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The Institute of Chartered Accountants of PakistanFoundation Examinations Autumn 2001September 05, 2001FINANCIAL ACCOUNTING-2 (MARKS 100)Module ‘C’, SM ‘1’ & 6B (Paper C 7) (3 hours)
Q.1 Healthmen Club provides weight control, physical exercise and body building facilities toits members. The club is desirous to acquire new advanced equipment, in addition to itsexisting fleet of machines. Therefore, Mr. Aman, manager of the Club approaches OasisLease Limited on 31 December 1996 to finance such equipment. The main terms of thelease agreement, entered into between the Club and the leasing company are:(i) Cost of the equipment is Rs. 100,000 and its expected useful life is 4 years.(ii) The lease transfers substantially all the risks and rewards of ownership to the club.(iii) Rentals would be Rs. 8,582 payable at the end of each quarter.(iv) Total lease payments would be Rs. 137,312Finance charges appropriated are:Year ended 31 December1997 Rs. 14,8701998 Rs. 11,5661999 Rs. 7,7002000 Rs. 3,176Rs. 37,312The allocation of financial charges is based on the use of an implicit interest rate of 16% asa discount factor. Healthmen Club depreciates the equipment of this kind over a 4 yearperiod by straight line method.
Required:
Disclose how the machine and lease liability will appear in the books of Healthmen Club in the years 1997 to 2000. (Figures relating tocorresponding years are not required.
(15)
 Q.2 Gemex Communication Ltd. are sole distributors of GSM mobile telephones in Rawalpindi.Mobile cases are imported by the company and after assembling and packing, mobiles aresold out from their show room, located in Sadder. The company decided to introduce alatest brand of mobile set in the local market. However, local assembling of such sets wouldcost Rs. 20 million. The Directors decided to finance this project by obtaining loanequivalent to 70% of the project cost @ 20% per annum for a period of six months.The loan was sanctioned on 01 July 2000 and was immediately placed in a saving account.The expected yield on saving account is @ 12% annually. Due to certain internal delays,the company started utilization of borrowings from 01 August 2000. The entire loan waspaid off on 31 December 2000.
Required:
Compute the amount of borrowing cost eligible for capitalization inaccordance with IAS 23.
(03)
 
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 (02)Q.3(a) During the audit of Axis Industries Limited for the year ended 30 June 2000, you observedthat 1040 liters of palm oil, which was already sold by the company during the year 1999,was incorrectly included in closing inventory as at 30 June 1999. Such quantity carries afinancial impact of Rs. 52,000. Extracts from the accounts are as follows:Year ending Year ending30 June 2000 30 June 1999(Rupees)Sales 832,000 588,000Cost of sales (Note 1) 692,000 428,000Pretax profit 140,000 160,000Income Tax @ 30% 42,000 48,000Net profit after tax 98,000 112,000Note 1: Cost of sales for the year ended 30 June 2000 contains the above mentioned error inthe opening inventoryNote 2: Retained earningsAs at 30 June 1998 Rs. 160,000As at 30 June 1999 Rs. 272,000
Required:
Draft the income statement and statement of retained earnings under thebenchmark treatment specified in IAS 8, for the relevant years.
(08)
 (b) From the data given below, compute the value of inventory in hand (800 units) inaccordance with the requirements of IAS 2.
Rs.
 
Invoice price (including sales tax) - 1000 units 11,150Cost of material 8,250Income Tax paid at import stage 800Custom duty 600Sales Tax (refundable) 2,000Transport charges 500Material handling charges 400Store rent 300Discounts allowed 250Indirect labour 200Variable overhead 130Depreciation 520Selling expenses 220Maintenance of factory equipment 300Designing charges 550Material wasted 250
(07)
Q.4. Faizan and Furqan have been carrying on the business of towel manufacturing and exportfor the past 10 years. Due to recession in their business and liquidity crunch, they decidedto dissolve the firm and sell off the business to Quality Garments (Pvt.) Ltd., a company inthe similar line of business. The Balance Sheet of Faizan and Furqan, as on 30 June 2000,was as follows:
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(03)
BALANCE SHEETRs. Rs.
 
Sundry creditors 212,500 Furniture & Fixture 33,200Capital -Faizan 340,000 Stock in trade 153,800-Furqan 170,000 Trade Debts 484,500Bank 51,000
722,500 722,500
The arrangement with Quality Garments (Pvt.) Ltd. was as follows:(a) Furniture and Stock in trade will be purchased at book value less 10%.(b) Goodwill of the firm would be Rs. 101,200(c) The existing debtors, cash and creditors will not be taken over by the company.However, the company shall collect the outstanding debts and discharge the liabilities of the firm as an agent. The company will charge 3% on all collections made from the firm'sdebtors and 2% on cash payment made to the firm's creditors.(d) Purchase consideration will be discharged by the company in fully paid ordinary sharesof Rs. 10 each.The company recovered Rs. 480,000 from the debtors in full and final settlement. Allliabilities towards the creditors were paid except for the discount of Rs. 2,500 which wasallowed by the creditors. The company paid the balance to Faizan and Furqan on31 July 2000.
Required:
i) Prepare Realization accountii) Compute purchase considerationiii) Prepare capital accounts of the partners.
(15)
 Q.5 Qualitywise Construction Company has a contract to construct a building. Contract price isRs.8.5 million. The contract started in July 1997 and is expected to complete in December2000.
1998 1999 2000Rs. in 000
Costs to date 2,000 4,800 7,900Estimated cost to complete 5,500 3,100 -Contract price 8,500 8,500 8,500
Required:
Calculate in tabular form the gross profit, percentage of completion, revenuerecognizable and gross profit recognizable for the above three calendaryears.
(15)
 Q.6 Following are the assets of a company as on 30-6-2000:
Particulars Cost Accumulated Rate of Depreciation DepreciationRs. in million %
Land 78.000 ---Factory building 167.000 68.523 10Machinery 265.000 108.735 10Factory Equipment 0.900 0.369 10Office Equipment 0.800 0.328 10Vehicles 4.600 2.931 20Computers and Accessories 2.300 0.944 10a. One of the vehicles costing Rs.600,000 included in cost purchased on 1 August1998 totally destroyed in accident and insurance was not covered.
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Ifeanyichukwu Nwaneri

Superconstruction Ltd has a contract in progress. Expenditure on contract up to 30 April 2001 was as follows: Rs Raw materials 109,735 Wages 98,432 Special plant 95,000 Expected costs to completion (excluding special plant) 276,000 Stocks of raw materials on site at 30 April 2001 15,831 Value of work certified on 30 April 2001 483,000 Expected final contract price 776,000 Progress payment receive

reply12 / 06 / 2010
Ifeanyichukwu Nwaneri

it is good to read some financial details on net.

reply12 / 06 / 2010
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