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Advanced Accounting and Financial Reporting

Final Examination Summer 2013 Module E Q.1 4 June 2013 100 marks - 3 hours Additional reading time - 15 minutes
Qudsia Limited (QL) has investments in two companies as detailed below: Manto Limited (ML) On 1 January 2010, QL acquired 40 million ordinary shares in ML, when its retained earnings were Rs. 150 million. The fair value of MLs net assets on the acquisition date was equal to their carrying amounts. Hali Limited (HL) On 30 November 2012, QL acquired 16 million ordinary shares in HL, when its retained earnings stood at Rs. 224 million. The purchase consideration was made up of: - Rs. 190 million in cash, paid on acquisition; and - 4 million shares in QL. At the date of acquisition, QLs shares were being traded at Rs. 15 per share but the price had risen to Rs. 16 per share by the time the shares were issued on 1 January 2013. The fair value of the net assets of HL on the date of acquisition by QL was equal to their carrying amounts, except a building whose fair value exceeded its carrying amount by Rs. 28 million. The building had a remaining useful life of seven years on 30 November 2012. The draft summarised statements of financial position of the three companies on 31 December 2012 are shown below: QL ML HL ---------Rs. in million--------Assets Property, plant and equipment Investment in ML Investment in HL Current assets Equity and liabilities Ordinary share capital (Rs.10 each) Retained earnings Current liabilities 5,000 630 190 5,480 11,300 6,000 2,900 2,400 11,300 550 400 950 500 100 350 950 500 350 850 400 240 210 850
The following additional information is available: (i) QL considers ML as a cash-generating unit (CGU). As on 31 December 2012, the recoverable amount of the CGU was estimated at Rs. 700 million. (ii) QL values the non-controlling interest at its proportionate share of the fair value of the subsidiarys net identifiable assets. (iii) On 1 October 2012, ML sold a machine to QL for Rs. 24 million. The machine had been purchased on 1 October 2010 for Rs. 26 million. The machine was originally assessed as having a useful life of ten years and that estimate has not changed. (iv) In December 2012, QL sold goods to HL at cost plus 30%. The amount invoiced was Rs. 52 million. These goods remained unsold at year end and the invoiced amount was also paid subsequent to the year end.
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Required: Prepare a consolidated statement of financial position for QL as on 31 December 2012 in accordance with the requirements of International Financial Reporting Standards.
(20)
Q.2
Healthcare Limited (HCL) manufactures a large variety of nutrition products. In addition to its branded products, HCL produces a special food supplement for export to Childcare Centre (CCC) in the Middle East. Under the terms of the contract, HCL is liable to pay a compensation of Rs. 6 million per month to CCC, if HCL is unable to supply the supplement. On 15 March 2013, a product of HCL was found to be contaminated. On receiving the complaint, the Health Department sealed the factory premises and initiated legal proceedings against the company. As per the legal advice, it is highly probable that the case would be decided against HCL. It is expected that the decision would be announced in September 2013. The maximum fine payable under the law is Rs. 15 million. However, the legal adviser is of the opinion that the amount of the penalty would be Rs. 9 million approximately. HCL has investigated the incident and the findings as reported on 5 April 2013 are as under: The contamination was caused due to the use of an ingredient supplied by Food Chemical Enterprises (FCE) which was close to the date of expiry. However, only one product was affected and various laboratory tests have confirmed that the contamination is not health hazardous. Production batches of the contaminated product were identified. The cost of contaminated inventory in hand on 15 March 2013 was Rs. 70 million. The cost of unsold inventory recalled from the customers amounted to Rs. 132 million. HCL earns a margin of 25% on all of its products. Due to closure of the factory, HCL would not be able to supply the supplement to CCC for three months. Cost of disposal of the contaminated inventory is estimated at Rs. 0.5 million. On 6 April 2013, HCL lodged a claim for damages of Rs. 211.5 million against FCE for the cost of contaminated inventory, cost of disposal thereof and the amount of the penalty that HCL is likely to incur. However, no response has been received from FCE so far and HCL is considering to file a suit for recovery of the amount. Required: Explain the accounting treatment and the disclosure requirements in respect of the above in HCLs financial statements for the year ended 31 March 2013 in accordance with the International Financial Reporting Standards.
(13)
Q.3
The following information pertaining to Krishna Limited (KL) has been extracted from its financial statements for the year ended 31 December 2012. (i) Total comprehensive income for the year: Profit from continuing operations - net of tax Profit from discontinued operations - net of tax Fair value gain on investments available for sale - net of tax Total comprehensive income (ii) Rs. in 000 200,000 10,000 16,000 226,000
Share capital as on 1 January 2012: 8,000,000 Ordinary shares of Rs. 10 each. 500,000 Convertible preference shares of Rs. 100 each entitled to a cumulative dividend at 12%. Each share is convertible into two ordinary shares and the dividend is paid on 28 February, every year.
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(iii) 20% bonus shares being the final dividend for the year ended 31 December 2011 were issued on 31 March 2012. (iv) On 30 April 2012, holders of 80% convertible preference shares converted their shares into ordinary shares. (v) On 1 July 2012, KL issued 20% right shares to its ordinary shareholders at Rs. 70 per share. The market price prevailing on the exercise date was Rs. 80 per share. (vi) On 1 August 2011, KL granted 2,500 share options to each of its twenty technical managers. The managers would become eligible to exercise these options on completion of further five years of service with KL. By 31 December 2012, two managers had already left and it is expected that a further six managers would leave KL before five years. As of 31 December 2012 estimated fair value of each share option was Rs. 40. Required: Prepare a note relating to basic and diluted earnings per share for inclusion in KLs financial statements for the year ended 31 December 2012, in accordance with International Financial Reporting Standards.
(15)
Q.4
Ashfaq General Insurance Limited (AGIL) is engaged in general insurance business. The following information is available for the year ended 31 December 2012: 2012 Rs. in 000 (i) Information extracted from statement of cash flows: Profit received on bank deposits Profit / interest received on investments held for trading held to maturity available for sale Dividend received from investments held for trading available for sale Proceeds from disposal of investments held for trading available for sale Information extracted from profit and loss account: Loss on sale of investments held for trading Unrealized loss on revaluation of investments held for trading Provision for impairment in the value of investments available for sale Amortisation of premium on investments available for sale Gain on sale of investments available for sale Investment related expenses 4,000 28,000 9,000 16,000 6,000 5,000 39,000 43,000
(ii)
12,000 1,000 2,000 3,000 15,000 7,000
(iii) Information extracted from statement of financial position: 1-1-2012 31-12-2012 Accrued profit/interest on: --------Rs. in 000-------- Term deposits 2,000 1,500 - Investments - held for trading 11,400 13,000 - Investments - held to maturity 600 1,800 - Investments - available for sale 2,700 3,000 Required: Prepare the statement of investment income for inclusion in AGILs financial statements for the year ended 31 December 2012. (10)
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Q.5
On 1 January 2009 Qasmi Investment Limited (QIL) purchased 1 million 12% Term Finance Certificates (TFCs) issued by Taj Super Stores (TSS), which operates a chain of five Super Stores. The terms of the issue are as under: The TFCs have a face value of Rs. 100 each and were issued at a discount of 5%. These are redeemable at a premium of 20% after five years. Interest on the TFCs is payable annually in arrears on 31 December each year. Effective interest rate calculated on the above basis is 16.426% per annum. Due to a property dispute, TSS had to temporarily discontinue operations of two stores in 2010. Consequently, TSS was unable to pay interest due on 31 December 2010 and 31 December 2011. At the time of finalization of accounts for the year ended 31 December 2010, QIL was quite hopeful of recovery of the interest and therefore, no impairment was recorded. However, in 2011, after a thorough review of the whole situation, QILs management concluded that it would be able to recover the face value of the TFCs along with the premium on the due date i.e. 31 December 2013, but the interest for the years 2010 to 2013 would not be received. Accordingly, QIL recorded impairment in the value of the TFCs on 31 December 2011. In 2012, TSS reached an out of court settlement of the property dispute and the stores became operational. Subsequently, QIL and TSS agreed upon a revised payment schedule according to which the present value of the agreed future cash flows on 31 December 2012 is estimated at Rs. 115 million. Required: Prepare journal entries in the books of QIL for the years ended 31 December 2011 and 2012. Show all the relevant computations.
(14)
Q.6
Chughtai Limited (CL) has 75% share holdings in John Limited (JL) which is registered and operates in a foreign country. JL's functional currency is RAM. The following information has been extracted from JL's statement of changes in equity for the year ended 31 December 2012: Subscribed and Unappropriated paid-up capital profit ---------RAMs in million--------Balance as on 1 January 2012 50 85 Final dividend for the year ended 31 December 2011 - Cash dividend at 10% (5) - Bonus shares at 20% 10 (10) Profit after tax for the year ended 31 December 2012 40 Balance as on 31 December 2012 60 110 Other relevant information is as under: (i) CL's profit after tax for the year ended 31 December 2012 amounted to Rs. 700 million which includes a cash dividend of Rs. 41 million received from JL. (ii) On acquisition, JLs goodwill amounted to RAMs 30 million. However, an impairment test carried out as at 31 December 2012 revealed that the goodwill has been impaired by RAMs 6 million. (iii) CL values the non-controlling interest on acquisition at fair value. (iv) JL has not issued any ordinary shares after acquisition by CL, except for the bonus issue as mentioned above. (v) The following exchange rates are relevant to the financial statements: 31-Dec-2011 31-Dec-2012 Average for 2012 ------------------Rs. to 1 RAM-----------------10.00 11.00 10.20
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Required: Prepare the relevant extracts from the consolidated statement of comprehensive income of CL for the year ended 31 December 2012 in accordance with the requirements of International Financial Reporting Standards.
(16)
Q.7
Financial statements of Niazi Company Limited (NCL) for the year ended 31 December 2012 are in the process of finalisation. In this respect, the following information has been gathered from the companys accounting and tax records. (i) Property, plant and equipment (PPE) 31-12-2012 31-12-2011 --------Rs. in million-------2,700 2,000 2,400 1,600
Accounting WDV (at revalued amount) Tax WDV
Details of the revaluation are as under: Revaluation of freehold land and buildings on 31 December 2005 resulted in a revaluation surplus of Rs. 15 million and Rs. 20 million respectively. Plant and machinery costing Rs. 150 million was commissioned on 1 January 2010 with an expected useful life of 10 years. It was revalued at Rs. 145 million on 31 December 2012. (ii) Provision for retirement benefits and doubtful debts Balance on 31 December 2011 Write offs during the year Provision for the year, net of payments of Rs. 3 million Rs. in million 50 5 6
(iii) Liabilities outstanding for more than three years NCLs tax assessment for the year ended 31 December 2010 was finalized on 30 April 2012 in which liabilities outstanding for more than three years and amounting to Rs. 8 million were added back to income. A sum of Rs. 2 million included in the above liabilities was paid while a liability of Rs. 3 million was written back by NCL in 2012. (iv) Applicable tax rate is 35%.
Required: Prepare a note related to deferred tax liability/asset for inclusion in NCLs financial statements for the year ended 31 December 2012, in accordance with the International Financial Reporting Standards. (THE END)
(12)
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The Institute of Chartered Accountants of Pakistan

Final Examination Winter 2012 Module E Q.1 4 December 2012 100 marks - 3 hours Additional reading time - 15 minutes
Following are the extracts from the draft financial statements of three companies for the year ended 30 June 2012:
INCOME STATEMENTS Tiger Limited Panther Limited Leopard Limited (TL) (PL) (LL) -------------------Rs. in million------------------6,760 568 426 (4,370) (416) (218) 2,390 152 208 (1,270) (54) (132) 1,120 98 76 730 10 1,850 98 86 (400) (20) (17) 1,450 78 69
Revenue Cost of sales Gross profit Operating expenses Profit from operations Investment income Profit before taxation Income tax expense Profit for the year
STATEMENTS OF CHANGES IN EQUITY Ordinary share capital Retained earnings of Rs. 10 each TL PL LL TL PL LL ---------------------------Rs. in million-------------------------As on 1 July 2011 10,000 800 600 2,380 270 70 Final dividend for the year ended 30 June 2011 (1,000) (60) Profit for the year 1,450 78 69 As on 30 June 2012 10,000 800 600 2,830 348 79
The following information is also available: (i) Several years ago, TL acquired 64 million shares in PL for Rs. 1,000 million when PLs retained earnings were Rs. 55 million. Up to 30 June 2011, cumulative impairment losses of Rs. 50 million had been recognized in the consolidated financial statements, in respect of goodwill. On 31 December 2011, TL disposed off its entire holding in PL for Rs. 1,300 million. (ii) (iii) (iv) (v) On 1 July 2011, 42 million shares of LL were acquired by TL for Rs. 550 million. An impairment review at 30 June 2012 indicated that goodwill recognized on acquisition has been impaired by Rs. 7 million. During the year, LL sold goods costing Rs. 50 million to TL at a mark-up of 20% on cost. 40% of these goods remained unsold on 30 June 2012. Investment income appearing in TLs separate income statement includes profit on sale of PLs shares and dividend received from LL. TL values the non-controlling interest at its proportionate share of the fair value of the subsidiarys identifiable net assets.
It may be assumed that profits of all companies had accrued evenly during the year. Required: Prepare TLs consolidated income statement and consolidated statement of changes in equity for the year ended 30 June 2012 in accordance with the requirements of International Financial Reporting Standards. (Ignore deferred tax implications) (23)
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AdvancedAccountingandFinancialReporting Page2 of5
Q.2
The following information pertains to Crow Textile Mills Limited (CTML) for the year ended 30 June 2012: (a) Stocks include 4,000 maunds of cotton which was purchased on 1 April 2012 at a cost of Rs. 6,200 per maund. In order to protect against the impact of adverse fluctuations in the price of cotton, on the price of its products, CTML entered into a six months futures contract on the same day to deliver 4,000 maunds of cotton at a price of Rs. 6,300 per maund. At year end i.e. 30 June 2012, the market price of cotton (spot) was Rs. 5,500 per maund and the futures price for September delivery was Rs. 5,550 per maund. All necessary conditions for hedge accounting have been complied with. (b) (05)
On 1 July 2011, 2 million convertible debentures of Rs. 100 each were issued. Each debenture is convertible into 25 ordinary shares of Rs. 10 each on 30 June 2014. Interest is payable annually in arrears @ 8% per annum. On the date of issue, market interest rate for similar debt without conversion option was 11% per annum. However, on account of expenditure of Rs. 4 million, incurred on issuance of shares, the effective interest rate increased to 11.81%. (08)
Required: Prepare Journal entries for the year ended 30 June 2012 to record the above transactions. (Show all necessary calculations) Q.3 In order to pursue expansion of its business, Parrot Limited (PL) has made the following investments during the year ended 30 June 2012: (a) On 1 July 2011, PL acquired 20% shares of Goose Limited (GL), a listed company, when GLs retained earnings stood at Rs. 250 million and the fair value of its net assets was Rs. 350 million. The purchase consideration was two million ordinary shares of PL whose market value on the date of purchase was Rs. 33 per share. PL is in a position to exercise significant influence in finalizing the financial and operational policies of GL. The summarized statement of financial position of GL at 30 June 2012 was as follows: Share capital (Rs. 10 each) Retained earnings Net assets Rs. in million 100 280 380 380 (06)
Recoverable amount of GLs net assets at 30 June 2012 was Rs. 370 million. (b) Costs incurred for development and promotion of a brand are enumerated below: (i) (ii) (iii) (iv) (v) (vi) (vii) Research on size of potential market Products designing Labour costs in refinement of products Development work undertaken to finalize the product design Cost of upgrading the machine Staff training costs Advertisement costs Rupees 800,000 1,500,000 950,000 11,000,000 18,000,000 600,000 3,400,000
(06)
Required: Discuss how the above investments/costs would be accounted for in the consolidated financial statement for the year ended 30 June 2012.
AdvancedAccountingandFinancialReporting
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Q.4
Primate Mart Limited (PML) operates a network of several retail stores throughout the country. In order to retain its market share and achieve growth in revenue, PML has extended substantial credit facilities to its major customers. Consequently, PMLs bank borrowings have increased substantially over the past few years. PML has recently requested its bank for further increase in its borrowing facilities. The bank is concerned about the increase in the quantum of loans extended to PML and has appointed you to analyse the financial performance of PML for the last three years. The information available in respect of the company is as follows: (i) Statement of financial position 2012 2011 2010 -------------- Rs. in million -------------322 290 278 620 540 440 443 385 344 15 12 12 1,400 1,227 1,074 90 282 372 420 320 280 8 1,400 90 288 378 355 200 284 10 1,227 90 291 381 212 200 277 4 1,074
Property, plant and equipment Stock-in-trade Trade debts Cash Share capital Retained earnings Long term loans from bank Short term running finance Trade creditors Tax payable
(ii)
Income statement Sales Cash Credit Total sales Cost of sales Gross profit Other operating costs Profit from operations Financial charges Profit before taxation Taxation Profit for the year Depreciation for the year Proposed dividend 2012 2011 2010 -------------- Rs. in million -------------1,050 940 790 450 380 320 1,500 1,320 1,110 (996) (864) (723) 504 456 387 (384) (341) (288) 120 115 99 (102) (79) (57) 18 36 42 (6) (12) (14) 12 24 28 33 10% 36 20% 42 20%
(iii) The present borrowing limit sanctioned to PML is Rs. 750 million. Required: Prepare a report for the bank containing an analysis of the financial performance of the company for the period covered by the financial statements. Your report should focus on the particular concern of the bank regarding the rapidly increasing level of lending exposure to PML and suggest matters which the bank may discuss with the PMLs management. (Assume your name is Bashir Ahmed) (15)
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Q.5
Lion Engineering Limited (LEL) operates an approved pension scheme (defined benefit plan) for all its permanent employees who have completed one years service. The details for the year ended 30 June 2012 relating to the pension scheme are as follows: Present value of pension scheme obligation at 30 June 2011 Fair value of schemes assets at 30 June 2011 Unrecognized actuarial loss at 30 June 2011 Current service cost Contribution made during the year Benefits paid during the year Present value of pension scheme obligation at 30 June 2012 Fair value of schemes assets at 30 June 2012 Rs. in million 100 70 20 29 30 45 110 80
Additional information: (i) With effect from 1 July 2011, LEL had amended the scheme whereby the employees pension entitlement had been increased. The benefits would become vested after three years. According to actuarial valuation the present value of the cost of additional benefits at 1 July 2011 was Rs. 15 million. (ii) The discount rate and expected rate of return on the plan assets on 30 June 2012 were as follows: Discount rate 13% Expected rate of return on plan assets 10% (iii) LEL was required to pay Rs. 40 million to the scheme, during the year ended 30 June 2012. Because of cash flow constraints, LEL was able to contribute Rs. 30 million only. (iv) Average remaining working lives of employees is 10 years. (v) LEL uses the corridor approach to recognize actuarial gains and losses. (vi) Last actuarial valuation was made on 30 June 2012 using the Projected Unit Credit Method. Required: Prepare the relevant extracts from the statement of financial position and the related notes to the financial statements for the year ended 30 June 2012. Show all necessary workings. (Accounting policy note is not required. Deferred tax may be ignored) (18)
Q.6
Eagle Bank Limited (EBL) is listed on all the stock exchanges in Pakistan. At the year end, the total borrowings of the bank amounted to Rs. 29,761 million, which included borrowings outside Pakistan amounting to Rs. 11,712 million. Details of borrowings at the year-end were as follows: All local borrowings are in Pak Rupees. Inter-bank call money borrowings amounted to Rs. 3,600 million. These borrowings were unsecured and carried mark-up ranging between 8.7% and 12.1% per annum. (iii) EBL operates in several countries where it maintains nostro accounts. The overdrawn nostro accounts amounted to Rs. 456 million. Mark-up on overdrawn nostro accounts was charged by the foreign banks at the rates prevailing in the respective countries. (iv) Outstanding loans from the State Bank of Pakistan (SBP) under the Export Refinance Scheme amounted to Rs. 14,182 million. These loans carried mark-up ranging between 9.7% and 11% per annum and were secured by EBLs cash and other securities held by SBP. (v) The borrowings under repurchase agreements amounted to Rs. 11,523 million and carried mark-up ranging between 6.3% and 12.5% per annum. These borrowings are secured against government securities amounting to Rs. 24,802 million and are repayable latest by April 2013. Required: Prepare note on Borrowings for inclusion in the Financial Statements of Eagle Bank Limited with appropriate disclosures in accordance with the State Bank of Pakistan guidelines. (10) (i) (ii)
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Q.7
Quail Pakistan Limited (QPL), a listed company, is reviewing the following transactions which have not yet been accounted for in the financial statements for the year ended 30 June 2012: (a) On 1 July 2011, QPL announced a bonus of Rs. 30 million to its employees if they achieved the annual budgeted targets by 30 June 2012. The bonus would be paid in the following manner: 25% of the bonus would be paid in cash on 31 December 2012 to all employees irrespective of whether they are still working for QPL or not. The balance 75% will be given in share options, to those employees who are in QPLs employment on 31 December 2012. The exercise date and number of options will be fixed by the management on the same day. The budgeted targets were achieved. The management expects that 5% employees would leave between 30 June 2012 and 31 December 2012. (04) (b) On 30 June 2012, a plant having a list price of Rs. 50 million was purchased. QPL has allowed the following options to the supplier, in respect of payment thereagainst: To receive cash equivalent to price of 1.5 million shares of the company after 3 months; or To receive 1.7 million shares of the company after 6 months. QPL estimates that price of its shares would be Rs. 35 per share after three months and Rs. 40 per share after six months. (05) Required: Discuss how the above share-based transactions should be accounted for in QPLs financial statements for the year ended 30 June 2012. Show necessary calculations. (Journal entries are not required) (THE END)

Final Examination Summer 2012 Module E Q.1 5 June 2012 100 marks - 3 hours Additional reading time - 15 minutes
The following summarised statements of financial position pertain to Bee Limited and its investee companies as at 31 December 2011:
Bee Limited Cee Limited Tee Limited --------------Rs. in million-----------ASSETS Non-current assets Property, plant and equipment Investment in Cee Limited at cost Investment in Tee Limited at cost Current assets Stock in trade Trade and other receivables Cash and bank
75,600 3,900 300 24,100 16,400 800 121,100
2,800 1,700 2,900 700 8,100
800 700 820 2,320
EQUITY AND LIABILITIES Equity Ordinary share capital (Rs.10 each) Retained earnings Long term loan Current liabilities Trade and other payables Bank overdraft
44,300 15,800 36,400 24,600 121,100
2,800 1,200 4,100 8,100
1,000 900 300 120 2,320
The following information is also available: (i) Bee holds 252 million shares of Cee which were acquired in 2005 when the retained earnings of Cee stood at Rs. 350 million. At the date of acquisition, the fair values of Cees net assets were the same as their carrying amounts with the exception of a legal claim having a fair value of Rs. 7 million which had been disclosed in the financial statements as a contingent liability. The claim was settled on 30 November 2011, for the same amount. (ii) Bee acquired 80% share capital of Tee several years ago for Rs. 1,200 million when Tees retained earnings stood at Rs. 100 million. On 1 October 2011, Bee sold 75% of its holding in Tee for Rs. 2,000 million. On the date of disposal, the fair value of remaining holding was Rs. 650 million. (iii) During the year, Cee sold goods to Bee at cost plus 25%. The amount invoiced during the year amounted to Rs. 32 million. 40% of these goods were held by Bee at year end. Bee has paid Rs. 20 million against the invoiced amount, upto 31 December 2011. (iv) At year end, an impairment review indicated that 10% of Cees goodwill is required to be written off. (v) During the year ended 31 December 2011, Cee and Tee earned profits after tax of Rs. 250 million and Rs. 200 million respectively. It may be assumed that the profits had accrued evenly throughout the year. (vi) Bee follows a policy of valuing the non-controlling interest at its proportionate share of the fair value of the subsidiarys identifiable net assets.
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Required Prepare the consolidated statement of financial position of Bee Limited as at 31 December 2011 in accordance with the requirements of International Financial Reporting Standards. (24 marks) Note: Ignore tax and comparative figures. Notes to the consolidated statement of financial position are not required. Show workings wherever necessary. Q.2 Dee General Insurance Limited is a listed company. The following information relates to the year ended 31 December 2011:
Direct and facultative Treaty Fire and Marine, MiscellanProportproperty aviation Motor eous ional damage and transport ----------------------------Rs. in million---------------------------Commissions: Paid / payable Deferred: opening Deferred: closing Receipts from reinsurers Net premium earned 321.41 148.79 160.43 270.44 907.75 126.87 11.31 5.68 5.70 768.70 215.00 128.50 114.23 12.72 2,745.64 90.94 38.59 35.17 82.40 948.48 0.30 0.70
During the year, management expenses (other than commission) amounted to Rs. 978 million. These expenses are allocated on the basis of net premium earned. Required: Prepare a statement of expenses for inclusion in the financial statements for the year ended 31 December 2011. (Ignore comparative figures) (10 marks)
Q.3
The following information relates to Que Limited (QL) for the year ended 31 December 2011: (i) Issued share capital on 1 January 2011 consisted of 80 million ordinary shares of Rs. 10 each. (ii) Profit after tax amounted to Rs. 130 million. It includes a loss after tax from a discontinued operation, amounting to Rs. 40 million. (iii) On 30 September 2011, QL issued 20% right shares at a price of Rs. 11 per share. The market value of the shares immediately before the right issue was Rs. 12.50 per share. (iv) There are 25,000 share options in existence. Each option allows the holder to acquire 120 shares at a strike price of Rs. 10 per share. The options have already vested and will expire on 30 June 2013. The average market price of ordinary shares in 2011 was Rs. 12 per share. (v) QL had issued debentures in 2008 which are convertible into 6 million ordinary shares. The debentures shall be redeemed on 31 December 2012. The conversion option is exercisable during the last six months prior to redemption. The interest on debentures for the year 2011 amounted to Rs. 11 million. (vi) Preference shares issued in 2009 are convertible (at the option of the preference shareholders) into 4 million ordinary shares on 31 December 2013. The dividend paid on preference shares during 2011 amounted to Rs. 5.75 million. (vii) The company is subject to income tax at the rate of 35%. Required: Prepare extracts from the financial statements of Que Limited for the year ended 31 December 2011 showing all necessary disclosures related to earnings per share. (Ignore comparative figures) (17 marks)
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Q.4
Zee Power Limited (ZPL) has been facing short term liquidity issues during the financial year ended on 31 December 2011. As a result, the following transactions were undertaken: (i) On 27 December 2011, ZPL sold its investment in listed Term Finance Certificates (TFCs) to Vee Investment Company Limited with an agreement to buy them back in 10 days. Relevant details are as follows: Rupees 10,150,000 10,183,337 10,144,332 10,163,125
Sale price Buy back price Value in ZPLs books as on 27 December 2011 Market price as on 31 December 2011 ZPL intends to hold these TFCs till maturity. (ii)
On 1 January 2009, ZPL had obtained a bank loan of Rs. 100 million at 10% per annum. The interest was payable annually on 31 December and principal amount was repayable in five equal annual installments commencing from 31 December 2009. On 1 January 2011, the bank agreed to facilitate ZPL as follows: Balance amount of the principal would be paid at the end of the loans term i.e. on 31 December 2013. With effect from 1 January 2011, interest would be paid at the rate of 10.5% per annum. The market rate for similar debt is 10%.
(iii)
On 1 July 2011, ZPL sold its plant and machinery to Kay Leasing Limited, a related party, for Rs. 90 million and leased it back for five years at semi-annual rentals amounting to Rs. 9.66 million, payable in arrears on June 30 and December 31. The carrying amount of plant and machinery on the date of sale was Rs. 80 million and its fair value was Rs. 60 million. The lease qualifies as an operating lease and the rentals are based on fair market rate.
Required: Prepare journal entries to record the above transactions in the books of Zee Power Limited. (18 marks)
Q.5
(a)
Specify the criteria for identification of operating segments, in accordance with the International Financial Reporting Standards. (03 marks) Jay Limited is an integrated manufacturing company with five operating segments. Following information pertains to the year ended 31 March 2012:
Operating segments A B C D E Total Internal revenue 38 35 38 111 External Total Profit / Assets Liabilities revenue revenue (loss) -----------------------Rs. in million----------------------705 743 194 200 130 82 82 (22) 44 40 300 300 81 206 125 35 10 75 60 90 128 (63) 50 25 1,177 1,288 200 575 380
(b)
Required: In respect of each operating segment explain whether it is a reportable segment.
(09 marks)
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Q.6
Gee Investment Company Limited (GICL) acquires properties and develops them for diversified purposes, i.e. resale, leasing and its own use. GICL applies the fair value model for investment properties and cost model for property, plant and equipment. The details of the buildings owned are as follows:
Property A B C D E Date of acquisition 1 August 2006 1 January 2009 1 July 2009 1 July 2008 1 August 2011 Useful life (years) 20 15 10 10 20 Cost Fair value as on 31 December Residual value 2011 2010 -------------------Rs. in million----------------130 14 100 150 240 24 240 210 160 20 150 120 10 1 Not available 48 4 51 -
The following information is also available: Property A GICL had been trying to sell this property for the last two years. However, due to weak market, the directors finally decided to lease it with effect from 1 October 2011 when its fair value was Rs. 120 million. The possession of this property was acquired from the tenants on 30 June 2010 when the company shifted its head office from Property C to Property B. The fair value on the above date was Rs. 195 million. When the head office was shifted from this property, it was leased to a subsidiary at market rate. On the date of lease, the fair value was equal to its carrying amount. This property is situated outside the main city and its fair value cannot be determined. It was rented to a government organization soon after the acquisition. This property is an office building comprising of three floors. After acquisition, two floors were rented out. On 1 November 2011, GICL established a branch office on the third floor. Details of costs incurred on acquisition are as follows: Purchase price Agents commission Registration fees and taxes Administrative costs allocated Rs. in million 42.50 0.50 2.00 3.00 48.00
Property B
Property C Property D Property E
Required: (a) Prepare a note on investment property, for inclusion in GICLs separate financial statements for the year ended 31 December 2011. (Ignore comparative figures) (16 marks) (b) Explain how Property C would be accounted for in the consolidated financial statements for the year ended 31 December 2011. (03 marks) (THE END)

Final Examination Winter 2011 Module E Q.1 10 December 2011 100 marks - 3 hours Additional reading time - 15 minutes
Hi-Tech Pakistan Limited (HPL) is a public limited company and deals in medical equipments. On 1 October 2009 HPL had introduced a Robotic Surgery System for the first time in Pakistan. In November 2009, HPL had launched a country wide sales promotion campaign to introduce the system in various hospitals at a cost of Rs. 16 million whereas expenditure on training of the technical staff amounted to Rs. 12 million. On 1 April 2010 HPL signed a lease agreement with Comforts Hospital for sale and 3-year maintenance of the system. The terms of the agreement are as under: Lease period Initial payment on signing of the agreement 6 half yearly installments commencing 30 September 2010 Implicit rate of interest per annum 3 years Rs. 20 million Rs. 25 million 15.192%
Cost of the system is Rs. 100 million whereas maintenance cost of the system for the three years was estimated at Rs. 8.4 million. To cash customers, the system is sold at a mark-up of 25% on cost. HPL expects a gross margin of 30% on such maintenance contracts, whereas actual costs incurred on the maintenance, during the year ended 30 September 2011 amounted to Rs. 2.5 million (2010: Rs. 1.7 million). The hospital was unable to pay the installment due on 31 March 2011 due to solvency problems. After intense negotiations, HPL and the hospital agreed to a restructuring arrangement, whereby the hospital would settle its obligation by paying 4 half yearly installments of Rs. 32 million each, commencing from 30 September 2011. Required: Compute the impact of the above transactions on various items forming part of the statements of comprehensive income and financial position of Hi-Tech Pakistan Limited for the year ended 30 September 2011 in accordance with International Financial Reporting Standards. Give comparative figures. (Notes to the financial statements are not required.) (16 marks) Q.2 Global Investment Limited (GIL) is listed in Pakistan. During the year ended 30 September 2011, GIL entered into the following contracts with a UAE based company: (i) On 28 September 2011 GIL committed to buy certain financial assets on 3 October 2011 for AED 20,000. The fair value of these assets on balance sheet date and settlement date was AED 21,000 and AED 21,500 respectively. On 29 September 2011 GIL agreed to sell certain financial assets on 4 October 2011 having a carrying value of AED 34,000 (Rs. 809,200) for AED 35,000. The fair value of these assets on the balance sheet date and settlement date was AED 35,200 and AED 34,800 respectively.
(ii)
The above types of financial assets are classified by GIL as held for trading. Exchange rates on the relevant dates were as under: Date 1 AED = Rs. 28 September 2011 24.00 29 September 2011 23.00 30 September 2011 23.50 03 October 2011 25.00 04 October 2011 26.00
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Required: Prepare accounting entries to record the above transactions on the relevant dates in accordance with International Financial Reporting Standards, using: (a) Trade date accounting (b) Settlement date accounting (16 marks) Q.3 Alpha Pakistan Limited (APL) is a listed company and has 60% holding in Bravo Limited (BL). The company is in the process of preparation of its consolidated financial statements for the year ended 30 September 2011. Following are the extracts from the information that has been gathered so far:
Consolidated Statement of Comprehensive Income (Draft) 2011 Rs. in million Sales 65,000 Cost of products sold (59,110) Other operating income 2,000 Operating expenses (3,000) Financial expenses (890) Income tax expense (1,200) 2,800 Profit for the year Profit attributable to Owners of the holding company 2,500 Non-controlling interest 300 2,800 Consolidated Statement of Financial Position (Draft) 2011 2010 Rs. in million Equity and liabilities Assets Share capital (Rs. 10 each) 550 500 Property, plant and equipment Retained earnings 5,950 3,600 Goodwill Non-controlling interest 235 120 Long term receivables Long term loans 440 145 Stock in trade Deferred tax 210 10 Trade debts Trade and other payables 4,688 3,970 Other receivables Accrued financial expenses 35 30 Cash and bank balances Provision for taxation 200 25 Short term borrowings 6,670 5,950 18,978 14,350
2011 2010 Rs. in million 1,100 15 24 6,760 7,534 900 2,645 900 15 29 4,280 5,421 725 2,980
18,978 14,350
Following additional information is available: (i) During the year, BL sold goods amounting to Rs. 140 million to APL at a margin of 25% of cost. 40% of the above amount remained unpaid and 30% of the goods remained unsold as on 30 September 2011. No adjustments in this regard have been made in the above statements. (ii) Depreciation charge for the year was Rs. 75 million and Rs. 15 million for APL and BL respectively. (iii) During the year APL acquired property, plant and equipment amounting to Rs. 250 million against a long term loan. (iv) The amount of long term receivables represents present value of interest free loans to employees. The gross value of the loans is Rs. 27 million (2010: Rs. 33 million). (v) Operating expenses include bad debt expenses amounting to Rs. 44 million. During the year, trade debtors amounting to Rs. 30 million were written off. (vi) Trade and other payables include APLs unclaimed dividend amounting to Rs. 8 million (2010: Rs. 10 million). At APLs Board meeting held on 30 November 2011, final cash dividend of Rs. 3.0 per share has been proposed (2010: Final cash dividend of Rs 2.0 per share and 10% bonus shares). Required: Prepare a consolidated statement of cash flows including all relevant notes for Alpha Pakistan Limited for the year ended 30 September 2011 using the direct method in accordance with International Financial Reporting Standards. (Ignore corresponding figures.) (23 marks)
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Q.4
On 1 October 2009 Sky Limited (SL) acquired 25% holding (2.5 million ordinary shares) in Mars Limited (ML) for Rs. 900 million. On the date of acquisition, MLs equity was as follows: Ordinary share capital (Rs. 100 each) Share premium Retained earnings 12% cumulative preference share capital Rs. in million 1,000 150 2,898 200
On the above date, fair value of a building owned by ML exceeded its carrying value by Rs. 12 million and its estimated useful life was 15 years. Fair values of all other assets and liabilities of ML were equal to their carrying values. Following additional information is available: (i) MLs profit after tax for the year ended 30 September 2011 was Rs. 250 million (2010: Rs. 240 million). Dividend received from ML amounted to Rs. 30 million (2010: nil). (ii) Cost of goods purchased from SL and included in MLs closing inventory was Rs. 10 million (2010: Rs. 16 million). SL makes a profit of 20% on all sales. (iii) Applicable tax rate is 35% and 10% for business and dividend income respectively. On 1 January 2011, SL acquired 70% holding (7 million ordinary shares) in Jupiter Limited (JL) for Rs. 1,400 million. SL has been following a policy to account for investments in associates using equity basis of accounting. Since SL is now required to prepare consolidated financial statements, it needs to change its accounting policy for investments in associates, for the purpose of preparation of its separate financial statements, to comply with the requirements of International Financial Reporting Standards. Required: Prepare the following notes (relevant portion only) for incorporation in the separate financial statements of Sky Limited for the year ended 30 September 2011: (a) Change in accounting policy (b) Investments (Show all the necessary disclosures and comparative figures in respect of the above, in accordance with International Financial Reporting Standards.) (22 marks) Q.5 XL (Private) Limited is a long established company and provides a range of services to business organizations for development of their human resources. Most of its staff consists of qualified and experienced professionals. The company plans to expand its business by establishing a research division. In this respect, XL is evaluating a proposal for raising finance by issuing ordinary shares. To estimate value of its shares, XL has identified a listed company, PL Limited, which is engaged in similar business. Financial statistics and other information as of 30 September 2011, for XL and PL, are given below: XL Limited PL Limited --- Rs. in million --400 1,000 120 100 292 600 168 500
Ordinary share capital as at 1 October 2010 (Rs. 10 each) 10% cumulative preference shares as at 1 October 2010 (Rs. 10 each) Right shares issued on 1 April 2011 (Rs. 10 each) Total comprehensive income Dividend paid
PL issued right shares on 1 April 2011 at Rs. 25 per share. The prevailing market price per share on the date of issue and on 30 September 2011 was Rs. 35 and Rs. 40 respectively. PLs total comprehensive income includes unrealized gain of Rs. 15 million on investments available for sale. Annual rate of growth in earnings and dividends for XL and PL is estimated at 5% and 4.5% respectively. The cost of equity of companies having similar businesses is estimated at 15% per annum.
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Required: (a) Compute the value of XLs shares as on 30 September 2011 based on: (i) P/E ratio (ii) Dividend yield (b) Identify any two weaknesses of each of the above valuation methods. Q.6 (13 marks)
Al-Amin Bank Limited is listed on all the stock exchanges in Pakistan. At year end, the total advances amounted to Rs 75,000 million which include non-performing advances of Rs. 5,000 million. The break-up of the non-performing advances and the provisions there-against is as under: Other assets especially mentioned Advances Provisions required and held 100 5 SubStandard Doubtful Loss Total
----- Rs. in million ----660 840 3,400 120 530 3,345
5,000 4,000
The sub-standard category includes advances of Rs. 260 million pertaining to overseas operations of the bank. The required provision of Rs. 50 million has been made against such advances. During the year the movement in the specific provision was as under: Opening balance Charge for the year Reversals Amounts written off Exchange rate adjustment Total Rs. in million 3,320 802 (90) (50) 18 4,000
In addition to the above specific provisions, it is the banks policy to make additional general provision based on the judgment of the bank. Opening balance for general provision was Rs. 65 million. During the year, the bank made provisions of Rs. 25 million and Rs. 15 million against consumer and agriculture advances respectively. Required: Prepare relevant notes on non-performing advances and provisions for inclusion in the financial statements of Al-Amin Bank Limited giving appropriate disclosure in accordance with the guidelines issued by the State Bank of Pakistan. (10 marks) (THE END)

Final Examinations Summer 2011 Module E
Reading time 15 minutes
June 7, 2011 100 marks 3 hours
Q.1
The draft statements of financial position of Oceana Global Limited (OGL), and its subsidiary Rivera Global Limited (RGL) as of March 31, 2011 are as follows: OGL RGL Rs. in million Assets Property, plant and equipment Intangible assets Investment in RGL (opening balance) Investment in RGL (acquired during the year) Current assets Equity and Liabilities Share capital (Ordinary shares of Rs. 100 each) Retained earnings Fair value reserve Non-current liabilities Current liabilities The details of OGLs investments in RGL are as under: Acquisition date July 1, 2009 October 1, 2010 Face value of Purchase shares acquired consideration Rs. in million 10 20 45 108 700 4 23 108 350 1,185 300 550 3 853 150 182 1,185 200 150 350 100 80 180 40 130 350
Other information relevant to the preparation of the consolidated financial statements is as under: (i) (ii) (iii) (iv) (v) (vi) On October 1, 2010 the fair value of RGLs assets was equal to their carrying value except for non-depreciable land which had a fair value of Rs. 35 million as against the carrying value of Rs. 10 million. On October 1, 2010 the fair value of RGLs shares that were acquired by OGL on July 1, 2009 amounted to Rs. 28 million. RGLs retained earnings on October 1, 2010 amounted to Rs. 60 million. Intangible assets represent amount paid to a consultant for rendering professional services for the acquisition of 45% equity in RGL. During February 2011 RGL sold goods costing Rs. 25 million to OGL at a price of Rs 30 million. 25% of these goods were included in OGLs closing inventory and 50% of the amount was payable by OGL, as of March 31, 2011. OGL follows a policy of valuing non-controlling interest at its fair value. The fair value of non-controlling interest in RGL, on the acquisition date, amounted to Rs. 70 million.
Required: Prepare a consolidated statement of financial position for Oceana Global Limited as of March 31, 2011 in accordance with International Financial Reporting Standards. (16 marks)
Advanced AccountingandFinancialReporting
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Q.2
Following are the extracts from draft statement of comprehensive income of Kahkashan Limited (KL) for the year ended March 31, 2011: Net sales Cost of sales Selling and distribution expenses Administrative expenses Finance costs Other operating income Profit before tax Rs. in million 800 (640) (32) (15) (10) 13 116
The following issues need to be resolved, to finalize the accounts: (i) On April 1, 2010 the company had issued 0.5 million 12% Term Finance Certificates (TFCs) of Rs. 100 each. The principal amount of Rs. 50 million is included in non-current liabilities. Interest is payable annually in arrears. On the date of issue, the prevailing interest rate for similar debts without conversion option was 14% per annum. TFCs would mature on March 31, 2014 but are convertible into eight ordinary shares of Rs. 10 each, at the option of the certificate holders, at any time prior to maturity. Interest was paid on March 31, 2011 and charged to finance cost. KL entered into a sale and leaseback arrangement on October 1, 2010 for one of its plants having remaining useful life of 5 years with a nil residual value. Relevant information is as under: Carrying value of the plant as of October 1, 2010 Selling price Installments payable semi-annually, in advance, for a period of 5 years Rs. in million 43 53 7
(ii)
Income of Rs. 10 million has been recognized on disposal of the plant and is included in other operating income. Interest rate implicit in the lease is 13.597%. (iii) On April 1, 2010 KL acquired 25% holding in SL Limited by purchasing 50,000 ordinary shares for Rs 6 million. In March 2011 a dividend of Rs. 20 per share was received by KL and credited to other operating income. SLs profit and other comprehensive income, net of tax, for the year ended March 31, 2011 was Rs. 10 million and Rs. 2 million respectively. (iv) On April 1, 2006 KL had acquired a plant at a cost of Rs. 30 million. The useful life of the plant was estimated at 15 years and it is being depreciated under the straight line method. On October 1, 2010 the plant suffered physical damage but is still working. A valuation was carried out to determine the impairment loss. The following information is available from the valuers report received on April 5, 2011: Value in use Selling price, net of costs to sell Estimated remaining useful life as of October 1, 2010 Rs. 16 million Rs. 12 million 5 years
Depreciation for the year ended March 31, 2011 has been accounted for without considering the impact of the valuers report. (v) Tax assessment for the accounting year ended March 31, 2010 was finalized in February 2011 in which liabilities outstanding for more than three years amounting to Rs. 6 million were added to income. 30% of these liabilities have already been paid during the year ended March 31, 2011. Tax effect of these transactions has not been accounted for. (vi) Applicable tax rate for business income and dividend income is 35% and 10% respectively. The amount of tax depreciation is the same as accounting depreciation, except for any difference arising out of information provided in Para (iv). Required: Prepare a statement of comprehensive income for the year ended March 31, 2011 in accordance with International Financial Reporting Standards. (25 marks)
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Q.3
Waste Management Limited (WML) had installed a plant in 2005 for generation of electricity from garbage collected by the civic agencies. WML had signed an agreement with the government for allotment of a plot of land, free of cost, for 10 years. However, WML has agreed to restore the site, at the end of the agreement. Other relevant information is as under: (i) Initial cost of the plant was Rs. 80 million. It is estimated that the site restoration cost would amount to Rs. 10 million. (ii) It is the policy of the company to measure its plant and machinery using the revaluation model. (iii) When the plant commenced its operations i.e. on April 1, 2005 the prevailing market based discount rate was 10%. (iv) On March 31, 2007 the plant was revalued at Rs. 70 million including site restoration cost. (v) On March 31, 2009 prevailing market based discount rate had increased to 12%. (vi) On March 31, 2011 estimate of site restoration cost was revised to Rs. 14 million. (vii) Useful life of the plant is 10 years and WML follows straight line method of depreciation. (viii) Appropriate adjustments have been recorded in the prior years i.e. up to March 31, 2010.
Required: Prepare accounting entries for the year ended March 31, 2011 based on the above information, in accordance with International Financial Reporting Standards. (Ignore taxation.) (17 marks) Q.4 Extracts from statement of comprehensive income of Rahat Limited (RL) for the year ended March 31, 2011 are as under: 2011 2010 Rs. in 000 150,000 110,000 10,000 8,000 160,000 118,000
Profit after taxation Exchange gain on foreign operations, net of tax Total comprehensive income Following further information is available: (i)
As of April 1, 2010 share capital of the company consisted of: 5 million ordinary shares of Rs. 10 each. 0.2 million convertible 15% cumulative preference shares of Rs. 100 each.
(ii)
Each preference share is convertible into 7 ordinary shares at the option of the shareholders. 10,000 preference shares were converted into ordinary shares on July 1, 2010. (iii) On September 10, 2010 a right issue of one million ordinary shares had been announced at an exercise price of Rs. 12 per share. By October 1, 2010 which was the last date to exercise the right, all the shares had been subscribed and paid. The market price of an ordinary share on September 10 and October 1, 2010 was Rs. 15.50 and Rs. 15 respectively. (iv) On April 30, 2011 the Board of Directors had declared a final cash dividend of 20% (2010:18%) for the year ended March 31, 2011. (v) There was no movement in share capital during the previous year. Required: Prepare a note related to earnings per share, for inclusion in the companys financial statements for the year ended March 31, 2011 in accordance with International Financial Reporting Standards. Show comparative figures. (16 marks)
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Q.5
Galaxy Textiles Limited (GTL) operates a funded gratuity scheme for all its employees. Contributions to the scheme are made on the basis of annual actuarial valuation. The following relevant information has been extracted from the actuarial report pertaining to the year ended March 31, 2011. Present value of defined benefit obligations as of: April 1, 2010 March 31, 2011 Fair value of plan assets as of: April 1, 2010 March 31, 2011 Net cumulative unrecognized losses as of April 1, 2010 Benefits paid by the plan to the employees Current service cost Interest cost Expected return on plan assets Rs. in million 133 166 114 120 19 6 15 16 14
Actuarial gains and losses are recognized using the corridor method, over the expected average remaining working lives of the employees. As of March 31, 2011 the expected average remaining working lives of the employees was 18 years. Required: Prepare a note on retirement benefits for presentation in the financial statements for the year ended March 31, 2011 in accordance with International Financial Reporting Standards. (14 marks) Q.6 Following information has been extracted from the records of A-One Asset Management Fund Limited for the year ended March 31, 2011. Net assets at the beginning of the year (900 million units) 100 million units issued during the year 95 million units redeemed during the year Investments classified as available for sale Fair value at year end Carrying value at year end Net unrealized appreciation in fair value of investments at the beginning of the year Investments classified as at fair value through profit or loss held for trading Fair value at year end Carrying value at year end Element of income and capital gains included in prices of units issued/redeemed and transferred to income statement Capital gains Other net income for the year Rs. in million 27,000 3,500 3,277 1,800 1,200 480 2,500 2,200 173 400 3,000
Final distribution for the year ended March 31, 2011 of Rs. 5.00 per unit (2010: Rs. 4.00 per unit) was announced on April 16, 2011. Required: Prepare a statement of movement in unit holders' fund for the year ended March 31, 2011. (12 marks) (THE END)

Final Examinations Winter 2010 Module E December 7, 2010 100 marks - 3 hours
Q.1
Rainbow Textiles Limited (RTL) is a public limited company and owns 70% holding in Fabrics Design Limited (FDL). FDL is located in a foreign country and its functional currency is FC. RTL acquired FDL on July 1, 2009 for FC 12 million when FDL's share capital and retained earnings were FC 5 million and FC 3 million respectively. On the acquisition date, fair value of FDL's net assets was FC 11 million. The fair value of all the assets except leasehold land and buildings was equal to their carrying amounts. The remaining lease period of the land and useful life of the buildings at the date of acquisition was 20 years. RTL and FDL use straight line method of depreciation. The following balances were extracted from the Statement of Comprehensive Income of RTL and FDL for the year ended June 30, 2010: Statement of Comprehensive Income RTL Rs. in million 1,000 (450) 550 (250) (25) 275 (100) 175 FDL FC in million 25 (15) 10 (5) (1) 4 (1) 3
Sales revenue Cost of sales Gross profit Selling and administrative expenses Financial expenses Profit before taxation Taxation Profit after taxation The following additional information is also available: (i)
(ii) (iii) (iv) (v)
On April 10, 2010 RTL sold goods for Rs. 30 million to FDL at a margin of 20% of selling price. Full payment was made by FDL on May 1, 2010. No exchange gain or loss was recorded on the transaction. Goods valuing FC 1.0 million were still in closing inventory of FDL as of June 30, 2010. An impairment test was carried out on June 30, 2010 which indicated that the goodwill has been impaired by 25%. RTL follows a policy of valuing the non-controlling interest at its proportionate share of fair value of the subsidiaries identifiable net assets. FDL has not issued any shares after the acquisition. Exchange rates relevant to the preparation of the financial statements are as follows: 30-Jun-2009 / 1-Jul-2009 10-Apr-2010 1-May-2010 1 FC = Rs. 22.00 22.50 23.00 30-Jun-2010 Average rate for the year 1 FC = Rs. 23.50 22.75
Required: Prepare the Consolidated Statement of Comprehensive Income of Rainbow Textiles Limited for the year ended June 30, 2010. (23 marks)
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Q.2
Modern Construction Limited (MCL) was established on July 1, 2008. It had entered into two different contracts up to June 30, 2010 and their progress is as under: Contract start date Work certified and billed upto June 30, 2009 Work certified and billed upto June 30, 2010 Work completed but not certified upto June 30, 2010 Contract price Costs incurred upto June 30, 2009 Costs incurred during the year ended June 30, 2010 Estimated costs to complete on June 30, 2009 Estimated costs to complete on June 30, 2010 Unpaid bills (gross) as on June 30, 2010 Contract A Contract B 1-1-2009 1-9-2009 25% 80% 20% 5% --------- Rupees in million --------800 400 180 420 125 500 100 270 140 -
Other relevant information is as under: (i) The company recognizes contract revenue and expenses using % of completion method. (ii) 10% of contract price had been paid as advance on signing of each contract and is adjustable from the progress payments. (iii) A progress bill is raised on the basis of work % certified by the consultant. All customers deduct 5% retention money from the progress bills. (iv) Contract costs incurred during the year do not include: Retainership fee amounting to Rs. 2 million paid to the consultant for technical assistance on contracts A and B. 30% of the consultants time was used on contract A and 70% on contract B. Research cost for improving work quality and cost efficiency amounting to Rs. 1.9 million. (v) The company is required to rectify all the defects during warranty period of one year. It is estimated that rectification costs to be incurred during warranty period would be 5% of the contract price. Required: Prepare appropriate extracts to be reflected in the Statement of Financial Position, Income Statement and relevant notes to the accounts for the year ended June 30, 2010 in accordance with IAS 11 (Construction Contracts). (20 marks) Q.3 Mahfooz General Insurance Limited (MGIL) is a listed company. The information pertaining to the business underwritten inside Pakistan for the year ended June 30, 2010 is as under: Direct and facultative Treaty Fire & Marine, Accident & Motor Proportional property aviation & health damage transport ------------------------------------ Rupees in million -----------------------------------Claims: Total claims paid Outstanding - Opening Outstanding - Closing 900 600 500 450 400 450 300 300 400 1,150 900 750 850 700 550 250 300 150 160 150 80 13 10 12 -
Reinsurance and other recoveries: Total received 600 Outstanding - Opening 500 Outstanding - Closing 350
Required: Prepare a statement of claims for the year ended June 30, 2010 in accordance with the Insurance Ordinance, 2000. Ignore the comparative figures. (12 marks)
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Q.4
The following balances were extracted from the Consolidated Income Statement and Consolidated Statement of Financial Position of Karachi Group Limited (KGL) for the year ended June 30, 2010. Consolidated Income Statement 2010 Rs. in million 189 5 (14) 180 (65) 115 100 15 115 Rs. in million
2010 2009
Operating profit Share of profit in associates Financial expenses Profit before taxation Taxation Profit for the year Profit attributable to Owners of the parent Non-controlling interest
Consolidated Statement of Financial Position

2010 EQUITY AND LIABILITIES Equity Share capital Retained earnings Non-controlling interest Non-current liabilities Long term Loans Current liabilities Current maturity of long term loans Trade creditors and other payables Accrued financial expenses Taxation 20 262 8 60 350 1,023 2009 ASSETS Non-current assets 200 Property, plant and equipment 250 Investment in associates 450 Intangible assets 10 460 Current assets 120 Inventories Trade debtors and other receivables Short term deposits Cash and bank balances 287 5 50 342 922
200 320 520 28 548 125
510 12 30 552
500 10 25 535
261 180 10 20 471
200 162 25 387
1,023
922
(i)
One of KGLs three subsidiaries, Auto Engineering Works Limited was acquired on July 1, 2009 by purchase of 80% shareholdings for Rs. 30 million. Fair value of the assets and liabilities at the time of acquisition were as follows: Property, plant and equipment Inventories Trade debtors and other receivables Cash and bank balances Trade creditors and other payables Rs. in million 20.50 10.00 8.00 6.00 (17.00) 27.50
It is KGLs policy to value the non-controlling interest at its proportionate share of fair value of the subsidiaries' net assets. (ii) Book value of intangible assets on July 1, 2009 included trademarks of Rs. 6.0 million. There was 50% impairment in the value of trademarks during the year ended June 30, 2010.
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(iii)
The following information pertaining to property, plant and equipment is available: Total depreciation charge for the year was Rs. 70.0 million. A machine costing Rs. 10.0 million and having book value of Rs. 6.5 million was traded-in with another machine having a fair market value of Rs. 7.0 million with an additional cash payment of Rs. 1.0 million. Fully depreciated assets costing Rs. 10.0 million were scrapped during the year. Proceeds of a long term loan amounting to Rs. 5.0 million were specifically used for purchase of property, plant and equipment.
(iv)
On August 5, 2010 the board of directors proposed a final dividend at 20% for the year ended June 30, 2010 (2009: 15% dividend declared on August 10, 2009).
Required: Prepare a Consolidated Statement of Cash Flows under the indirect method, for the year ended June 30, 2010, including notes thereto as required by IAS 7 (Statement Of Cash Flows). (25 marks) Q.5 Following are the extracts from the latest annual published accounts of the two companies which are engaged in similar types of businesses. Statement of Financial Position AB Limited XY Limited Rupees in million 275 390 125 45 130 50 10 6 540 491 210 190 60 80 540 215 90 105 60 21 491
Property, plant and equipment Inventories Account receivables Cash and bank balances
Share capital (Shares of Rs. 10 each) Retained earnings Long term liabilities Current liabilities (other than bank overdraft) Bank overdraft
Income Statement for the year Sales Cost of sales Gross profit Operating and other expenses Financial expenses Profit before taxation Taxation Profit after taxation Share market price at year end 900 (500) 400 (135) (6) 259 (100) 159 140 825 (530) 295 (150) (10) 135 (55) 80 50
Required: (a) Comment on the strategic outlook of the management of the above companies based on their debt equity ratio and liquidity position. (b) Based on the price earnings ratio comment on the attractiveness of the two companies, from the investors point of view. (10 marks)
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Q.6
Engineering Works Limited (EWL) is in the process of finalising its Financial Statements for the year ended June 30, 2010. The issue as detailed below is being deliberated upon by the CFO. It is the policy of EWL to pay annual bonus of Rs. 10,000 each to all of its 600 workers, after two months of closure of the financial year. On June 1, 2010 the management announced a scheme whereby each worker was given the option to purchase 1,000 shares of EWL on a payment of Rs. 8 per share, in lieu of cash bonus for the year ended June 30, 2010. The face value of the companys shares is Rs. 10 each. The last date to exercise the option was fixed at July 31, 2010. Other related information is as follows: 60% employees exercised the option by June 30, 2010. By July 31, 2010 further 20% employees had accepted this option. The workers who exercise the option are required to retain the shares up to June 30, 2012 before being eligible to sell them. The shares were issued on September 1, 2010. The market price and fair value of the shares at various dates were as under: Market price per share Fair value per share (after taking effect of post vesting transfer restriction) Rs. Rs. 30-Jun-10 32 30 31-Jul-10 37 34 01-Sep-10 42 40
Required: Prepare journal entries for the above transactions and adjustments during the years June 30, 2010 and 2011. (10 marks) (THE END)
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Final Examinations Summer 2010
June 8, 2010
ADVANCED ACCOUNTING AND FINANCIAL REPORTING

(MARKS 100) (3 hours) Q.1 The following information has been extracted from statements of financial position and the comprehensive income of Parent Limited (PL), Subsidiary Limited (SL) and Jointly Controlled Entity Limited (JCEL) for the year ended December 31, 2009. Statement of financial position PL SL JCEL Rupees in million Assets Non-current assets Property, plant and equipment 120 40 74 Investment in SL at cost 35 Investment in JCEL at cost 25 Current assets Stocks in trade Trade and other receivables Cash and bank 20 25 3 228 17 5 1 63 16 8 2 100
Equity and Liabilities Equity Ordinary share capital (Rs. 10 each) Retained earnings Long term loans Current liabilities 50 78 75 25 228 15 18 12 18 63 22 100 50 28
Statement of comprehensive income PL SL JCEL Rupees in million Sales 1,267 276 654 Cost of sales (928) (161) (469) Gross profit 339 115 185 Selling expenses (174) (68) (100) Administrative expenses (88) (30) (57) Other income 10 Financial charges (12) (4) Taxation (26) (5) (10) Net profit 49 8 18 Following additional information is available: (i) PL owns 80% equity of SL which was acquired on January 1, 2009. JCEL is a jointly controlled entity in which 50% equity is held by PL since inception.
(2)
(ii) On the date of acquisition, the book values of all the assets of SL were approximately equal to their fair values except for the following: Fair value Book value Rs. in million 15 12 12 10
Equipment Inventory
The remaining useful life of the above equipment on the date of acquisition was 3 years. The entire inventory acquired prior to acquisition was sold during 2009. (iii) JCEL measures inventory using the weighted average method whereas PL uses first in first out (FIFO) method. On December 31, 2008 the cost of JCELs inventory using either methods was approximately the same. However, on December 31, 2009 the value of its inventory using the FIFO method was Rs. 14 million. (iv) PL sells goods at cost plus 25%. During 2009 invoices raised by PL against sales made to SL and JCEL amounted to Rs. 10 million and Rs. 20 million respectively. Out of these, inventories worth Rs. 2 million and Rs. 4 million were held by SL and JCEL respectively as on December 31, 2009. (v) PL uses proportionate consolidation method for recognizing its interest in JCEL. (vi) There is no impairment in the value of goodwill. (vii) It is the policy of PL to value the non-controlling interest at its proportionate share of the fair value of the subsidiarys identifiable net assets. Required: Prepare the consolidated statements of financial position and comprehensive income of PL for the year ended December 31, 2009 in accordance with the International Financial Reporting Standards. (Ignore deferred tax implications) (30) Q.2 The following information pertains to ABC Limited, in respect of year ended March 31, 2010. Rs. in 000 15,000 2,000 4,000 2,000 2,000 2,400
Consolidated profit for the year (including minority interest) Profit attriutable to minority interest Dividend paid during the year to ordinary shareholders Dividend paid on 10% Cumulative Preference shares for the year 2009 Dividend paid on 10% Cumulative Preference shares for the year 2010 Dividend declared on 12% Non Cumulative Preference shares for the year 2010 (i)
The dividend declared on the non-cumulative preference shares, as referred above, was paid in April 2010. (ii) The cumulative preference shares were issued at the time of inception of the company. (iii) The company had 10 million ordinary shares at March 31, 2009. (iv) The 12% non-cumulative preference shares are convertible into ordinary shares, on or before December 31, 2011 at a premium of Rs. 2 per share. 0.50 million non cumulative preference shares were converted into ordinary shares on July 1, 2009. (v) 1.20 million right shares of Rs. 10 each were issued at a premium of Rs. 1.50 per share on October 1, 2009. The market price on the date of issue was Rs. 12.50 per share. (vi) 20% bonus shares were issued on January 1, 2010. (vii) Due to insufficient profit no dividend was declared during the year ended March 31, 2009. (viii) The average market price for the year ended March 31, 2010 was Rs. 15 per share.
Required: Compute basic and diluted earnings per share and prepare a note for inclusion in the consolidated financial statements for the year ended March 31, 2010. (17)
(3)
Q.3 Auto Construction Pakistan Limited (ACPL) is engaged in the business of renting of construction machinery. On March 15, 2009 ACPL negotiated and finalised an agreement for purchase of used machinery from Malaysia. The price on FOB basis was agreed at US$ 0.4 million. The machinery was loaded on the ship on April 1, 2009 and arrived at the company premises on May 31, 2009. According to the agreement a down payment of 10% was made on the date of loading. The remaining amount was paid on June 30, 2009. The US$ conversion rates on April 1, May 31 and June 30 were Rs. 80.90, Rs. 81.60 and Rs. 82.70 respectively. A cost of Rs. 4 million was incurred on freight, taxes and other charges. Economic life of the machinery is 10 years. On July 1, 2009, ACPL sold the machinery to Smart Investment Limited for Rs. 40 million and leased it back under the following arrangement: (i) Lease term of 5 years commencing from July 1, 2009. (ii) 10 half yearly instalments of Rs. 5.50 million each payable in arrears. (iii) Interest rate implicit in the lease at 12.506% On July 1, 2009 ACPL rented the machinery to a customer for three years at a half yearly rent of Rs. 5 million each, payable in advance with 5% annual increase. Required: Prepare notes to the financial statements for the year ended December 31, 2009 in accordance with the requirement of IAS 17 (Leases). (13) Q.4 Secured Bank Limited (SBL) is listed on all the Stock Exchanges in Pakistan. The cost of various types of Investments held by the bank as of December 31, 2009 are as follows: 2009 2008 Rupees in million 366 309 69 61 26 30 9 8 6 5 2 3 19 30 260 210 32 28 60 52 19 29
Market treasury bills Pakistan investment bonds Government of Pakistan bonds (USD/Euro) Investments in associates Fully paid-up ordinary shares listed Fully paid-up ordinary shares unlisted Corporate debt instruments listed Corporate debt instruments unlisted Investments of mutual funds Overseas government securities Other investments
Provision for diminution / impairment in the value of investments as at January 1, 2008 amounted to Rs. 28 million. Other information relevant to the provision is as under: Impairment (reversal) / loss for the year Charge for the year Amounts written off during the year (6) 17 5 2 12 3
Required: Prepare a note on investments by segments for inclusion in SBLs financial statements for the year ended December 31, 2009 giving appropriate disclosures in accordance with the guidelines issued by the State Bank of Pakistan. (12)
(4)
Q.5 The following is a summarised trial balance of Sun Enterprises Limited for the year ended December 31, 2009: Debit Credit Rupees in 000 Ordinary shares of Rs.10 each 50,000 Retained earnings as at January 1, 2009 15,600 Property, plant and equipment at cost 81,000 Accumulated depreciation 17,000 Note receivable 8,000 Trade receivables 16,070 Inventory as of December 31, 2009 12,400 Cash and bank 2,000 Trade payables 16,700 Income tax payable 2,400 Deferred tax liability 3,300 Provision for environmental cost 500 Sales revenue 133,300 Cost of sales 85,000 Environmental costs 500 Operating expenses 16,000 Financial charges 1,000 Tax expense 11,830 Dividends paid on equity shares 5,000 238,800 238,800 On reviewing the financial statements, the audit committee is of the view that the requirements of the Companies Ordinance 1984 and International Financial Reporting Standards (IFRSs) have not been fully complied. It has asked you to look into the undermentioned items: (i) Note Receivable: The note receivable dated January 1, 2009 represents the amount due from a major customer of the company. Its due date is December 31, 2011. No interest is being charged on the note in view of the large amount of business undertaken by the customer. Normal commercial rate for such type of unsecured financing is 12%.
(ii) Inventory/cost of sales: Inventory valuation method has been changed during the current year, from weighted average to FIFO. The value of inventory at December 31, 2009 applying weighted average method would have been Rs. 12 million. Value of opening inventory under the weighted average method was Rs. 8.2 million whereas its value under the FIFO method would have been Rs. 9 million. Cost of sales includes an amount of Rs. 3 million which was spent on repair of uninsured property which was damaged in an earthquake. (iii) Environmental costs: It is estimated that cost of restoring the site of mines would amount to Rs. 5 million. The estimate is based on expected prices prevailing at the end of useful life of the mines which is 10 years. 1/10th of the cost has been provided in the current year. The rate of inflation over the next 10 years is estimated at 10%. (iv) Taxation: On account of certain disallowances, the amount of tax paid by the company in 2009 in respect of tax year 2008 exceeded the amount provided in the accounts by Rs. 0.20 million which was debited to Deferred Tax Payable account. The company does not intend to file an appeal against these disallowances. Current years taxable income exceeds the accounting income by Rs. 3 million of which Rs. 2.50 million are temporary timing differences. Tax rate applicable to the company is 35%. Required: Prepare a Profit and Loss Account for the year ended December 31, 2009 in accordance with IFRSs. (Ignore comparative figures) (16)
(5)
Q.6 In 2001, the management of Comfort Shoes Limited planned to acquire an international trademark to boost its sales and enter into the international market. In this respect, the management carried out a market survey and analysed the information obtained to initiate the process. The relevant information is as follows: (i) The cost incurred on the survey and related activities during the year 2001 amounted to Rs. 1 million. (ii) An agreement was finalised and the company acquired the trademark effective January 1, 2002. According to the agreement Rs. 5 million were paid on signing of the agreement and Comfort Shoes was required to pay 1% of sale proceeds of the related products on yearly basis. The analysis carried out at that time indicated that the trademark would have an indefinite useful life. (iii) The company has developed many new models under this trademark and successfully marketed them in the country as well as in international markets. However, in 2008 the company faced unexpected competition and had to discontinue the exports. It was estimated that due to discontinuation of exports, net cash inflows for the foreseeable future, would reduce by 30%. As a result the management was of the view that as of December 31, 2008 the carrying value of the trademark had reduced to 90%. (iv) Due to continuous inflation and flooding of markets with very low priced shoes, it was decided in December 2009 that use of the trademark would be discontinued with effect from January 1, 2011.
Required: (a) Explain how the above transactions should have been accounted for in the years 2001 to 2007 according to International Financial Reporting Standards (IFRSs). (b) Prepare a note to the financial statements for the year ended December 31, 2009 in accordance with the requirements of IFRSs. Show comparative figures. (12) (THE END)

Final Examinations Winter 2009
December 8, 2009

Q.1
(MARKS 100) (3 hours)
The statements of financial position of Habib Limited (HL), Faraz Limited (FL) and Momin Limited (ML) as at June 30, 2009 are as follows: HL Assets Non-current assets Property, plant and equipment Investments in FL - at cost Investments in ML - at cost Current assets Stocks in trade Trade and other receivables Cash and bank Total assets Equity and liabilities Equity Ordinary share capital (Rs. 10 each) Retained earnings Non-current liabilities 12% debentures Current liabilities Short term loan Trade and other payables Total equity and liabilities FL ML Rupees in million
978 520 300 1,798 210 122 20 352 2,150
595 595 105 116 38 259 854 -
380
380 125 128 37 290 670
800 784 1,584 270 124 172 296 2,150 -
360 354 714 140 140 854
100 450 550
120 120 670
Following additional information is also available: (i) HL acquired 60% shares of FL on January 1, 2003 for Rs. 400 million when the retained earnings of FL stood at Rs. 250 million. On January 1, 2006, a further 20% shares in FL were acquired for Rs. 120 million. FLs retained earnings on the date of second acquisition were Rs. 400 million. (ii) 70% shares of ML were acquired by HL for Rs. 300 million, on July 1, 2006 when MLs retained earnings stood at Rs. 260 million. On December 31, 2008, HL disposed off its entire holding in ML for Rs. 500 million. The disposal of shares has not yet been recorded in HLs financial statements. (iii) On January 1, 2009, FL purchased a machine for Rs. 20 million and immediately sold it to HL for Rs. 24 million. However, no payment has yet been made by HL. The estimated useful life of the machine is 4 years and HL charges depreciation on the straight line method.
(2)
During the year, HL sold finished goods to FL at cost plus 20%. The amount invoiced during the year amounted to Rs. 75 million. 60% of these goods had been sold by FL till June 30, 2009. (v) During the year ended June 30, 2009, FL and ML earned profits of Rs. 10 million and Rs. 50 million respectively. The profits had accrued evenly, throughout the year. (vi) An impairment review at year end indicated that 15% of the goodwill recognised on acquisition of FL, is required to be written off. (vii) HL values the non-controlling interest at its proportionate share of the fair value of the subsidiarys identifiable net assets. Required: Prepare the consolidated statement of financial position of HL as at June 30, 2009 in accordance with the requirements of International Financial Reporting Standards. (Ignore current and deferred tax implications.) (25) Q.2 Being the financial consultant of Insha Chemicals Limited (ICL), a listed company, you have been approached to advise on certain accounting issues. Accordingly, you are required to explain how the following transactions should be disclosed in ICLs financial statements for the year ended June 30, 2009 in accordance with International Financial Reporting Standards: (a) In a board meeting held on January 1, 2009, the board of directors showed concern over the poor results of one of the companys cash generating unit, Lahore Division (LD). It was principally decided in the meeting that this division should be discontinued. ICLs CEO announced the closure of LD in a press conference held on February 15, 2009. He also informed that negotiations to sell the entire division are in progress and the sale is expected to be finalized within few months. On June 14, 2009, the CEO reported to the board of directors that negotiations with Bashir Limited are proceeding well and the disposal of LD is expected to materialise before July 31, 2009. However, it is estimated that the assets would be sold at 95% of their fair value. (08) (b) ICL operates a factory in an underdeveloped rural area. Most of the employees in the factory have been hired locally. On observing the positive effects of the project, the government had approved a grant of Rs. 100 million for ICL, on February 1, 2009 for development of a similar factory in another underdeveloped area. However, it had been agreed that disbursement would be made in three phases. The relevant details are as follows:
Amount Comments Rs. in million Before commencement 10 No condition is attached to this phase of the of the construction grant and it was received on March 1, 2009. During the construction 40 Total cost of construction is estimated at Rs. of factory 200 million. The construction was 30% complete, as of June 30, 2009. The estimated life of the property, plant and equipment is 15 years and it would be depreciated on the straight line basis. When the factory 50 It has been agreed that 400 local persons would becomes operational be employed. The amount will be given in five equal annual installments. If employment drops below 400 at any time in any of the five subsequent years, no amount would be paid in that year. Phases
(iv)
(09)
(3)
Q.3 Rahman Limited (RL) is a listed company engaged in the manufacture of leather goods. Its financial year ends on June 30. In a meeting held on July 1, 2009 its Board of Directors acknowledged the outstanding performance of the companys Chief Operating Officer (COO) and in recognition thereof, decided to allow him either of the following options: Option I Option II Receive a cash payment equal to the current value of 64,000 shares of RL. Receive 80,000 shares of RL.
However, the above offer was subject to certain conditions. These conditions and other relevant information are as follows: The right is conditional upon completion of three years service from the date the right was granted and the decision to select the option shall also be exercised on the completion of the said period. (ii) The share price of RL on July 1, 2009 is Rs. 125 per share. It is estimated that the share price at the end of year 2010, 2011 and 2012 will be Rs. 130, Rs. 138 and Rs. 150 respectively. (iii) If the COO chooses option II, he shall have to retain the shares for two years i.e. up to June 30, 2014 before being eligible to sell them. However, the fair value of the shares after taking into account the effects of the post vesting transfer restrictions is estimated at Rs. 110 per share. (iv) RL does not expect to pay any dividend during the next three years. Required: Prepare the journal entries: (a) to record the above transactions in the books of Rahman Limited for the year ending June 30, 2010, 2011 and 2012. (b) to record the settlement of right on June 30, 2012 under: Option I Option II. (15) Q.4 Sachal Limited (SL) is planning to acquire 100% shareholdings in Waris Limited (WL). Before submission of financial proposal, SL is carrying out an analysis of WLs financial and operating performance. The CFO of SL has gathered the following information which is based on the financial statements for the year ended December 31, 2008: Description Operating Performance Ratios Gross profit Operating profit Return on shareholders equity Working Capital Ratios Current ratio Inventory turnover days Receivables collection Gearing Ratios Debt equity ratio Interest cover Investors Ratios Earnings per share Dividend per share WLs Ratios 29% 11% 9% 1.54 : 1 83 days 93 days 55 : 45 1.3 times Re. 0.9 Re. 0.2 Industry Ratios Low Average 20% 10% 7% 1:1 81 days 60 days 40 : 60 1.2 times Re. 0.75 Re. 0.25 25% 13% 10% 1.5 : 1 91 days 74 days 50 : 50 2 times Rs. 1.2 Re. 0.6 (i)
High 30% 15% 13% 2:1 114 days 95 days 60 : 40 3 times Rs. 1.8 Re. 0.9
Required: (a) Draft a report to the board of directors, on behalf of the CFO, analyzing the financial performance of Waris Limited by evaluating each category of ratios in comparison with the industry. (Do not write your name or any identification in the report) (12) (b) List any four types of additional information which would have helped you in a better analysis. (04)
(4)
Q.5 Lateef Bank Limited (LBL) is listed on Karachi and Lahore Stock Exchanges and has 150 branches including 10 overseas branches. The LBLs lending to financial institutions as of September 30, 2009 comprised of the following: (i) Call money lending at year end amounted to Rs. 850 million (2008: Rs. 1,200 million). The markup on these unsecured lendings ranged between 15% to 17% (2008: 10% to 12%) and they matured on various dates, in October 2009. (ii) Short term lending on account of repurchase agreement (reverse repo) amounted to Rs. 2,100 million (2008: Rs. 2,850 million). These carried markup ranging from 9.5% to 13.2% (2008: 8% to 10.5%) and matured on various dates, in October 2009. These were secured against Market Treasury Bills of Rs. 1,650 million (2008: Rs. 1,850 million) and Pakistan Investment Bonds of Rs. 450 million (2008: Rs. 1,000 million). The market value of these securities held as collateral, on September 30, 2009, amounted to Rs. 2,250 million (2008: Rs. 2,930 million). The above amounts include lendings in foreign currencies amounting to Rs. 110 million (2008: Rs. 150 million). Required: Prepare a note on Lendings to Financial Institutions for inclusion in LBLs financial statements for the year ended September 30, 2009 giving appropriate disclosures in accordance with the guidelines issued by State Bank of Pakistan. (12) Q.6 Arif Industries Limited (AIL) owns and operates a textile mill with spinning and weaving units. Due to recurring losses, AIL disposed of the weaving unit for an amount of Rs. 100 million on July 1, 2007 and invested the proceeds in Pakistan Investment Bonds (PIBs). Details of investment in PIBs are as follows: (i) The PIBs were purchased through a commercial bank at face value. The bank initially charged premium and investment handling charges of Rs. 4,641,483. At the time of purchase, AIL had envisaged to liquidate the investment after four years and utilize the realized amount for expansion of its spinning business. The bank had agreed to repurchase the PIBs on June 30, 2011, at their face value. (ii) The markup on PIBs is 15% for the initial two years and 20% for the remaining three years. The effective yield on investment at the time of purchase was 15.50%. However, due to economic turmoil in the European and American markets, the existing spinning unit is working below its rated capacity. Therefore, on June 30, 2009 AIL decided to defer the expansion plan by one year. The bank agreed to extend the holding period accordingly but reduced the repurchase price by 2%. Required: Compute the amount of interest income (including the effect of revision of holding period, if any) to be recognized in the financial years ended(ing) 2009, 2010, 2011 and 2012. (15) (THE END)

June 2, 2009

Q.1
On January 1, 2002, Khan Limited (KL) acquired 375 million ordinary shares and 40 million preference shares in Gul Limited (GL) whose general reserve and retained earnings on the date of acquisition, stood at Rs. 200 million and Rs. 1,000 million respectively. The following balances were extracted from the records of KL and its subsidiary on December 31, 2008:
KL GL Debit Credit Debit Credit -------Rupees in million------6,800 5,000 1,000 1,750 500 2,000 1,200 2,000 2,250 445 190 60 750 300 16,250 25,000 9,750 17,000 5,500 400 2,000 1,500 2,865 1,550 273 300 210 249 1,069 1,316 315 300 650 474 120 750 300 27,183 27,183 29,010 29,010
Ordinary share capital (Rs. 10 each) 12% Preference share capital (Rs. 10 each) General reserve Retained earnings Loan from KL at 15% rate of interest 14% Term Finance Certificates (TFCs) (Rs. 100 each) Accounts payable Dividend payable preference shares Dividend payable ordinary shares Property, plant and equipment - at cost Property, plant and equipment - acc. depreciation Investment in ordinary shares of GL Investment in preference shares of GL Loan to GL at 15% rate of interest Investment in KL's TFCs (purchased at par value) Profit before tax, interest and dividend Dividend income Interest income Dividend receivable Current assets Interest on TFCs Interest on loan from KL Taxation Preference dividend Ordinary dividend interim
Following relevant information is available: (i) At the date of acquisition, the fair value of buildings, included in property, plant and equipment of GL was assessed at Rs. 1,000 million above its carrying value. All other identifiable assets and liabilities were considered to be fairly valued. GL provides for depreciation on buildings at 10% per annum on the straight line basis. (ii) GL purchased the TFCs in KL on January 1, 2008. (iii) The non-controlling interests are measured at their proportionate share of the GLs identifiable net assets. (iv) There is no impairment in the value of goodwill since its acquisition.
(2)
(v) There are no components of other comprehensive income.
Required: Prepare the following in accordance with the requirements of International Financial Reporting Standards: (a) Consolidated statement of financial position as at December 31, 2008. (b) Consolidated statement of comprehensive income for the year ended December 31, 2008. (c) Consolidated statement of retained earnings for the year ended December 31, 2008. Note: Ignore deferred tax and corresponding figures. Notes to the above statements are not required. However, show workings wherever it is necessary.
(26)
Q.2
During the year ended December 31, 2008, a Pakistani Sugar Company (PSC) was facing severe problems in meeting its foreign currency obligations especially in view of the steep increase in the foreign exchange rates. In October 2008, PSC commenced negotiations with the foreign lenders for restructuring of loans. Following is a summary of the foreign exchange liabilities of the company as of December 31, 2008 prior to making adjustments on restructuring: Lenders JICA 500,000 4 3.00%
Loan amount (US$) Remaining number of installments including due on December 31, 2008 Interest / markup rate
SBD 350,000 5 2.50%
AFI 270,000 3 2.00%
The loans are repayable in equal annual installments. All the above liabilities are appearing in PSCs books at the exchange rate of US$ 1 = Rs. 65 which was the rate at the beginning of the year. The exchange rate as at the end of the year is US$ 1 = Rs. 80. Agreements with SBD and AFI were finalized and signed before year-end, however, the agreement with JICA was finalized in January 2009 but before finalization of the financial statements. Following is the information in respect of rescheduling agreements. Lenders JICA 525,000 535,000 510,000 31-Dec-11
Revised value of loan amount (US$) Revised present value as per original effective interest rate (US$) Revised present value as per market interest rate for similar instruments (fair value) (US$) First installment due on
SBD 370,000 390,000 400,000 31-Dec-10
AFI 280,000 250,000 220,000 31-Dec-12
Required: (a) Prepare accounting entries in the books of PSC to record the (i) effect of exchange differences. (ii) effect of rescheduling, if any. (b) In respect of each of the above loans, identify the amounts to be reported as current portion of the loan in the financial statements, as at December 31, 2008.
(11)
(3)
Q.3 Jamshed Limited has recently hired your services for the position of Accountant. The following summarized trial balance for the year ended December 31, 2008 along with the CFOs comments, has been provided to you:
Debit Credit ----- Rupees ----75,000,000 54,134,997 15,436,900 4,100,000 110,187,500 17,152,115 750,000 31,400,250 13,075,000 653,750 11,999,247 CFOs Comments
Share capital Retained earnings (1/1/2008) Obligation under finance leases Accounts payable Owned fixed assets net Leased fixed assets net Deferred tax asset (1/1/ 2008) Stock in trade Accounts receivable Provision for bad debts Advance tax paid
Including tax of Rs. 51,250 deducted on dividend received.
Cash and bank Sales Cost of sales excluding depreciation Depreciation expense owned assets Depreciation expense leased assets Donations Financial charges
1,025,000 177,633,594 122,106,875 9,385,542 1,815,212 562,500 2,237,500 Tax depreciation for the year is Rs. 8,501,758. Not allowable for tax purposes. Includes Rs. 1,750,222 relating to obligations under finance lease. Includes bad debt expenses of Rs. 853,750. Taxable under Final Tax Regime. Carrying amount at disposal was Rs. 650,000.
Other expenses Dividend income Gain on sale of machines
6,150,000 512,500 375,000 327,846,741 327,846,741
Following relevant information is also available: Bad debts written off during the year amounted to Rs. 200,000. There was no addition or deletion in the leased assets. The principal repayment towards obligation under finance lease was Rs. 2,061,359. (iii) The tax written down value of owned fixed assets as of December 31, 2007 was Rs. 96,550,000. (iv) During the year, the company purchased fixed assets amounting to Rs. 7,500,000. (v) The tax written down value of machines sold was Rs. 450,000. There was no other disposal of property, plant and equipment in the year 2008. (vi) On account of an apparent mistake in the return relating to year ended December 31, 2007, a revised return was filed and the taxable income was reduced by Rs. 1,800,000. (vii) Up to the year ended December 31, 2007, the companys assessed brought forward losses amounted to Rs. 14,251,700. (viii) Applicable tax rate is 35%. Required Prepare a note to the statement of comprehensive income for the year ended December 31, 2008, giving appropriate disclosure related to current and deferred tax expenses. (i) (ii)
(23)
(4)
Q.4 On January 1, 2008, Misbah Holding Limited, dealing in textile goods, acquired 90% ownership interest in Salman Limited (SL), a ginning company, against cash payment of Rs. 450 million. At that date, SLs net identifiable assets had a book value of Rs. 350 million and fair value of Rs. 400 million. It is the policy of the company to measure the non-controlling interest at their proportionate share of SLs net identifiable assets. During the year ended December 31, 2008, SL incurred a net loss of Rs. 150 million. The impairment testing exercise carried out at the end of the year, by a firm of consultants, showed that the recoverable amount of SLs business is Rs. 200 million. However, the Board of Directors is inclined to take a second opinion as they estimate that the recoverable amount is Rs. 390 million. Required: Based on each of the two valuations, compute the amounts to be reported in the consolidated statement of financial position as of December 31, 2008 in respect of: Goodwill; Net identifiable assets, and Non-controlling interest. Q.5 Akmal General Insurance Limited (AGIL) is engaged in general insurance business. The following information is available for the year ended December 31, 2008: (i) During the year, AGIL earned direct and facultative premiums of Rs. 5,586,382 thousand against which it incurred reinsurance expense amounting to Rs. 2,076,499 thousand. Details of premium earned and reinsurance expenses are as follows:
Fire & Marine, Motor Misc. Property Aviation Damage &Transport ------------------Rupees in thousand-----------------1,905,027 883,942 2,495,120 302,293 1,520,962 300,605 4,671 250,261
(15)
Premiums Reinsurance expense
(ii)
The outstanding balance of unearned premium reserve and prepaid reinsurance premium ceded were as follows:
Fire & Marine, Property Aviation & Motor Misc. Damage Transport ----------------Rupees in thousand-------------Balances as of December 31, 2008 Unearned premium reserve Prepaid reinsurance premium ceded Balances as of December 31, 2007 Unearned premium reserve Prepaid reinsurance premium ceded 1,014,552 741,934 174,780 93,702 1,053,094 311 152,911 122,866
844,425 726,800
159,844 59,098
1,191,933 -
133,424 114,190
(iii) Premium received under the treaty arrangements (proportional) amounted to Rs. 167,108 thousand. The outstanding balance of unearned premiums reserve relating to treaty arrangement as of December 31, 2008 was Rs. 56,128 thousand (2007: Rs. 61,303 thousand). Required: Prepare the statement of premiums for the year ended December 31, 2008. Ignore the corresponding figures.
(10)
(5)
Q.6 The following information relates to Afridi Industries Limited (AIL) for the year ended December 31, 2008: (i) (ii) The share capital of the company as on January 1, 2008 was Rs. 400 million of Rs. 10 each. On March 1, 2008, AIL entered into a financing arrangement with a local bank. Under the arrangement, all the current and long-term debts of AIL, other than trade payables, were paid by the bank. In lieu thereof, AIL issued 4 million Convertible Term Finance Certificates (TFCs) having a face value of Rs. 100, to the bank. These TFCs are redeemable in five years and carry mark up at the rate of 8% per annum. The bank has been allowed the option to convert these TFCs on the date of redemption, in the ratio of 10 TFCs to 35 ordinary shares. On April 1, 2008, AIL issued 30% right shares to its existing shareholders at a price which did not contain any bonus element. During the year, AIL earned profit before tax amounting to Rs. 120 million. This profit includes a loss before tax from a discontinued operation, amounting to Rs. 20 million. The applicable tax rate is 35%.
(iii) (iv)
(v)
Required: Prepare extracts from the financial statements of Afridi Industries Limited for the year ended December 31, 2008 showing all necessary disclosures related to earnings per share and diluted earnings per share. (Ignore corresponding figures) (THE END)
(15)

December 2, 2008

Q.1
Golden Limited (GL) is a listed company and has held shares in two companies, Yellow Limited (YL) and Black Limited (BL), since July 1, 2006. The details of acquisition of shares in these companies are as follows: (A) GL acquired 18 million shares in YL at par, when YLs reserves were Rs. 24 million. The acquisition was made by issuing four shares in GL for every five shares in YL. The market price of GLs shares at July 1, 2006 was Rs. 20 per share. A fair value exercise was carried out for YLs assets and liabilities at the time of its acquisition with the following results: Book Value Fair Value Rupees in million 170 192 25 45 3 6
Land Machines Investments
The remaining life of machine on acquisition was 5 years. The fair values of the assets have not been accounted for in YLs financial statements. (B) 6 million shares in BL were acquired for Rs. 12 per share in cash. At the date of acquisition, the reserves of BL stood at Rs. 40 million.
The summarized income statement of the three companies for the year ended June 30, 2008 are as follows: GL Sales Cost of sales Gross profit / (loss) Selling expenses Administrative expenses Interest expenses Other income Profit/(loss) before tax Income tax Profit/(loss) for the period YL Rupees in million 875 350 (567) (206) 308 144 (33) (11) (63) (40) (30) (22) 65 247 71 (73) (15) 174 56 BL 200 (244) (44) (15) (16) (15) (90) 8 (82)
The following relevant information is available: (i) The share capital and reserves as at July 1, 2007 were as follows: GL YL BL Rupees in million 600 200 150 652 213 108
Ordinary share capital of Rs. 10 each Reserves
(2)
The share capital of all companies have remained unchanged since their incorporation. (ii) During the year, GL sold goods amounting to Rs. 40 million to YL. The sales were made at a mark up of 25% on cost. 30% of these goods were still in the inventories of YL at June 30, 2008. (iii) GL manufactures a component used by BL. During the year, GL sold these components amounting to Rs. 20 million to BL. Transfers are made at cost plus 15%. BL held Rs. 11.5 million of these components in inventories at June 30, 2008. (iv) All assets are depreciated on straight line method. (v) Other income includes dividend received from YL on April 15, 2008. (vi) During the year, YL paid 20% cash dividend to its ordinary shareholders. (vii) An impairment test was carried out on June 30, 2008 for the goodwill of YL and investments in BL, appearing in the consolidated financial statements. The test indicated that: goodwill of YL was impaired by 20%; due to recent losses, the fair value of investment in BL has been reduced to Rs.40 million.
No such impairment was required in previous years. Required: Prepare, in a format suitable for inclusion in the annual report, a consolidated income statement for the year ended June 30, 2008. Q.2 Silver Construction Limited (SCL) was incorporated on July 1, 2007 with a share capital of Rs. 500 million. It is involved in the construction of bridges, dams, pipelines, roads etc. During the year ended June 30, 2008, the company commenced work on six contracts, details of which are as follows: CONTRACTS I II III IV V VI ---------- Rupees in million ---------Total contract price 300 375 280 400 270 1,200 Billing up to June 30, 2008 200 110 280 235 205 1,200 Contract cost incurred up to June 30, 2008 248 68 186 246 185 1,175 Estimated further cost to complete 67 221 164 15 Following additional information is available: (i) As per terms of Contract IV, the company will receive an additional Rs.40 million if the construction is completed within a period of twelve months from the commencement of the contract. The management feels that there is a 90% probability that it will be able to meet the target. An amount of Rs. 16 million was incurred on Contract II on account of a change in design. The company has discussed it with the customer who has informed SCL that the amount is on the higher side and needs to be revised.
(22)
(ii)
Required: (a) Make relevant calculations and prepare appropriate extracts to be reflected in the Balance Sheet and Income Statement for the year ended June 30, 2008. (b) Justify your accounting treatment in respect of the additional information provided above. Q.3 Red Limited has carried out the following transactions during the year ended June 30, 2008. (a) On July 1, 2007, the company has received a loan of Rs. 100 million from Green Limited a related party which is due for repayment after three years and does not carry any interest. The market interest rate for similar loans is 15% per annum. Red Limited is subject to taxation at the rate of 35%.
(19)
(3)
(b) On August 1, 2007, the company granted 200,000 employees stock options at Rs. 5, when the market price was Rs. 13 per share. 95% of the options were exercised between March 1, 2008 and April 30, 2008. The remaining options lapsed. The share capital of the company is divided into shares of Rs. 10 each. The company holds 500,000 shares of Green Limited (GL), a listed company, which were purchased many years ago at Rs. 10 per share. The transaction cost on purchase was Rs. 120,000. The shares were classified as available for sale. On May 31, 2008, the fair value of GLs shares was Rs. 20 per share. On the same day, GL was acquired by Orange Limited (OL), a listed company. As a result, Red Limited received 200,000 shares of OL which had a market value of Rs. 65 per share, on that date.
(c)
Required: Prepare journal entries to record the above transactions including the effect of deferred tax thereon, if any, in the books of Red Limited, for the year ended June 30, 2008. Q.4 Blue-chip Asset Management Limited is in the process of finalizing the financial statements of one of its open ended mutual fund. Following information is available from the Funds records; Net assets - opening balance Net income for the year 765,900 units issued during the year against 717,480 units redeemed during the year against The par value of each unit is Rs. 100. Required: Prepare the statement of movement in unit holders Fund for the year ended June 30, 2008. Q.5 Violet Power Limited is running a coal based power project in Pakistan. The Company has built its plant in an area which contains large reserves of coal. The company has signed a 20 years agreement for sale of power to the Government. The period of the agreement covers a significant portion of the useful life of the plant. The company is liable to restore the site by dismantling and removing the plant and associated facilities on the expiry of the agreement. Following relevant information is available: (i) The plant commenced its production on July 1, 2007. It is the policy of the company to measure the related assets using the cost model; (ii) Initial cost of plant was Rs. 6,570 million including erection, installation and borrowing costs but does not include any decommissioning cost; (iii) Residual value of the plant is estimated at Rs. 320 million; (iv) Initial estimate of amount required for dismantling of plant, at the time of installation of plant was Rs. 780 million. However, such estimate was reviewed as of June 30, 2008 and was revised to Rs. 1,021 million; (v) The Company follows straight line method of depreciation; and (vi) Real risk-free interest rate prevailing in the market was 8% per annum when initial estimates of decommissioning costs were made. However, at the end of the year such rate has dropped to 6% per annum. Required: Work out the carrying value of plant and decommissioning liability as of June 30, 2008. Rs. in 000 350,050 65,325 85,015 77,488
(21)
(10)
(08)
(4)
Q.6 You are working as a Financial Analyst in Brown Venture Capital Limited. Your company has received an offer for equity investment in a large group of companies. While reviewing the consolidated financial statements of the group and detailed offer documents, you have noted the following significant judgments, estimates and assumptions used in preparation of the consolidated financial statements, which may have an impact on the independent evaluation of the affairs and operations of the group. Operating Lease Commitments The Group has entered into commercial property leases as a Lessee. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it does not acquire all the significant risks and rewards of ownership of these properties and so accounts for the contracts as operating leases. Convertible Preference Shares The Group has determined, based on an evaluation of the significant terms and conditions of the issue, that these securities fall under the category of liability rather than equity, and have been disclosed and accounted for accordingly. Pension and Other Post Employment Benefits The cost of defined benefit pension plans and other post employment benefits is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. Impairment of Non-Financial Assets All non-financial assets including goodwill and other intangibles are assessed for impairment at each reporting date and at any other time when there are indications of impairment. When value in use calculations are undertaken, management has to estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of such cash flows. Useful Lives of Property, Plant And Equipment The Group has invested significant amounts in acquisition of items of property, plant and equipment (PPE). Generally, the Group follows a prudent practice and estimates the useful economic lives of such assets to the enterprise on a minimum side. Provision for Decommissioning The activities of the Group normally give rise to obligations for site restoration. In determining the amount of the provision, assumptions and estimates are required in respect of discount rates and the expected cost of dismantling and removing the plants from the site. Required: You have assessed that the managements judgments, estimates and assumptions may turn out to be incorrect. What will be the impact of any error in managements estimates and assumptions, on the following: Liquidity, profitability and gearing ratios of the group; Business valuation of the group. (20)
Give brief explanations to justify your conclusions. (THE END)

June 3, 2008
ADVANCED ACCOUNTING & FINANCIAL REPORTING

Q.1
(Marks 100) (3 hours)
Following is the summarised trial balance of Faisal Limited (FL) and its subsidiaries, Saqib Limited (SL) and Ayaz Industries Limited (AIL) for the year ended December 31, 2007: FL SL AIL ----------------Rs. in million---------------4,920 660 2,700 6,240 2,460 6,580 14,460 4,200 5,680 9,000 10,500 11,100 22,500 49,200 3,600 (5,760) (30,000) (33,780) (57,600) (2,760) (540) (1,080) 3,480 18,000 2,100 (420) (12,000) (16,500) (1,980) 5,940 21,000 5,400 (1,260) (6,000) (4,800) (33,800) (1,440) -
Cash and bank balances Accounts receivable Stocks in trade closing Investment in subsidiaries at cost SL AIL Other investments Property, plant and equipment Cost of sales Operating expenses Accumulated depreciation Ordinary share capital (Rs. 10 each) Retained earnings opening Sales Accounts payable Gain on sale of fixed assets Dividend income
Following additional information is also available: (i) (ii) (iii) On January 1, 2007, FL acquired 480 million shares of AIL from its major shareholder for Rs. 10,500 million. SL was incorporated on February 1, 2007. 75% of the shares were acquired by FL at par value on the same date. The following inter company sales were made during the year 2007: Included in Amount Gross buyers closing receivable/payable profit % stocks in trade at year end on sales ---------------------Rs. in million--------------------2,400 900 20 1,800 600 800 10 3,600 1,200 30 Sales
FL to AIL SL to AIL AIL to FL
FL and its subsidiaries value stock in trade at the lower of cost or net realisable value. While valuing FLs stock in trade, the stock purchased from AIL has been written down by Rs. 100 million.
(2) (iv) On July 1, 2007, FL sold certain plants and machineries to SL. Details of the transaction are as follows: Rs. in million Sales value 144 Less: Cost of plant and machineries 150 Accumulated depreciation (60) Net book value 90 Gain on sale of plant 54 The plants and machineries were purchased on January 1, 2005, and were being depreciated on straight line method over a period of five years. SL computed depreciation thereon using the same method based on the remaining useful life. FL billed Rs. 100 million to each subsidiary for management services provided during the year 2007 and credited it to operating expenses. The invoices were paid on December 15, 2007. Details of cash dividend are as follows: Dividend Date of declaration Date of payment Nov 25, 2007 Jan 5, 2008 Oct 15, 2007 Nov 20, 2007 % 20 10
(v)
(iv)
FL AIL
Required: Prepare consolidated balance sheet and profit and loss account of FL and its subsidiaries for the year ended December 31, 2007. Ignore tax and corresponding figures. Q.2 DND Limited is a listed company, having its operations within Pakistan. During the year ended December 31, 2007, the company contracted to purchase plants and machineries from a US Company. The terms and conditions thereof , are given below: (i) (ii) Total cost of contract = US$ 100,000. Payment to be made in accordance with the following schedule: Payment Dates Amount Payable On signing the contract July 01, 2007 US$ 20,000 On shipment* September 30, 2007 US$ 50,000 After installation and test run January 31, 2008 US$ 30,000 *(risk and rewards of ownership are transferred on shipment) The contract went through in accordance with the schedule and the company made all the payments on time. The following exchange rates are available: Dates July 1, 2007 September 30, 2007 December 31, 2007 January 31, 2008 Exchange Rates US$ 1 = Rs. 60.50 US$ 1 = Rs. 61.00 US$ 1 = Rs. 61.20 US$ 1 = Rs. 61.50
(27)
Required: (a) Under each of the following options, prepare the necessary accounting entries on the relevant dates including year-end adjustments: Option 1: All payments were treated as advance payments and accounted for as financial instrument. Option 2: All payments were treated as progressive payments. (b) Which of the above options would you recommend if the transaction is covered under an irrevocable letter of credit? Give reasons for your recommendation.
(16)
(3) Q.3 CNC Limited, an oil and gas exploration company is operating in Pakistan for last many years. Presently, the company is managing five joint venture projects. Summary of the companys ownership in the joint ventures as at December 31, 2007 is as follows: Joint Venture Name CNCs Ownership JV-11 30% JV-17 60% JV-18 40% JV-20 45% JV-22 40%
CNC uses proportionate consolidation method of accounting. During the year 2007, it sold certain assets to joint ventures, details of which are as follows: (i) Vehicles having carrying value of Rs. 3 million were sold to JV-11 on April 1, 2007 at their fair value of Rs. 2 million. (ii) On May 1, 2007, certain items of plant and machinery having book value of Rs. 60 million were sold to JV-18 for Rs. 80 million, being the fair value of the assets.
Required: (a) Prepare necessary journal entries: (i) in the books of CNC Limited. (ii) to record adjustments (if any) which will be required for the purpose of consolidation. (b) Explain the rationale for the gain or loss recorded by you in Part (a) according to the relevant International Accounting Standards. Q.4 The profit after tax earned by AAZ Limited during the year ended December 31, 2007 amounted to Rs. 127.83 million. The weighted average number of shares outstanding during the year were 85.22 million. Details of potential ordinary shares as at December 31, 2007 are as follows: The company had issued debentures which are convertible into 3 million ordinary shares. The debenture holders can exercise the option on December 31, 2009. If the debentures are not converted into ordinary shares they shall be redeemed on December 31, 2009. The interest on debentures for the year 2007 amounted to Rs. 7.5 million. Preference shares issued in 2004 are convertible into 4 million ordinary shares at the option of the preference shareholders. The conversion option is exercisable on December 31, 2010. The dividend paid on preference shares during the year 2007 amounted to Rs. 2.45 million. The company has issued options carrying the right to acquire 1.5 million ordinary shares of the company on or after December 31, 2007 at a strike price of Rs. 9.90 per share. During the year 2007, the average market price of the shares was Rs. 11 per share.
(12)
The company is subject to income tax at the rate of 30%. Required: (a) Compute basic and diluted earnings per share. (b) Prepare a note for inclusion in the companys financial statements for the year ended December 31, 2007 in accordance with the requirements of International Accounting Standards.
(18)
Q.5
SOGO Limited operates an approved funded gratuity scheme for all its employees. Benefits under the scheme become vested after 5 years of service. No benefit is payable to an employee if he leaves before 5 years of service. A total of 752 employees were eligible for the benefits under the fund as of December 31, 2007.
(4) Following is the trial balance of the Fund as of June 30, 2007: Debit Credit Amounts in Rupees 17,930,120 1,147,150 102,133,664 11,832,089 6,414,058 17,594,893 587,169 16,911,510 4,301,017 3,822 61,251 142,472,122 23,389,251 2,696,399 10,623,106 12,432,973 3,342 10,000 3,450,000 186,996,968 186,996,968
Cash at bank - current account Receivable from SOGO Limited Defence Savings Certificate Term Finance Certificates Term Deposits Investment SUN Limited Investment PEACE Company Limited Investment - NIT Units Due to outgoing members Accrued expenses Withholding tax payable Members Fund Profit on investments Dividend income Contribution for the year Transferred / paid to outgoing members Bank charges Audit fee Liabilities no more payable
Following are the details of investments and income thereon:

Balance as at Addition July 01, 2006 Government Securities Defence Savings Certificate Unlisted Securities and deposits Term Finance Certificates Term Deposits Listed Securities SUN Limited PEACE Limited NIT Units 87,812,855 19,943,656 11,584,631 8,220,957 587,169 16,911,510 During the year 2007 Profit / Principal interest realized accrued Profit / interest realized
21,376,809 (1,600,000) (5,456,000)
5,000,000 1,655,223 (12,873,068) (1,893,722) 357,219 (5,300,000) (227,792) 9,373,936 -
The following gains/(losses) on restatement of investments at their fair values, have not been accounted for: Rupees (784,518) 317,728 4,026,551
SUN Limited PEACE Limited NIT Units
Required: Prepare the following in accordance with the requirements of International Accounting Standards: (a) Statement of Net Assets Available for Benefits alongwith the note on investments. (b) Statement of changes in Net Assets Available for Benefits.
(15)
(5) Q.6 During the year 2007, SKY Limited developed two inter-linked websites in house. One of them is for external users and provides information about the companys products, operations and financials. It can also be used for electronic order processing and accepting payments through credit cards. The second website is for internal use like intra-net, providing and sharing companys policies, customer details, employees information, etc. Both the websites were launched on September 30, 2007 and are now fully operational. The company has received a few online orders which it believes will increase over time. On the other hand, use of internal website has resulted in minor reduction in costs of communication and certain other administrative costs. The management is optimistic that its utility will increase significantly. However, it is not in a position to estimate the amount of economic inflows that this website can generate. During the year ended December 31, 2007, the company incurred the following expenditure in the development of websites: An amount of Rs. 0.3 million was incurred on undertaking a feasibility study and defining hardware/software specifications for the websites. (ii) Rs. 4 million were incurred on the development of internal website while an expenditure of Rs. 11 million has been made on development of external website. The expenditure on external website includes an amount of Rs. 6 million paid for linking it with the credit card clearing facilities and installation of security tools. (iii) The company acquired two dedicated servers and one backup server costing Rs. 3 million in total. Operating software for the server was acquired for Rs. 2.0 million whereas software related to data processing and front-end development costed Rs. 3 million. The management is of the view that these costs would not have been incurred if the website project had not been initiated. (iv) With effect from October 1, 2007 the company has signed a one year contract for website maintenance at a cost of Rs. 2.0 million. (v) Two IT personnel were trained to operate the websites, at a cost of Rs. 0.2 million. (vi) Rs. 0.4 million were incurred on the promotion of its external website. The company believes that this advertising will boost the companys online sales. Required: Comment on the accounting treatment of each of the above mentioned costs in the light of relevant International Accounting Standards. (THE END) (i)
(12)

December 04, 2007

Q.1
Ghalib Limited manufactures three products X, Y and Z. The management of the company considers plants relating to each product as a separate Cash-Generating Unit (CGU). The company has three Corporate Assets viz. a building, PABX system and a computer network. On June 30, 2007, the assets were valued as under: Carrying Amount* Rupees Cash-Generating Units excluding Corporate Assets Plant 1 for Product X Plant 2 for Product Y Plant 3 for Product Z Corporate Assets Building PABX system Computer network 2,500,000 5,000,000 10,000,000 17,500,000 2,800,000 1,400,000 2,100,000 6,300,000 23,800,000 Recoverable Amount Rupees 1,200,000 7,000,000 6,400,000 14,600,000
* Before impairment
Based on a study carried out by the company which involved consideration of various factors, the management was able to determine that the building and the PABX system can be allocated to plant 1,2 and 3 in the ratio of 2 : 3 : 5. However, the management was unable to determine a reasonable and consistent basis for allocating the cost of computer network. Required: Calculate the carrying amount of each CGU and Corporate Asset for reporting on the balance sheet as at June 30, 2007 in accordance with IAS-36 Impairment of Assets. Q.2 Taqi Limited has obtained a fleet of Trucks and Busses under a three years lease contract from Faraz Leasing Company Limited. Total cost of assets is Rs. 75 million and the expected economic life is considered to be 15 years. Lease rentals of Rs. 12 million per annum shall be paid at the end of each year. The market rate of return is 10%. It has been agreed that Taqi Limited will return the assets at the end of the lease term. According to the terms of the contract, Taqi Limited is required to deposit cash equivalent to 20% of the total cost of the fleet before taking delivery of assets. The deposit does not carry any return and will be refunded in full at the end of the lease term. Required: (a) Comment on the accounting treatment of the above arrangement, from the lessees point of view. (b) Prepare accounting entries in the books of the lessee at the inception of lease and at the end of each year.
(18)
(14)
(2) Q.3 Following is the consolidated balance sheet of Iqbal Limited as at June 30, 2007: 2007 2006 Rupees in million ASSETS Non-Current Assets Tangible fixed assets Goodwill Current Assets Cash and bank Investments Trade receivables Inventory TOTAL ASSETS EQUITY AND LIABILITIES Equity Ordinary shares of Rs. 10 each 8% preference shares of Rs. 10 each Share premium Revaluation reserves Accumulated profits Minority Interest
2,142 343 2,485 808 982 1,128 1,850 4,768 7,253
1,927 305 2,232 700 560 1,168 1,715 4,143 6,375
505 600 55 140 2,670 3,970 238 4,208 300 75
450 600 2,480 3,530 200 3,730 420 55
Liability against assets subject to finance lease Deferred tax Current Liabilities Running finance Trade payables Income tax payable Dividends payable TOTAL EQUITY AND LIABILITIES
940 950 600 180 2,670 7,253
900 720 450 100 2,170 6,375
Following further information has been extracted from the records: (i) (ii) Iqbal Limited has two subsidiaries i.e. Faiz Limited and Badar Limited. The factory buildings of Faiz Limited and Badar Limited were revalued during the year and the surplus arising on the revaluation was credited to a revaluation reserve account. Certain plant and machineries belonging to Faiz Limited, acquired under finance lease arrangement, were capitalized at Rs. 50 million. On September 30, 2006, equipment costing Rs. 55 million carried in the books of Iqbal Limited at Rs. 35 million as at June 30, 2006 was completely destroyed by fire. Insurance proceed of Rs. 40 million was received on November 17, 2006. There were no other disposal of tangible fixed assets in any of the three companies. Total depreciation in the consolidated profit and loss account amounted to Rs. 314 million which included depreciation on leased assets amounting to Rs. 38 million.
(iii) (iv)
(v)
(3) (vi) 80% of the paid-up capital of Faiz Limited was acquired during the year for Rs. 110 million. The payment was made by issuing 5.5 million ordinary shares of Rs. 10 each at 100% premium. The net assets of Faiz Limited at the date of acquisition were as follows: Rs. in million Tangible fixed assets 60 Inventories 20 Trade receivables 25 Cash 10 Trade payables (25) 90
(vii) Provision made during the year, for current and deferred tax amounted to Rs. 200 million and Rs. 20 million respectively. (viii) Profit allocated to minority shareholders amounted to Rs. 35 million. (ix) The details relating to dividend paid by Iqbal Limited for the year are as follows: Declared on Paid on Amount 2007 June 15, 2007 August 31, 2007 Rs. 180 million 2006 June 15, 2006 August 31, 2006 Rs. 100 million
Required: Prepare the consolidated cash flow statement for the year ended June 30, 2007. Show necessary workings. Q.4 Mr. Hali, a stock investor, wants to invest in ordinary and/or preference shares of Ibrahim Limited, a company listed on all stock exchanges of Pakistan. He has contacted you to study the following financial information of Ibrahim Limited: Profit and Loss Account for the Year Ended June 30, 2007 Profit before tax Less: Income tax @ 35% Profit after tax Less: Preference dividend Retained profits attributable to ordinary shareholders Balance Sheet as at June 30, 2007 Rs. in million ASSETS Fixed assets Current assets EQUITY AND LIABILITIES 1,000,000,000 ordinary shares of Rs. 10 each 10% preference shares of Rs. 10 each Accumulated profit Total equity Long term loans from commercial banks Current liabilities 23,000 12,400 35,400 10,000 2,000 12,000 3,400 15,400 9,800 10,200 35,400 Rs. in million 2,400 (840) 1,560 (200) 1,360
(20)
(4) Additional Information: (i) At the balance sheet date, the market values of the ordinary and preference shares of Ibrahim Limited were Rs. 15 per share and Rs. 11 per share respectively. (ii) The board of directors announced 10% cash dividend for the year ended June 30, 2007. (iii) The pre-tax profits for the next year are forecasted to be 5% higher as compared to the current year. (iv) The fair value of fixed assets as at June 30, 2007 is estimated at Rs. 26,000 million. Required: (a) Analyze the significant financial features which should be considered before any decision is taken by Mr. Hali to invest in Ibrahim Limiteds ordinary and / or preference shares. (b) List any four types of information which may help you in a better analysis. Q.5 Momin Life Insurance Company Ltd. is engaged in individual life insurance business. The company has established a statutory fund i.e. Investment Linked Business Fund, to meet the requirement of the Insurance Ordinance, 2000. The following information is available for the year ended October 31, 2007: (i) The outstanding Balance of Investment Linked Business Fund as on November 1, 2006 amounted to Rs. 286,780 thousand which represents the following: Rs. in 000 78,719 208,061
(15)
Retained earning on other than participating business Policyholders' liabilities (ii) (iii) (iv)
(v) (vi)
The company received dividend amounting to Rs. 52,700 thousand and interest on government securities amounting to Rs. 65,000 thousand. Rs. 183,450 thousand was received as premium against which an amount of Rs. 11,500 thousand was paid to re-insurance companies. Claims amounting to Rs. 173,500 thousand were paid during the year. The company was able to recover Rs. 17,900 thousand from its re-insurance arrangements. During the year, the company paid Rs. 54,200 thousand on account of management expenses. The company has not incorporated the following adjustments in its record: Rs. in 000 9,300 2,000 19,300 12,000
Claims admitted but not paid by the company Management expenses due Accrued interest Premium outstanding
(vii) The liabilities of policyholders as at October 31, 2007 were Rs. 249,673 thousand. (viii) The Board of Directors has approved the transfer of Rs. 10,450 thousand to Shareholders Fund. Required: Prepare the revenue account for the year ended October 31, 2007. Ignore the comparative figures. Q.6 Describe how users of financial statements benefit from information relating to discontinuing operations; and briefly explain the main disclosures in respect of discontinuing operations.
(15)
(05)
(5) Q.7 Mohani Fertilizer Company Limited, a listed company, operates a funded gratuity scheme for its employees. Following relevant information has been extracted from the actuarial reports: June 30, 2007 Rs. in million 900 750 25 15 17 8% 10% June 30, 2006 Rs. in million 600 570 22 14 15 90 8% 10%
Present value of defined benefit obligations Fair value of plan assets Current service cost for the year Contributions paid during the year Benefits paid during the year Net cumulative unrecognized gains Expected return on plan assets Discount rate for plan liabilities
The expected remaining working lives of the employees as at June 30, 2007 were 20 years. Required: (a) Compute the amounts which need to be reported in the Balance Sheet and the Profit and Loss Account of Mohani Fertilizer Company Limited for the year ended June 30, 2007. (b) Prepare the movement schedule of net cumulative unrecognized gains / (losses) for the year ended June 30, 2007. (THE END)
(13)
fb.com/gcaofficial
June 5, 2007

Q.1
Murree Food Limited, a public company, was sued by an employee claiming damages for Rs 4,000,000 on account of an injury caused to him as a result of alleged negligence on the part of the company while he was working on the machine on December 18, 2006. Before filing the suit on January 18, 2007, he contacted the management of the company on December 28, 2006 and asked for compensation of Rs 2,500,000 which was denied. The legal advisor of the company fears that the company may lose the suit and the court may award compensation which may range from Rs 400,000 to Rs 2,000,000. However, in his view the most probable amount is estimated at Rs 800,000. Required: (a) Describe the accounting treatment in respect of the above in the financial statements of Murree Food Limited for the year ended December 31, 2006. Explain your viewpoint with reasons based on relevant International Accounting Standards. (b) Draft a suitable note for presenting the information in the financial statements. (10)
Q.2
Gilgit Company Limited holds 800,000 shares of a listed company namely Hunza Foods Limited, which were purchased for Rs 84,400,000 as a long-term investment. On January 15, 2007, Hunza Foods Limited announced the issuance of one right share for every 5 shares held by the shareholders of the company. Face value of the shares is Rs 100 per share. On the date of book closure, market value of the share (cum right) was Rs 106 per share. The initial quoted price of the right was Rs 4 per right. Required: Suggest the necessary journal entries in the books of Gilgit Company Limited in case of each of the following options: Option # 1 Option # 2 Option # 3 If the rights are not exercised but are sold at Rs 6 per right. If the rights are not exercised and are allowed to expire. If the following transaction take place: 200,000 shares are sold at cum right price for Rs 23,000,000; The right to purchase 120,000 additional shares at Rs 100 per share is exercised. Immediately after the book closure, the shares were quoted at Rs 103 per share (ex-right); and 100,000 shares originally held are sold at Rs 107 per share, after the exercise of the rights.
(16)
Q.3
Skardu Limited is preparing its consolidated financial statements for the year ended December 31, 2006. During the year 2006, it acquired shares in three companies. The details are given hereunder:
(2) (a) Balakot Limited 43% shares were acquired on May 1, 2006. Balakot Limited is a major supplier of Skardu Limited. Skardu Limited also has a written agreement with Mr. Saleem who owns 30% of the share capital of Balakot Limited. According to the agreement, Mr. Saleem will always vote in the same way as Skardu Limited. Skardu Limited has also made a substantial loan to Balakot Limited after acquisition of its shares, which is repayable on demand. Balakot Limited is currently not in a position to repay the loan. Mangora Textile (Pvt.) Limited The whole of the share capital was acquired on April 1, 2006. The directors of Skardu Limited have displayed their clear intentions to sell the subsidiary within a year. At the date of acquisition, the estimated fair value of assets was Rs 54 million and the fair value of the liabilities was Rs 16 million. At year-end, the estimated fair value of assets is Rs 52 million and the fair value of the liabilities is Rs 15 million. Mansehra Limited 47% of the voting shares of Mansehra Limited were acquired on June 1, 2006. Rest of the shares are owned by two financial institutions i.e. A (20%) and B (33%). Each financial institution has nominated three directors on the board whereas four directors are nominated by Skardu Limited. The effective power to set Mansehras operating policies lies with the four directors appointed by Skardu Limited. However, according to the articles of association of Mansehra Limited, any change in the capital structure requires that all the ten directors must vote in favor of the proposal.
(b)
(c)
Required: Discuss how these investments should be treated in the consolidated financial statements of Skardu Limited for year ended December 31, 2006.
(08)
Q.4
One of your clients has contacted you to calculate earnings per share in accordance with the requirements of International Accounting Standards and has provided you the following information: (i) At the beginning of the year 2006 the companys share capital was Rs 50 million consisting of 5,000,000 ordinary shares of Rs 10 each. Ten percent bonus shares were issued on April 1, 2006. Market price of ordinary shares at the beginning of the year was Rs 33 per share. On June 30, 2006 the price was Rs 38 per share and at the end of the year, the price was Rs 36 per share.
(ii) Profit attributable to ordinary shareholders of the company for the year 2006 is Rs 20 million. (iii) The company had issued convertible Term Finance Certificates (TFCs) of Rs 120 million carrying markup at the rate of 13 percent per annum. The certificate holders have the option to convert TFCs into ordinary shares in the ratio of 25 ordinary shares for each TFC of Rs 1,000. (iv) The company is subject to income tax at the rate of 35%. Required: Calculate the basic and diluted earnings per share for the year 2006 in each of the following situations: (a) (b) if none of the TFC holders opt to convert TFCs into ordinary shares; if a TFC holders who owns 40% of the total TFCs exercises his right of conversion on the first day of July 1, 2006. (15)
(3)
Q.5
Swat Limited is in the business of manufacturing and selling of biscuits. It sells biscuits through its authorized partners appointed in all major cities of Pakistan. The company accounts for taxation and deferred taxation in accordance with the provisions of IAS 12. The relevant information relating to accounting year ended December 31, 2006 is summarized hereunder: Rupees in 000 797,000 565,500 243,000 35,000 135,000 3,165,500 65,000 65,000 138,500 33,000 5,000 6,400 103,000 85,000 123,000
Accounting income before tax Accounting WDV of fixed assets as at December 31, 2006 Tax WDV of fixed assets as at December 31, 2006 Dividend income (subject to final tax at 5%) Capital gain (exempt from tax) Turnover for the year Total turnover tax paid during the last three years Liabilities older than 3 years, disallowed in previous years. Provision for gratuity as at December 31, 2006 Provision for Gratuity for the year (net of payments) Donations to unapproved institutions Effect of prior years assessments finalized during the current year Accounting depreciation for the year Tax depreciation for the year Fixed assets additions during the year
All the liabilities are less than three years old except for those disclosed in the above table. No payment was made in respect of liabilities disallowed earlier. Only one fixed asset (a vehicle) was disposed off during the year 2006 against Rs 1,000,000. Its accounting WDV was Rs 700,000 while tax WDV was Rs 465,000. No disposal of fixed assets took place in the year 2005. All expenses (except donations and timing differences) are considered to be allowable for tax purpose. Applicable tax rate is 35%. During last three years, the company was in a loss and was paying turnover tax which is adjustable in future under the provisions of the Income Tax Ordinance, 2001, within a period of five years. The company had always believed that such tax credit will be utilized in the near future. Required: (a) Compute the amount of deferred tax required to be reported in the balance sheets for the years 2006 and 2005. (b) Prepare a note to the Profit and Loss Account for the year 2006, giving appropriate disclosures related to tax expenses. Q.6 Ayubia Limited is a public company engaged in the supply of locally assembled machinery used in the textile industry. The management of the company feels that the companys sales performance will be much improved if it provides in-house after sales services to its customers as well as prompt delivery of spare parts. For this purpose, on May 1, 2007 the management of the company decided to acquire 100% holding in the following companies: Kalam (Pvt.) Limited, an importer of spare parts used in textile machinery; and Ziarat (Pvt.) Limited, which provides repair and maintenance services related to textile machinery.
(18)
(4) It has been agreed that the consideration for the acquisition will be ascertained by applying the agreed price earning ratios on the estimated profits for the year ending June 30, 2007. The price earning ratio for Kalam (Pvt.) Limited and Ziarat (Pvt.) Limited has been agreed at 15 and 10 respectively. The shares in Ayubia Limited will be issued to shareholders of both the companies on October 01, 2007 at a premium of Rs 3 per share. The following relevant information is available: Rupees in million Kalam Ziarat (Pvt.) (Pvt.) Limited Limited 150 30 35 250 60 12 18 70
Ayubia Limited Issued Share Capital: Ordinary Shares of Rs 10 each Estimated profits before taxation - for the year ending June 30, 2007 - for the year ending June 30, 2008 Estimated net assets as on June 30, 2008
*excluding the effect of acquisition transactions
*1,600 *690 *780 *4,890
Ayubia Limited anticipates that on May 01, 2008, it will provide a loan amounting to Rs 30 million to Kalam (Pvt.) Limited and Rs 15 million to Ziarat (Pvt.) Limited for restructuring and renovation of operations and working facilities. The loans will be repaid in March 2010 and will carry a simple mark up at the rate of 13% per annum which will be payable on quarterly basis. It also estimates that this acquisition will result in increase in its administration expenses by Rs 2,500,000 per annum. It is also expected that following interim dividends will be paid on June 30, 2008: Ayubia Limited Kalam (Pvt.) Limited Ziarat (Pvt.) Limited 15.0% 12.5% 8.0%
Tax rate applicable to business income of all the companies is 35% whereas dividends are taxed at 10%. Required: Prepare projected balance sheet and projected profit and loss account of Ayubia Limited relating to the year ending June 30, 2008. Q.7 Naran Bank Limited is a listed banking company which has 107 branches all over Pakistan and 2 overseas branches. Total advances by the bank at the end of the year 2006 amounted to Rs 75,350 million (2005: Rs 65,440 million). These include Rs 3,655 million (2005: Rs 2,373 million) placed under non performing status in accordance with the Prudential Regulations issued by State Bank of Pakistan. Details of classified advances and the provisions thereagainst are as follows: Rupees in million Classified Provision Category of Classification Advances Required / Made 2006 2005 2006 2005 Other Assets Especially Mentioned 3 2 Substandard 107 70 22 46 Doubtful 103 67 47 53 Loss 3,442 2,234 2,607 1,312 An additional provision of Rs 64 million was made during the year pursuant to the State Bank of Pakistans advice. The Loss category includes advances of Rs 25 million (2005: Rs 23 million) relating to overseas operations of the bank. The required provision of Rs 8 million (2005: Rs 7 million) has been made against such advances.
(18)
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(5) The movement in the provisions was as follows: Rupees in million 2005 944 467 1,411
Opening balance Charge for the year (net of reversal) Amounts written off during the year
2006 1,411 1,331 (2) 2,740
In addition to the above, the bank has made the following provisions: (i) During the year a general provision of Rs 121 million (2005: Rs 107 million) was made against consumer financing in accordance with the requirements of the Prudential Regulations (1.5% of secured financing and 5% of unsecured financing). However, no amount had been written off. The opening balance of provision against consumer financing as on January 1, 2006 amounted to Rs 242 million. It is the banks policy to make a general provision in addition to the amount determined under Prudential Regulations. Such provision is based on the judgment of the bank. The general provision as on January 1, 2006 was Rs 765 million. However, there was a net reversal of provision for the year 2006 amounting to Rs 47 million. In 2005, a net provision of Rs 65 million was made.
(ii)
Required: Prepare appropriate notes to the financial statements for the years 2005 and 2006 giving disclosures related to provisions made by the bank in accordance with the guidelines issued by State Bank of Pakistan. (THE END)
(15)
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Final Examinations Winter 2006 December 5, 2006

Module E
Q.1
GIF Holdings Limited (GIF) held 75% shares of JPG Limited (JPG) and 30% shares of BMP Limited (BMP). Their summarized balance sheets as at June 30, 2005 are as follows: GIF JPG BMP -------Rupees in million ------Investments at cost in: JPG Limited 450 BMP Limited 250 Other Net assets 1,690 1,000 800 2,390 1,000 800 Share capital (Rs.10 per share) Accumulated profits 100 2,290 2,390 100 900 1,000 50 750 800
Following additional information is also available: (a) GIF acquired the shares of JPG many years ago when the reserves of JPG were Rs. 500 million. The reserves of BMP were Rs. 650 million when GIF bought its 30% holding on July 01, 2004. (b) The following transactions have taken place from July 01, 2005 to June 30, 2006: On January 01, 2006, GIF acquired a further 2,500,000 shares in BMP for Rs. 705 million. On April 01, 2006 GIF sold its entire interest in JPG for Rs. 1.1 billion in cash. Tax arising on this transaction was Rs. 83 million. The draft results of the individual companies in the period since July 01, 2005 are as follows: GIF JPG For the year ended June 30, 2006 Rs. in million 4,000 5,400 400 320 (140) (112) 260 208 BMP For the six months ended Dec. 31, 2005 June 30, 2006 Rs. in million 2,500 3,000 300 340 (105) (119) 195 221
Turnover Profit before tax Tax Profit after tax
(c) While preparing the results for the year ended June 30, 2006, GIF have not given effect to the disposal of its holding in JPG. (d) Directors of GIF have indicated that costs of Rs. 70 million incurred and charged by BMP in its draft results for the six-months ended June 30, 2006 had been incurred prior to its acquisition by GIF, whereas they were recorded after January 1, 2006.
(2)
(e) BMP has now decided to write off a debtor balance of Rs. 40 million of which Rs. 30 million had been outstanding since December 31, 2005. For the purpose of consolidation, Rs. 30 million will be considered to have been written off prior to January 1, 2006. (f) GIF is a regular supplier to BMP, and makes a pre-tax profit of 20% on sales. Sales by GIF to BMP in the six-months ended June 30, 2006 were Rs. 800 million. Goods invoiced at Rs. 450 million were still in BMPs stock as at June 30, 2006. (g) Goods invoiced by GIF to BMP in June 2006 at Rs.150 million were not reflected in BMPs accounts as at June 30, 2006 as they had not been delivered to BMP till then. (h) The management of GIF tested the goodwill amount by comparing it with its recoverable amount and decided to reduce its value by 2.5% at June 30, 2006. (i) Applicable tax rate is 35%. Ignore deferred tax. Required: Prepare the consolidated profit and loss account of GIF Holdings Limited for the year ended June 30, 2006 and the consolidated balance sheet as at June 30, 2006.
(22)
Q.2
PDF Steel Manufacturing Company Ltd. purchased a building for its proposed research and development laboratory at a cost of Rs. 75.8 million. The building was placed in service on July 10, 2005. The estimated useful life of the building for depreciation purpose is 20 years. The company uses straight-line method for calculating depreciation and there is no estimated net salvage value. The laboratory has been designed to carry out research on various projects and will also help the company in the production of a highly technical tool which has a wide use in the manufacturing of ammunition. A summary of the number of projects and the cost incurred on research and development for the year ended June 30, 2006 are as follows:
No. of projects Salaries and employee benefits *Other directly attributable expenses Training of staff
Completed projects with long term benefits Abandoned projects or projects that benefit the current period only Projects in process results indeterminate Total
* excluding depreciation
15
5,400,000
3,000,000
1,000,000
10 5 30
3,900,000 2,400,000 11,700,000
900,000 720,000 4,620,000
300,000 320,000 1,620,000
In view of the importance of some of the projects, the Government of Pakistan (GoP) provided the company a team of experts to support the research and development activities of the company. This team of experts worked on five projects which were successfully completed and have long term benefits to the company. It was worked out that had the company hired such team of experts, it would have cost them Rs. 7.5 million. On the recommendation of the research and development team, the company acquired a patent for manufacturing rights at a cost of Rs. 5.89 million. The patent was acquired on October 01, 2005, and has an economic life of 10 years. Required: How the above items relating to research and development activities would be reported on the companys financial statements. Show all necessary disclosures including the accounting policy. Assume that long term benefits mean 10 years on the average.
(12)
(3)
Q.3 RTF Sugar Mills Ltd. has been incurring losses since last many years. The statutory audit of the company since 2004 has not yet been finalized. You have recently been appointed as Chief Accountant of the company and have been assigned the responsibility of finalizing the accounts for the years 2004, 2005 and 2006. As a first step, you have reviewed the draft accounts for the year 2004 which were prepared on August 1, 2004. You have also ascertained the following information about certain subsequent events that may have an impact on the financial statements for the year ended June 30, 2004: (a) The Board of directors approved sale of a loss making segment of the company in December 2004, which was sold in April 2005 at a profit of Rs. 123 million. The profit has been computed on the basis of book value of assets as of April 2005; Benefits to employees under the gratuity scheme were reduced by the management on March 30, 2005 with retrospective effect which has resulted in 50 percent decrease in the liability for gratuity (projected benefit obligation). The original liability as of June 30, 2004 was estimated at Rs. 73 million; The government has increased the income tax rate by 5 percent in July 2006, which if taken into account, will result in an increase in deferred tax liability by Rs. 135 million; The company has issued a guarantee of Rs. 350 million against debts of one of its associates on September 15, 2004; A long-term financing arrangement was rescheduled on March 31, 2005. The current maturity of the said arrangement was Rs. 180 million as of June 30, 2004 out of which Rs. 30 million were paid before such rescheduling. After rescheduling the first payment becomes due in 2011; Certain inventories of a specific service line could not be sold till February 2006 when these were disposed off at a loss of Rs. 83 million. No other evidence is available regarding their net realizable value.
(b)
(c)
(d) (e)
(f)
Required: Consider each of the above event separately and explain briefly whether it: needs to be accounted for; needs to be disclosed; or does not effect the financial statements for the year 2004.
(14)
Q.4
XLS Limited is a listed company and engaged in the assembling of electrical appliances. During the year, the company changed its accounting policies in respect of the following: 1. It has started to capitalize the borrowing costs directly attributable to the qualifying assets. Upto June 30, 2005, the company recognized the borrowing costs as an expense in the year in which they were incurred. Provision for bad debts shall be provided at 3% instead of 2%.
2.
The management feels that change of above policies will reflect a fair view of the companys financial position to the shareholders.
(4)
Extracts from the financial statements of the company before incorporation of above changes are given below: 2006 2005 Rs. in million Gross profit 486 410 General and administration expenses (231) (225) Selling and distribution expense (110) (98) Financial charges (32) (31) Profit before tax 113 56 Income taxes (30) (14) Profit after tax 83 42 Retained earnings opening 452 410 Retained earnings closing 535 452 Following additional information is also available: 1. Details of borrowing costs expensed out in current and prior periods which are directly attributable to the qualifying assets are as follows: Year June 30, 2006 June 30, 2005 June 30, 2004 and before 2. Amount Rs. in million 16 12 8
The change in the rate of provision for bad debts has been made on the recommendation of Recovery Department. The company has not yet made the provision as of June 30, 2006. The details of accounts receivables are as follows: Accounts receivable as at June 30, 2005 Accounts receivable as at June 30, 2006 Provision as at June 30, 2004 was Rs. 1.6 million. Rs. 100 million Rs. 123 million
3.
Income tax rate was 25% for both years.
Required: (a) Present the above changes in the Profit and Loss Account and Statement of Changes in Equity in accordance with the requirements of IAS-8 Accounting Policies, Changes in Accounting Estimates and Errors. (b) Draft an accounting policy about the borrowing costs for disclosure in the financial statements. Q.5 DOC Industries is engaged in manufacturing and export of cotton and linen bed sheets to USA and Middle East. The company operates an approved funded gratuity scheme for all eligible employees. The last actuarial valuation of the scheme was carried out using the Projected Unit Credit Method. Following are the extracts of relevant information from the actuarial report for valuation carried out in line with IAS 19, as of June 30, 2006: Rupees Present value of projected benefit obligations June 30, 2005 1,930,650 Current service cost for the year 350,200 Interest cost for the year 135,650 Gratuity paid by the fund to the retiring employees 165,200 Actuarial loss on obligations, during the year 650,300 Expected return on plan assets 275,350 Contribution paid by the company to the fund during the year 425,000 Fair value of plan assets June 30, 2005 1,420,350 Actuarial gain on plan assets during the year 135,000
(17)
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(5)
Following information is also available: 1. Additional gratuity amounting to Rs. 55,500 was paid to a retiring employee as ex-gratia by the company which is included in both, the payments made by the company to the fund, as well as, the payments made by the fund to the retiring employees; 2. During the year, the management introduced a change in the plan, which has resulted in increase in benefits. Past service cost, amounting to Rs. 273,000 against such plan changes has not been separately disclosed in the actuarial report. When the actuary was consulted again in this respect, he responded that such effect is included in the actuarial loss for the year. He further informed that 70% of such benefit is vested. It is expected that non-vested benefit will become vested over a period of 4 years. 3. Average remaining service life of the employees was 23 years, as of June 30, 2005. 4. Discount rate of 10%, rate of return on plan assets of 10% and expected rate of increase of salaries of 12% have been used for valuation purposes. 5. Net unrecognized actuarial loss, as at June 30, 2005 was Rs. 350,450. 6. 40% of cost of gratuity is chargeable to administrative expenses and 60% to cost of goods sold. 7. The company follows the corridor approach for accounting of net actuarial gains and losses. Required: Prepare all necessary disclosures to be incorporated in the financial statements including accounting policy, in respect of the defined benefit gratuity scheme. Show all necessary workings. Q.6 TMP Trust Fund is an open ended mutual fund, listed on Lahore Stock Exchange. Units are offered for public subscription on a continuous basis and can be redeemed by surrendering them to the fund. Following financial information is available for the year ended June 30, 2006: 1. During the year, the fund received amounts of Rs. 210,290,408 (2005: Rs. 152,870,421) against issuance of 1,546,253 units (2005: 1,377,211 units). The issued units include bonus units issued to unit holders. 1,434,644 units (2005: 1,213,560 units) were redeemed during the year against which an amount of Rs. 194,394,262 (2005: Rs. 133,491,600) was paid / payable by the fund. Undistributed income brought forward from previous year is Rs. 5,638,924. It is the policy of the fund to recognize the distribution of cash dividend and bonus in the year in which it is declared. The fund has announced at the year end, bonus units of 15% (2005: 10%) and 10% cash dividend (2005: Nil). No cash dividend or bonus has been distributed prior to June 30, 2005. Net income of the fund is Rs. 15,532,600 (2005: Rs. 8,511,744). The element of income and capital gains included in prices of units sold less those in units redeemed representing accrued income and realized capital gains, amounted to Rs. 1,536,360 (2005: Rs. 965,458). This amount was transferred to profit and loss account. The value of net assets at the beginning of the year was Rs. 39,674,912. 550,215 units of Rs. 100 each are outstanding as at June 30, 2006.
(20)
2.
3. 4.
5. 6. 7.
8. 9.
Required: Prepare the following statements of TMP Trust Fund for the year ended June 30, 2006 and 2005: (i) Distribution Statement (ii) Statement of movement in unit holders funds. (THE END)
(15)
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Final Examinations Summer 2006 June 06, 2006

Q.1
Millennium Enterprises Limited (MEL) has 80% shareholding in Century Petroleum Limited (CPL) which it had acquired on April 1, 2003. On April 1, 2005, it acquired whole of A Limiteds equal (50%) share in the joint venture A Limited had with B Limited in a pipeline project. The operations of the project are jointly controlled. The purchase was made at book value. The balance sheets of the above entities as at March 31, 2006 are given hereunder: MEL Non-current assets Property, plant and equipment Investment Current assets Inventory Accounts receivable Bank Total assets Equity and liabilities Capital and reserves Ordinary shares of Rs.10 each Reserves Accumulated profits Current liabilities Accounts payable Taxation Overdraft Total equity and liabilities The following information is relevant: (i) CPL was acquired at a cost of Rs.120 million. Its accumulated profits at that date were Rs. 28 million. At the date of acquisition, i.e. April 1, 2003, CPL owned an item of plant that had a fair value of Rs.20.0 million in excess of its book value. The plant had a remaining useful life of five years. All plant and equipment is depreciated on the straight-line basis. Joint Venture Rupees in thousand CPL 153,600 12,800 166,400 20,480 12,160 -32,640 199,040 63,000 --63,000 21,000 11,200 9,800 42,000 105,000
416,250 160,000 576,250 41,440 35,150 6,660 83,250 659,500
185,000 405,680 590,680 48,100 20,720 -68,820 659,500
64,000 76,800 140,800 43,200 11,200 3,840 58,240 199,040
35,000 52,500 87,500 14,000 3,500 -17,500 105,000
(2) The fair value of CPLs remaining net assets and all of the Joint Ventures net assets were equal to their book values at the relevant dates of acquisition. On October 1, 2005 MEL purchased some equipment from the Joint Venture for a consideration of Rs.7.0 million. It was sold at a mark up of 25% on cost. The equipment is in use by MEL and is included in property plant and equipment and being depreciated over a four-year life. During the year ended March 31, 2006, the books of account of the Joint Venture showed a profit of Rs.15.0 million. The share of profit for the year in CPL and the Joint Venture has not yet been recorded in the books of MEL. All inter company current account balances were settled prior to the year-end.
(ii)
(iii) (iv) (v)
Required: Prepare the consolidated balance sheet of MEL as at March 31, 2006.
(20)
Q.2
Mughals Limited, a firm of civil contractors, specialize in construction of highways. They entered into a contract with the National Highway Authority (NHA) in the year 2003 for construction of National Highway covering 1500 kilometers and having 6 lanes. However, it was agreed that work shall commence on February 1, 2004. The agreed price was Rs.3.6 billion. The company closes its accounts on May 31. On February 1, 2005 the NHA requested the company for extending the highway by adding two further lanes. NHA was of the view that the price of this extension shall be in the same proportion i.e. Rs. 1.2 billion, as there has been no significant increase in costs since the signing of the contract in 2003. However Mughals Limited refused to accept this price. Their board of directors was of the view that their company was in a position to sign another contract if they forego the offer by NHA. After extensive negotiations, the price of the extended work was agreed at Rs. 1.6 billion. It was also agreed that the work on additional lanes will be carried out simultaneously and will be completed on November 30, 2006. The following data is available in respect of the above contract: As at May 31 2004 2005 2006 Original Contract Rupees in million Progressive billing to date 800 2,500 3,400 Amount received to date 600 2,400 3,240 Mobilization advance (included in the above) 180 180 180 Actual cost to date 600 2,000 2,680 Value of work certified by NHA 300 2,000 3,300 Profit (latest estimate) 600 900 720 Additional Work Progressive billing to date Amount received to date Mobilization advance (included in the above) Actual cost to date Value of work certified by NHA Profit (latest estimate)
-------
200 80 80 100 -700
1,100 800 80 580 1,000 600
(3) There is a clause in the agreement that NHA will pay an early completion bonus of Rs.5.0 million per week. However in case of delay it will levy a penalty of Rs.10.0 million for each week the completion is delayed. In case of the original agreement the company has always been confident that the contract will be completed two weeks ahead of time and was actually completed accordingly. In case of additional work the chances of delay at year-end were considered as: Delay of two weeks Delay of three weeks Delay of four weeks 2005 Possible Remote -2006 Probable Possible Remote
Required: (a) Discuss whether the contract for additional work shall be treated as a separate contract or a part of the original contract, according to IAS-11 (Construction Contracts) (04) (b) Prepare extracts of the Income Statement and Balance Sheet of Mughals Limited for the years to May 31, 2005 and 2006 in respect of the above contract along with necessary disclosures regarding treatment of bonus and penalty as discussed above. (16)
Q.3
Following are some of the balances which have been extracted from the trial balance of EZ General Insurance Company Limited for the year ended December 31, 2005: Rs. in 000 Dr. Cr. 17,000 300 2,400 3,523 3,891 765 7,631 4,630 8,300 74,471 27,700 27,058 43,706 4,354 14,751 7,549 4,360 11,919 6,986 6,678 6,521 124 2,891
Premium receivable Accrued income Prepayments Premium received in advance Amounts due to other insurers/re-insurers Accrued expenses Other creditors and accruals Retained earnings Other revenue reserves Premiums written during the year Unearned premium reserve opening Reinsurance expense (after adjusting prepayments) Claims paid Outstanding claims opening Reinsurance recoveries against claims (after all adjustments) Commissions paid Unpaid commissions opening Commissions from re-insurers Management expenses General and administration expenses Investment income Rental income Other income
(4) Further breakdown of some of the above figures is as follows: Rs. in 000 Marine Motor Misc. 15,645 21,568 9,872 1,200 10,500 4,800 6,781 4,587 4,123 4,567 16,897 3,675 875 1,567 658 1,852 1,857 510 2,975 3,423 1,785 1,700 1,587 1,582 1,053 400 1,952
Premiums written during the year Unearned premium reserve opening Reinsurance expense (after adjusting prepayments) Claims paid Outstanding claims opening Reinsurance recoveries against claims (after all adjustments) Commissions paid Unpaid commissions opening Commissions from re-insurers
Fire 27,386 11,200 11,567 18,567 1,254 7,894 2,854 1,750 5,405
Following additional information is available: (i) The unearned premium reserve as at December 31, 2005 calculated in accordance with the rules shall be as under: Rs. in 000 Fire 12,300 Marine 890 Motor 11,300 Miscellaneous 4,650 (ii) Provision for unpaid claims and claims incurred but not reported at the date of balance sheet are estimated as under: Rs. in 000 Fire 1,680 Marine 610 Motor 1,800 Miscellaneous 450 Commission due to agents, as on December 31, 2005 was as follows: Rs. in 000 Fire 1,560 Marine 820 Motor 1,850 Miscellaneous 580 Management expenses represent those expenses which are attributable to underwriting business. These are to be allocated to various classes of business on the basis of premium earned during the year. Expenses not allocable to underwriting business are charged as general and administrative expense. For the purpose of tax provision, rate of tax is to be assumed at 35%.
(iii)
(iv)
(v) (vi)
Required: Draw up the Profit and Loss Account of EZ General Insurance Company Limited for the year 2005. Notes to the accounts are not required, however appropriate workings should be prepared.
(14)
(5) Q.4 Durable Electronics Limited is a manufacturing concern specializing in the manufacturing and marketing of home appliances. The trading results for the year ended December 31, 2005 are as follows: Rupees in million 60 12 48
Profit before taxation Income Tax Profit after taxation
The details of movement in the share capital of the company during the year are as follows: As on January 1, 2005, 10 million ordinary shares of Rs. 10 each were outstanding having a market value of Rs. 350 million. The board of directors of the company announced an issue of right share in the proportion of 1 for 5 at Rs. 40 per share. The entitlement date of right shares was April 30, 2005. The market price of the shares immediately before the entitlement date was Rs. 40 per share. The company announced 20% bonus shares for its shareholders on June 1, 2005. The shareholders were informed that the share transfer books of the company will remain closed from July 1 to July 10, both days inclusive. Transfers received up to June 30, 2005 will be considered in time for entitlement of bonus shares. However, right shares issued in the month of April 2005 will not be entitled for the bonus shares. The ex-bonus market value per share was Rs. 32. A further right issue was made in the proportion of 1 for 4 on October 31, 2005 at a premium of Rs. 15 per share. The market value of the shares before the right entitlement, was Rs. 33 per share.
Required: Calculate the basic and diluted earnings per share for the year ended December 31, 2005 in accordance with IAS 33 (Earnings per share).
(14)
Q.5
You are the Chief Accountant of Rubab Enterprises Limited which is engaged in manufacturing iron and steel products. The company was set up in August 1998 and started commercial production in November 1998. The accounting year-end of the company is June 30. While analyzing the companys books of accounts for the year ended June 30, 2005, you came across the following balances: Rs. 2,410,000 4,700,000
Provision for taxation (Gross) Deferred tax liability
The assessments of the past four years although completed by the taxation officer but are still open due to appeals. The provision for taxation consists of the following:
(6) Accounting year 2002 2003 2004 2005 Accounting Income 1,000,000 1,400,000 1,700,000 2,200,000 Assessed Income 1,800,000 1,900,000 2,100,000 Tax Rate 45% 40% 40% 35% Provision for Taxation 810,000 760,000 840,000 2,410,000
The deferred taxation is on account of the following: Dr / (Cr) Depreciation Leasing Penalties and fines paid by the company Provisions for gratuity Provisions for bad debt The following information is also available: (a) The accounting depreciation for the year ended June 30, 2005 amounted to Rs.20.50 million whereas tax depreciation as calculated by one of your subordinates amounted to Rs. 15.50 million. The company operates an unfunded gratuity scheme. Gratuity of Rs.100,000 each was paid to two of the employees who had resigned during the year. The total provision required at year-end amounted to Rs. 3.5 million. Leased assets consisted of two machines only. In the accounting records of the company; one of the lease has been treated as operating lease. The machine under financial lease arrangement was sold during the year at a profit of Rs.400,000. The lease was cancelled with the consent of the leasing company. The company paid Rs. 1,000,000 on account of certain expenses. Your tax advisor has informed you that only 60% of this will be allowed for tax purposes and that too, over a period of five years (including the current year). Receivables of Rs.40,000 which were written off in the year 2002 were recovered during the year. The same had not been allowed by the tax authorities in the year in which they were written off. (4,000,000) (2,000,000) 100,000 1,000 ,000 200,000 ( 4,700,000)
(b)
(c)
(d)
(e)
During the year, the following decisions were made by various tax appellate authorities: (a) While assessing the income for the year ended June 30, 2002 the value of closing stock had been increased by the taxation authorities by Rs. 4.0 million. Consequential effect on opening stock of next year had however been allowed. During the current year, add-back was declared invalid by the appellate authority.
(7) (b) An expense incurred in the year 2003, amounting to Rs.0.5 million, which was disallowed then, was declared as allowable over a period of four years. Although the company had filed an appeal, it was of the view that the same would not be allowed, hence it has ignored it for the purpose of calculating deferred tax till last year.
Required: (a) Among the transactions discussed above, identify those which give rise to permanent timing differences. (b) Calculate the following: i). Provision for taxation current ii). Provision for taxation prior years iii). Deferred tax current iv). Deferred tax prior years v). Deferred tax liability
(02)
(18)
Q.6
XYZ Limited is a subsidiary of MAG International Limited. It has been listed on the Karachi Stock Exchange for the past forty years. Required: Draft a Statement of Compliance for inclusion in the financial statements of XYZ Limited.
(06)
Q.7
Explain the concept of Embedded Derivative as discussed in International Accounting Standards 39 (Financial Instrument: Recognition and Measurement).
(06)
(THE END)

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Advanced Accounting and Financial Reporting

Advanced Accounting and Financial Reporting

Advanced Accounting and Financial Reporting

12,000 1,000 2,000 3,000 15,000 7,000

Advanced Accounting and Financial Reporting

Advanced Accounting and Financial Reporting

Accounting WDV (at revalued amount) Tax WDV

The Institute of Chartered Accountants of Pakistan

Advanced Accounting and Financial Reporting

The Institute of Chartered Accountants of Pakistan

Advanced Accounting and Financial Reporting

75,600 3,900 300 24,100 16,400 800 121,100

2,800 1,700 2,900 700 8,100

800 700 820 2,320

44,300 15,800 36,400 24,600 121,100

2,800 1,200 4,100 8,100

1,000 900 300 120 2,320

Advanced Accounting and Financial Reporting

Advanced Accounting and Financial Reporting

Required: In respect of each operating segment explain whether it is a reportable segment.

Advanced Accounting and Financial Reporting

Property C Property D Property E

The Institute of Chartered Accountants of Pakistan

Advanced Accounting and Financial Reporting

Advanced Accounting and Financial Reporting

Advanced Accounting and Financial Reporting

Advanced Accounting and Financial Reporting

----- Rs. in million ----660 840 3,400 120 530 3,345

The Institute of Chartered Accountants of Pakistan

Advanced Accounting and Financial Reporting

Reading time 15 minutes

June 7, 2011 100 marks 3 hours

The Institute of Chartered Accountants of Pakistan

Advanced Accounting and Financial Reporting

(ii) (iii) (iv) (v)

Consolidated Statement of Financial Position

200 320 520 28 548 125

261 180 10 20 471

200 162 25 387

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

ADVANCED ACCOUNTING AND FINANCIAL REPORTING

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

ADVANCED ACCOUNTING AND FINANCIAL REPORTING

(MARKS 100) (3 hours)

978 520 300 1,798 210 122 20 352 2,150

595 595 105 116 38 259 854 -

380 125 128 37 290 670

800 784 1,584 270 124 172 296 2,150 -

360 354 714 140 140 854

100 450 550

120 120 670

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

ADVANCED ACCOUNTING AND FINANCIAL REPORTING

(MARKS 100) (3 hours)

SBD 350,000 5 2.50%

AFI 270,000 3 2.00%

SBD 370,000 390,000 400,000 31-Dec-10

AFI 280,000 250,000 220,000 31-Dec-12

Including tax of Rs. 51,250 deducted on dividend received.

Other expenses Dividend income Gain on sale of machines

6,150,000 512,500 375,000 327,846,741 327,846,741

Premiums Reinsurance expense

1,600 690 780 4,890