You are on page 1of 5


Time allowed – 3 hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and of the manner in which the answers are presented. Different parts, if
any, of the same question must be answered in one place in order of sequence.]

1. You are the Financial Controller of RACO Ltd, a holding company listed on Bangladesh stock
exchanges. Together with the Finance Director, you have held conversations with external
consultants about accounting policy implementation issues. You have discussed a number of areas
where the Finance Director believes the application of the requirements of a IFRS would not give a
'true and fair view' for users. The Finance Director has sent you the following extract from a note
prepared by the consultants.
'Accounting policies
It is essential that the accounting policies selected when implementing IFRS result in financial
statements that give a fair presentation. The application of the principle of substance over form is
integral in achieving this.
The choice of accounting policies is a matter of judgement and careful consideration is required
particularly where you wish to override the requirements of an accounting standard.'
The Finance Director wishes to discuss the above extract with you. He has a strong personality and he is
adamant that non-compliance with IFRS may be justified where it does not give a true and fair view.
(a) Prepare notes for your meeting with the Finance Director:
(i) Explaining the concept of 'fair presentation' and comparing it with ‘true and fair view'. 3
(ii) Explaining the concept of 'substance over form' and its relationship to ‘fair presentation'. 3
(iii) Explaining the circumstances in which non-compliance with the detailed provisions of a
IFRS is justified. 3
(b) Identify the ethical issues and actions, from the above scenario, that you should consider arising
from the adoption of IFRS and your professional relationship with the Finance Director. 3

2. RESL Ltd. manufactures emergency power equipment. Its most popular generator is a model called the
PraMac, which has a retail price of Tk. 1,500 and costs RESL Tk. 740 to manufacture. It sells the
PraMac on a standalone basis directly to businesses, as well as provides installation services. RESL also
distributes the PraMac through a consignment agreement with GME LLC. Income statement data for
RESL's first quarter of 2018 from operations other than the PraMac generator are as follows:
Revenues Tk. 6,500,000
Expenses 4,350,000
RESL has the following information related to four PraMac revenue arrangements during the first
quarter of 2018.
(1) RESL entered into an arrangement with the Super Stores Ltd. (SSL) to deliver PraMacs for the
meat lockers in the super-stores. RESL provides a 5% volume discount for PraMacs purchased
by SSL if at least Tk. 450,000 of PraMacs are purchased during 2018. By March 31, 2018,
RESL has made sales of Tk. 360,000 (Tk. 1,500 × 240 generators) to SSL. Based on prior
experience with this promotion in two neighboring cities, the discount threshold is met for the
year if more than one-half of the target had been met by mid-year.
(2) On January 1, 2018, RESL sells 20 PraMacs to Grameen Store Ltd (GSL). GSL signs a 6-
month note due in 6 months at an annual interest rate of 12%. RESL allows GSL to return any
PraMacs that it cannot use within 120 days and receive a full refund. Based on prior experience,
RESL estimates that three units will be returned (using the most likely outcome approach).
RESL's costs to recover the products will be immaterial, and the returned generators are
expected to be resold at a profit. No PraMacs have been returned as of March 31, 2018, and
RESL still estimates that three units will be returned in the future.
(3) RESL sells 30 PraMacs to First S. Bank, to provide uninterrupted power for bank branches with
ATMs, for a total contract price of Tk. 50,000. In addition to the PraMacs, RESL also provides
Page 1 of 5
installation at a standalone selling price of Tk. 200 per PraMac; the cost to RESL to install is
Tk. 150 per PraMac. The PraMacs are delivered and installed on March 1, 2018, and full
payment is made to RESL.
(4) RESL ships 300 PraMacs to GME LLC. on consignment. By March 31, 2018, GME has sold
three-fourths of the consigned merchandise at the listed price of Tk. 1,500 per unit. GME
notifies RESL of the sales, retains an 8% commission, and remits the cash due to RESL.
(a) Determine net income for RESL Ltd. for the first quarter of 2018. (Ignore taxes.) 10
(b) In reviewing the credit history of Grameen Store Ltd, RESL has some concerns about the
collectability of the full amount due on the note. Briefly discuss how collectability of the note
affects revenue recognition and income measurement for RESL. 3

3. You have been appointed as a Finance Controller of Prosperous & Co, a highly promising public
company. The company is considering listing with DSE by issuing 10% of ordinary shares through IPO.
You are a Fellow Member of ICAB and Management has a high expectation that you will guide
them properly to make the IPO journey a success. Before you were appointed, Mr. Chowdhury,
FCA was heading your team. Your first assignment is to prepare a financial statement as of and for
the year ended 30 June 2018. The CFO of your company, who once had strongly recommended
your appointment has a gut feeling that the earlier Finance Controller was too conservative in his
assumptions. He has a high expectation that financial performance will look even better, if you
apply IFRS properly.
The financial period ended June 2018 has just been closed, and your Head of Reporting has come to
you with below trial balance-
Particulars BDT BDT
Sales 50,000,000
Other income 1,640,000
Purchases 20,000,000
Administrative expenses 10,000,000
Other operating expenses 8,000,000
Intangibles – brands 6,500,000
Plant and machinery- Cost 5,400,000
Accumulated depreciation- plant and machinery 3,200,000
Land and buildings- Cost (including land BDT10,000) 7,350,000
Accumulated depreciation- land and building 350,000
Retained earnings 2,400,000
Ordinary share capital (BDT 1 per share) 5,200,000
Share premium account 2,075,000
Revaluation surplus 910,000
Cash at bank 10,300,000
Inventories 4,625,000
Trade and other receivables 7,100,000
Trade and other payables 13,500,000
79,275,000 79,275,000
There are a number of outstanding issues which you were asked to help your team to resolve
before the financial statements can be presented to the board.
a) The company had received a Grant of BDT 100,000 from Ministry of Science and
Technology in 2015. The amount was fully utilized to purchase a piece of land. The grant
amount was netted off from the cost of the land (total cost being BDT 110,000), as per policy.
b) This year the company completed constructing a building on the land acquired in 2015. The
company had to remove debris of an old building in the land before it could start
construction at a cost of BDT 40,000. The amount was charged off as other operating
expense. The construction completed in June 2018.
c) GSM Foundation made a commitment to pay $40,000 as grant if the company can complete the
building project within 2018. 50% of the grant was received on 30 June 2018 and recorded as
other income. (USD to BDT conversion rate 82.00.) The company has just applied for the rest
50% of the grant. USD to BDT Conversion rate on 31 December was 85.00.

Page 2 of 5
d) Prosperous had appointed Mr. F.R Khan for the building project at a monthly Gross salary
of BDT 100,000 per month. Apart from his salary, he is entitled to full time car
maintenance (rented @ 35,000/month) and an apartment rented at a cost of BDT
25,000/month. Mr. Kahn left his job after September 2018 after handing over the building
to Admin department. At the time of his separation, he was also paid an amount of
BDT200,000 as a special bonus for completion of the project in time. The company has a
policy of reporting all employee related expenses as Administrative expenses. Car and
apartment rents are however reported under Other Operating Expense.
e) The plumber had missed the deadline of his delivery and had to pay a liquidated damage of
BDT100,000. The bank reconciliation reflects that the cheque is still unrecorded.
f) Plant and machinery has an estimated remaining useful life of 5 years, with no salvage value,
while the new building has a useful life of 20 years. Depreciation was not calculated for 2018.
g) Land and building in the trial balance includes the value of a fully depreciated building.
Residual value of the old building was nil. Prosperous contracted with General Motors to
deliver industrial Generator in exchange of the remains of the old building. Although
General Motors delivered the generator on 30 June 2018, it has yet to find a suitable
contractor to demolish the old building. The generator hasn’t yet been booked. A new
generator would cost BDT 100,000 while the Old building is expected to earn BDT 90,000
(for the remains). Generator is classified as plant and machinery.
h) The company has heavily invested on research and development and branding over the last
couple of years. In the process, the company bought “Promiso” from one of its competitors
at a cost of BDT1,500,000. The amount has been charged off as other operating expense.
i) The company also appointed an independent valuation expert to evaluate increase in brand
value due to significant investment in market promotions. In the experts view, overall brand
value of the company may have increased by at least BDT910,000. The increase is recorded as
intangible asset with corresponding impact on revaluation surplus. Estimated recoverable value
of the other brands, based on the same expert report had declined to BDT4,000,000.
j) All the brands have indefinite useful lives.
k) The company also has built a software with the help of IT Manager. Market value of
similar software is BDT100,000. The IT manager was given a Dhaka-Bangkok- Dhaka air-
ticket (BDT50,000) as a recognition of his delivery. Travel expenses are recorded as other
operating expense. The software is expected to serve for 2 years. The software was put into
use on 1 July 2018.
Prepare the statement of profit or loss for Prosperous for the year ended 31 December 2018 and a
statement of financial position as at that date, in a form suitable for inclusion in the prospectus. 25

4. Head of Reporting of your company, A Limited has prepared the following statement of financial
position and profit or loss account for the year ended 30 June 2018.

A Limited
Statement of financial position
As of 30 June 2018
Property, plant and equipment 767,571,771
Intangible assets 463,632,762
Non-current assets 1,231,204,533
Current assets 26,654,579,186
Total assets 27,885,783,719
Ordinary shares 42,797,062
Share premium 2,133,618,396
Retained earnings 903,366,797
Total equity 3,079,782,255
Deferred tax liabilities 135,986,265

Page 3 of 5
Other non-current liabilities 47,920,033
Total non-current liabilities 183,906,298

Accounts payable 22,749,002,565

Provisions 1,255,758,619
Provision for current tax 617,333,982
Total current liabilities 24,622,095,166
Total liabilities 24,806,001,464
Total equity and liabilities 27,885,783,719

A Limited
Statement of profit or loss and
other comprehensive income
For the year ended 30 June 2018
Revenue 14,258,343,560
Cost of services (11,299,194,131)
Gross profit 2,959,149,429
Other income, net 1,441,818,627
Operating and administrative expenses (2,478,901,509)
Marketing and promotional expenses (1,091,747,210)
Profit before contribution to WPPF 830,319,337
Contribution to WPPF (39,539,016)
Profit before tax 790,780,321
Income tax expenses (302,962,605)
Profit after tax 487,817,716
Other comprehensive income/(expense) - net of tax -
Total comprehensive income 487,817,716

Your external audit team has raised query on below points-

1. The company had 6% FDR of BDT100,000,000. No interest has been accrued for last 3 months.
2. Provisions include BDT200,000,000 for gratuity fund. NBR does not allow such provision for tax
purpose on the ground the amount has not been transferred to fund. Tax rate is 20%. Current tax
provision is calculated assuming all gratuity expenses will be allowed.
3. Upon completion of actuary valuation this year, it was observed that fair value of plan assets has
declined by BDT70,000,000 due to decline in discount rate. No adjustment was given for the change.
4. The company has a trade liability of USD10,000,000 recorded on below dates-
Date Rate (TK/USD) Amount (USD)
1 July 2017 80 1,000,000
1 September 2017 82 5,000,000
3 June 2018 85 4,000,000
Closing rate on 30 June 2018 was 84Tk per USD. Your Head of reporting told that the company
recognizes any impact of change in exchange rate as an adjustment to corresponding expenses on the date
of such transaction.
This year, BDT 85,000,000 was settled on 1 September 2018. The liability was originally booked on 1
July 2017 for operating and administrative purpose.
a) Help your team in assessing financial impact for each of the transactions. 15
b) Reconstruct the Balance sheet and Profit or loss and other comprehensive income 10
5. Bogura Ltd has investments in two companies, Cumilla Ltd and Jashore Ltd. The draft summarized
balance sheets of the three companies at 30 June 2018 are shown below.
Bogura Cumilla Jashore
ASSETS Tk '000 Tk '000 Tk '000
Non-current assets
Property, plant and equipment 50,500 37,750 21,500
Investment in Cumilla Ltd 50,000 - -
Investment in Jashore Ltd 10,000 - -
Page 4 of 5
Other investment 417 58 85
Total non-current assets 110,917 37,808 21,585
Current assets
Inventories 8,750 6,750 3,500
Accounts receivables 5,750 4,000 2,250
Advance, deposits and prepayments 10,083 192 113
Cash and cash equivalents 500 750 250
Total current assets 25,083 11,692 6,113
TOTAL ASSETS 136,000 49,500 27,698
Share capital (Tk 10 ordinary shares) 87,500 37,500 20,000
Retained earnings 15,000 5,750 4,750
Preference share capital (irredeemable) 8,900 - -
Total equity 111,400 43,250 24,750
Non-current liabilities
Borrowings (Term loan) 15,000 2,500 1,250
Current liabilities
Borrowings (Bank overdraft) 1,050 125 160
Accounts payables 8,000 3,000 1,500
Tax payable 550 125 38
Dividends - 500 -
Total current liabilities 9,600 3,750 1,698
Total liabilities 24,600 6,250 2,948
TOTAL EQUITY AND LIABILITIES 136,000 49,500 27,698
The following additional information is relevant.
(a) Bogura Ltd acquired 65% of the Tk. 10 ordinary shares in Cumilla Ltd on 1 April 2016. At that
date the balance on Cumilla Ltd's retained earnings was Tk. 4,500,000.
(b) On 1 April 2018 Bogura Ltd acquired 30% of the Tk. 10 ordinary shares in Jashore Ltd. The
profit for Jashore Ltd for the year ended 30 June 2018 was Tk. 1,500,000, and this profit
accumulated evenly over the year. Jashore Ltd paid no dividends in the year ended 30 June
2018. Jashore Ltd should be accounted for as an associated company of Bogura Ltd.
(c) Bogura Ltd has calculated that the costs incurred in acquiring Jashore Ltd were Tk. 500,000
and this sum has been charged to the statement of comprehensive income of Bogura Ltd. This
comprises Tk. 300,000 allocated overheads from the acquisitions department and Tk. 200,000
of directly attributable costs.
(d) The fair value of the land in Cumilla Ltd was Tk. 2,500,000 in excess of carrying amount at the
date of acquisition.
(e) Bogura Ltd has not recognised the dividend receivable from Cumilla Ltd in its draft statement
of financial position at 30 June 2018.
(f) At 1 April 2016 Cumilla Ltd had a contingent liability relating to a legal claim against the
company of Tk. 1,000,000, for which the fair value was estimated at Tk. 750,000. An out of
court settlement was agreed on 31 December 2017 and Tk. 750,000 was paid to settle the case.
(g) Bogura Ltd has carried out annual impairment reviews on goodwill. On 30 June 2017 an
impairment loss of Tk. 250,000 was recognised on the goodwill relating to Cumilla Ltd, but
there have been no further impairment losses identified.
(h) Cumilla Ltd sold goods to Bogura Ltd valued at Tk. 2,000,000 during the year ended 30 June
2018 and a quarter of these goods have been re-sold by Bogura Ltd. Cumilla Ltd calculated the
transfer price of the goods at cost plus a mark-up of 20%.
(i) Bogura Ltd's draft financial statements at 30 June 2018 included a note explaining a contingent
asset of Tk. 500,000. This sum was received on 31 July 2018. This should now be accounted
for as an adjusting event after the reporting period.
Prepare the consolidated statement of financial position of Bogura Ltd as at 30 June 2018. 25

Page 5 of 5