(vi) Average selling costs per unit are Rs. 700, Rs. 1,500 and Rs. 400 respectively.
Required:
Compute the value of stock of each product as at 30 June 2014 in accordance with IAS-2
‘Inventories’. (15)
Q.6 Following information has been extracted from the financial statements of Full Speed
Enterprises (FSE) for the year ended 30 June 2013:
Rupees
Vehicles – cost 65,201,300
Less: Accumulated depreciation (24,450,500)
WDV of vehicles 40,750,800
FSE provides depreciation on vehicles @ 15% per annum on written down values.
Depreciation on addition/deletion is provided in proportion to the period of use.
(i) On 1 August 2013, a vehicle which was acquired at a cost of Rs. 850,000 on
1 July 2011 was exchanged for a new vehicle. The balance was settled with a cheque
for Rs. 350,000. The list price of the new vehicle was Rs. 900,000.
(ii) Three new vehicles were purchased on 1 December 2013 for Rs. 1,250,000 each.
(iii) On 1 February 2014, a vehicle having written down value of Rs. 550,000 was repaired
at a cost of Rs. 250,000. It is expected that the repairs would improve the efficiency of
the vehicle significantly.
(iv) On 30 June 2014, a vehicle purchased on 1 January 2012 at a cost of Rs. 1,500,000 was
sold for Rs. 1,350,000.
Required:
Prepare the following ledger accounts for the year ended 30 June 2014:
(a) Vehicles account
(b) Accumulated depreciation on vehicles
(c) Loss/gain on sale of vehicles (10)
Ashfaq needs to submit his Trading and Profit and Loss Account for the year ended 30 June
2014 and Balance Sheet as of that date to his bankers in order to obtain an overdraft facility.
He has not maintained proper books of account of the business but has provided you the
following information:
(i) He purchased goods from a single supplier who allows a discount of 3% on goods
purchased in excess of Rs. 3,000,000 in a year. The discount for the year ended
30 June 2014 amounts to Rs. 265,800 and would be received in August 2014.
(ii) All goods are sold at cost plus 60%.
(iii) All cash received against sale of goods has been banked with the exception of the
following weekly average cash expenses/drawings:
Rupees
Drawings 30,000
Carriage outward 5,000
Petrol 3,000
Misc. expenses 2,500
(vi) Depreciation on motor car and furniture is to be provided @ 30% and 15%
respectively under the reducing balance method.
(vii) Stock-in-trade on 30 June 2014 amounted to Rs. 702,000.
Required:
Prepare Trading and Profit and Loss Account for the year ended 30 June 2014 and Balance
Sheet as on 30 June 2014. (20)
(THE END)