ADVANCED ACCOUNITNG & FINANCIAL REPORTING

Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2018

A.1 (a) Amounts recorded in respect of share options in CL’s financial statements:

Equity
No. of Fair value Expense for
No. of balance at
Year share per option Period the year
executives year-end
options
Rs. ---- Rs. in million ----
2014 39(47-8) × 4,000 × 600 × 1/3 = 31.20 31.20
2015 40(44-4) × - × 600 × 2/3 = - (31.20)
43 × 6,000 × 600 × 3/3 = 154.80 154.80
2016 41(43-2) × 6,000 × 130(710–580) × 1/2 = 15.99 15.99
170.79 170.79
43 × 6,000 × 600 × 3/3 = 154.80 -
2017 42 × 6,000 × 130(710–580) × 2/2 = 32.76 16.77
187.56 16.77

Explanation of basis of calculation:

Service condition/No. of executives:

Service condition shall be taken into account by adjusting the number of share options based on
expected number of executives that would remain in service till the vesting date at each year end.

Performance condition/No. of share options:

Performance condition other than market condition shall be taken into account by adjusting the
number of equity instruments included in the measurement of the transaction amount at each
year end. In this respect, number of options are based on expected average annual gross profit
during the vesting period as worked-out below:

Average gross profit for vesting period No. of

Year end
----------- Rs. in million ----------- options
2014 (940×3÷3) = 940 4,000
2015 (940+820×2) ÷ 3 = 860 Nil
(940+820+1,270) ÷3= 1,010
2016 6,000
2017 (940+820+1,270+1,200)÷4=1,058 6,000

Market condition/Fair value per option:

Market conditions are only taken into account when estimating the fair value of the share options
at the measurement date.

CL should recognize an expense irrespective of whether market conditions are satisfied at year
end provided all other vesting conditions are satisfied.

Vesting period:
The expense is spread over the vesting period. At the grant date the vesting period was three years
which was subsequently revised to four years on 1 January 2016.

Modification: (Extension of vesting period and repricing of option)

(i) Irrespective of any modification, CL is required to recognize, as a minimum, three year
services received, measured at the grant date fair value of the equity instrument. So, for
2016 expense will be recorded for 43 executives who have served the original vesting
period of 3 years at fair value of the options measured at grant date.
(ii) Modification of the vesting conditions in a manner that is not beneficial (increase in vesting
period) would not be taken into account.
(iii) However, repricing of the option is beneficial for executives. Therefore, increase in fair value
of share option by Rs. 130 (710–580) at the modification date would be expensed out over
the period between the modification date and the expected vesting date.

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2018

(b) Correct classification/presentation of the divisions is as under:

Statement of financial position Statement of comprehensive income

2017 2016 2017 2016
Continuing Continuing
Division A Normal Held for sale
operation operation
Discontinued Discontinued
Division B Not appearing Held for sale
operation operation
Discontinued Discontinued
Division C Not appearing Normal
operation operation

A.2 (a) Effect of corrections:

Total Total Profit Profit
Others
assets liabilities for 2017 for 2016
-------------------- Rs. in million --------------------
Balances as given 2,627.00 440.00 355.00 281.00
(i) Repayment of government grant
Repayment of grant (160÷8×6) (120.00) (40.00) 160.00
Cost of relocation (12.00) (12.00)
Depreciation for
2017 (400÷8) (50.00) (50.00)
(62.00) (120.00) (102.00) 160.00
RE
(ii) Forward contract
Increase in fair value (W-1) (9–0.3) 8.70 0.70 8.00
OCI
(iii) Issuance of convertible debentures
Equity component 150–136.04 (W-2) (13.96) 13.96
Allocation of issuance cost in (136.04 : 13.96) (3.63) 4.00 (0.37)
Additional finance cost [(136.04–3.63)×11.85%–12] 3.69 (3.69)
(13.90) 0.31 13.59
Eq. Comp
(iv) Decommissioning cost
Decommissioning cost 60×( 1.11)–4 39.52 39.52
Depreciation (39.52/4)×3 years (29.64) (9.88) (9.88) (9.88)
Unwinding of interest
[(39.52×11%)×1.11×1.11)] 14.53 (5.36) (4.83) (4.35)
9.88 54.05 (15.24) (14.71) (14.23)
Op. RE
(v) Investment property
Revaluation as per IAS 16 (80–55) 25.00 25.00
Revaluation as per IAS 40 (80–75) (5.00) (5.00)
20.00 (5.00) 25.00
Rev. Surplus
2,603.58 360.15 233.77 266.29 192.36

W-1: Gain/loss on forward contract

Forward contract Spot rate
USD in
Rs. in Rs. in
million Rate Rate
million million
Value at year-end rate 4.00 119.50 478.00 117.00 468.00
Value at contract date of 1-10-2017 4.00 117.25 469.00 115.00 460.00
Gain 9.00 Loss 8.00
Hedge effective % 89%

W-2: Issuance of convertible debentures Rs. in PV factor

Rs. in million
million at 11%
PV of interest at 11% for 2017 to 020 (150×8%) 12 3.1024 37.23
PV of principal amount at the time of repayment 150 0.6587 98.81
Liability component 136.04

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2018

(b) Mehran Limited

Statement of changes in equity for the year ended 31 December 2017
Equity
component
Share Share Retained Cash
of Rev. surplus
capital premium earnings flow hedge
convertible
debentures
----------------------- Rs. in million -----------------------
Balance as at 1-1-2016, as previously
reported 600.00 250.00 930.00 - - -
Effect of correction of error [a(iv)] (14.23)
Balance as at 1-1-2016 ; Restated 600.00 250.00 915.77 - -
Final bonus dividend for 2015 at 15% 90.00 (90.00)
Total comprehensive income for 2016:
- Profit for the year - Restated (a) 266.29
- Other comprehensive income -
Balance as at 31-12-2016 - Restated 690.00 250.00 1,092.06 - - -
Issue of convertible debentures
[a(iii)] 13.59
Interim cash dividend for 2017 at 10% (69.00)
Total comprehensive income for 2017:
- Profit for the year (a) 233.77
- Other comprehensive income [a(ii),(v)] - 8.00 25.00
Balance as at 31 December 2017 690.00 250.00 1,256.83 8.00 13.59 25.00

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2018

A.3 Swift General Insurance Limited

Statement of Comprehensive Income for the year ended 30 June 2018

2018
Note Rs. in 000's
Net insurance premium N-1 10,300
Net insurance claims expense N-2 2,500
Net commission and other acquisition costs 1,300
Insurance claims and acquisition expenses (3,800)
Management expenses (2,600)
Underwriting results 3,900
Investment income 1,900
Rental income 950
Other income 90
Other expenses (600)
Result of operating activities 6,240
Finance cost (450)
Share of profit from associates 210
Profit before tax 6,000
Income tax expenses (750)
Profit after tax 5,250
Other comprehensive income:
Unrealised gain on AFS investments - net 580
Total comprehensive income for the year 5,830

Notes to the financial statements for the year ended 30 June 2018 Rs in 000's
N-1: Net Insurance Premium
Written gross premium 13,000
Unearned premium reserve - opening 7,400
Unearned premium reserve - closing (7,200)
Premium earned 13,200
Reinsurance premium ceded 3,000
Prepaid reinsurance premium-opening 3,500
Prepaid reinsurance premium-closing (3,600)
Reinsurance expense (2,900)
10,300
N-2: Net Insurance Claims Expense
Claims paid 6,100
Outstanding claims - closing 5,200
Outstanding claims - opening (4,800)
Claims expense 6,500
Reinsurance & other recoveries revenue (4,000)
2,500

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2018

A.4 Datsun Limited

(A) Right-of-use of asset: Rs. in million

1 Jan 15 Initial measurement
Rs. 80 for 7 years advance @ 8%: 80×5.6229 449.83
Rs. 70 for 3 years advance after 7 years @ 8%: 70 × 2.783 × 1.08-7 113.67
A 563.50
Initial direct cost 15.00
578.50
31 Dec 15 Depreciation (578.50/12) (48.21)
1 Jan 16 Balance 530.29
Effect of reassessment B (131.01)
399.28
31 Dec 16 Depreciation (399.28/6) (66.55)
1 Jan 17 Balance 332.73
ROU derecognized due to reduction in lease term (332.73×2/5) (133.09)
Decrease in ROU due to increase in borrowing rate (1.89)
197.75
31 Dec 17 Depreciation 197.75/3 (65.92)
131.83

(B) Lease
liability: Rs. in million

1 Jan 15 Initial recognition A 563.50

Payment (80.00)
483.50
31 Dec 15 Interest for 2015 @ 8% 38.68
1 Jan 16 Balance 522.18
Payment (80.00)
442.18
Effect of reassessment in 2016 (Balancing) B (131.01)
Rs. 80 for 5 years in arrears @ 9% (80 × 3.8897)
311.17
Payment

31 Dec 16 Interest for 2016 @ 9% 28.01

1 Jan 17 Balance 339.18
Payment (80.00)
259.18
Effect of modification in 2017 due to:
 Decrease in lease term (Balancing) 118.45
Rs. 80 for 2 years in arrear @ 9%: (80 × 1.7591)
140.73
 Increase in rate (Balancing) (1.89)
Rs. 80 for 2 years in arrear @ 10%: (80×1.7355)
138.84
Payment

31 Dec 17 Interest for 2017 @ 10% 13.88

31 Dec 17 Balance 152.72

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2018

A.5 Vitz Limited

Consolidated statement of cash flows for the year ended 30 June 2018
Rs. in million
Cash flow from operating activities
Profit (W-5)817.2+(W-6)222.8 1,040
Adjustments for:
Share of associate profit (W-3) (160–12) (148)
Gain on disposal of subsidiary SL (1,600–1,250–200) (150)
Gain on disposal of property, plant & equipment (350+230)–(170+250) (160)
Unwinding of interest on deferred consideration [189(W-7)×8%] 15
Exchange loss on deferred consideration [223–(189+15)] 19
Depreciation 480
Impairment of goodwill (W-2) 65
1,161
Increase in working capital (W-4) (951)
210
Cash flow from investing activities:
Acquisition of shares in associate – AL (600)
Proceeds from disposal of subsidiary - SL (1,600–100) 1,500
Proceeds from disposal of property, plant &
equipment 350
Acquisition of foreign subsidiary - FL (W-7) (495–110) (385)
Purchase of property, plant and equipment (W-1) (1,043)
Dividend received from associate (W-3) 78
(100)
Cash flow from financing activities:
Proceeds from sale of shares of subsidiary – WL 450
Proceeds from issue of shares at premium [(2,800+300)–(2,500+375)] 225
675
Net increase in cash and cash equivalents 785
Effect of exchange rate movement 13
798
Cash and cash equivalents - beginning 770
Cash and cash equivalents – ending 1,568

W-1: Additions to property, plant and equipment Rs. in million

Closing balance 3,678
Opening balance 4,173
Transfer-in on acquisition of FL (W-7) 605
Exchange gain relating to FL’s PPE (122–13–36–16) 57
Transfer-out on disposal of SL (1,300)
Carrying value of PPE disposed off (170+250) (420)
Depreciation (480)
(2,635)
Additions 1,043

W-2: Impairment of goodwill

Opening balance 639
Goodwill on acquisition of FL (W-7) 179
Exchange gain on FL's goodwill (W-8) 16
Goodwill de-recognised on disposal of SL (200)
634
Closing balance (569)
Impairment of goodwill 65

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2018

W-3: Dividend from associate AL Rs. in million

Cost of acquisition of associate 600
Share of profit (800×6/12×40%) 160
(400×30%×25%×40%
Unrealised profit on inter-co inventory ) (12)
748
Closing balance (670)
Dividend from associates 78

W-4: (Increase)/Decrease in working capital

(1,050+823–
Opening balance 1,630) 243
Working capital of subsidiary FL (W-7) 385
Exchange gain on working capital FL 36
Working capital pertaining to SL disposed of during the year 150
814
Closing balance (1,950+957–912) (1,995)
Receivable for property, plant & equipment disposed off 230
(1,765)
(951)

W-5: Other group reserves/Profit attributable to parent

Closing balance 3,519.0
Opening balance 2,451.0
Equity adjustment on sale of 30% shareholdings in subsidiary - WL (450–300) 150.0
Exchange gain - attributable to parent [122–21.2(W-6)] 100.8
(2,701.8)
Profit attributable to parent 817.2

W-6: Non-controlling interest/Profit attributable to NCI

Closing balance 1,638.0
Opening balance 874.0
NCI share of 30% in subsidiary – WL (1,000×30%) 300.0
NCI share of 20% in subsidiary – FL (W-7) 220.0
Share of exchange gain on translation of operation – FL (106×20%) 21.2
(1,415.2)
Profit attributable to NCI 222.8

W-7: Goodwill - FL: USD in million Rate Rs. in million

Purchase consideration:
- Cash 4.500 110 495
- Shares at market value (15×25/110) 3.410 110 375
- Deferred consideration payable after two year
(2/(1.08)2 1.714 110 189
9.624 1,059
NCI (10×20%) 2.000 110 220
Fair value of net assets:
Property, plant & equipment 5.500 110 605
Working capital 3.500 110 385
Cash 1.000 110 110
(10.000) (1,100)
FL - Goodwill at the date of acquisition 1.624 179

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 ADVANCED ACCOUNITNG & FINANCIAL REPORTING
Suggested Answers
Certified Finance and Accounting Professional Examination – Winter 2018

W-8: Exchange gain reserve – FL Rs. in million

Exchange gain on FL goodwill (W-7) 179/110×(120–110) 16
Exchange gain on translation of FL operations:
- Net assets at year-end date rate (10+1.5)×120 1,380
- Net assets on acquisition date rate 10×110 (1,100)
- Profit for the year at average rate 1.5×116 (174)
106
122

(The End)

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