2 FINANCIAL ACCOUNTING [M4] @ICMA nccounring na] AS FALL 2018 EXAMINATIONS Pakistan Tuesday, the 19th February 2019 Extra Reading 75 Minutes Writing Time: 02 Hours 50 Minutes (Attempt all questions. (i) Write your Roll No, in the space provided above. Gil) Answers must be neat, relevant and brief. Itis not necessary to maintain the sequence. (iv) Use of non-programmable scientific calculators of any model is allowed. (v) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper. (vi) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments, effective presentation, language and use of clear diagrany chart, where appropriate. (vil) DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script (vii) Question No. 1 - "Multiple Choice Questions" printed separately, is an integral part of this question paper. (x)_Question Paper must be returned to invigilator before leaving the examination hall. DURING EXTRA READING TIME, WRITING IS STRICTLY PROHIBITED IN THE ANSWER SCRIPT EXAMINEES ARE ADVISED TO MANAGE SOLUTIONS/ ANSWERS WITHIN PROPOSED TIME Marks Question No. 2 Proposed Time: 34 Min. | Total Marks : 18 Flower Limited is a public listed limited company engaged in manufacturing of spare parts, which are supplied in local and intemational markets. The accountant of the company has produced the following trial balance as at December 31, 2018: Rs. ‘000° Sales revenue 18,000 Trade and other receivables 2,145 Allowance for doubtful debts 60 ‘Administrative expenses 3,450 Selling and distribution costs 1,350 Purchases 8,700 Plant and machinery — at cost 3,800 ‘Accumulated depreciation — plant and machinery 450 Share capital (Rs. 10 each) 150 Trade and other payables 870 Stock-in-trade — at January 01, 2018 690 Retained earnings 1,305 8% Loan 3,000 Cash and bank balances 3,900 23,835 The following information is available to the finance team for consideration while preparing financial statements for the year ended December 31, 2018: () Goods amounting to Rs. 15,000 purchased on December 10, 2018 by a customer on credit were retumed on December 31, 2018. No entries have been posted for this return (ii) Plant and machinery is depreciated at 20% per annum on reducing-balance basis. (ii) It is estimated that receivables amounting to Rs. 30,000 are irrecoverable. No adjustment is required to the allowance for doubtful debts. (iv) Closing inventory has been valued at Rs. 900,000. (v) The current year tax has been estimated at Rs. 180,000. (vl) An ex-employee who was unfairly dismissed by the company, had sued the company and the legal adviser of the company think that it is probable that the company will lose the case and that they will have to pay damages of Rs. 150,000 in 2019. Legal costs are charged to administrative expenses. (vii) 8% loan was obtained on February 01, 2018. No interest has been accrued. Farol 2018 10f4 PTOMarks Required: Prepare the following financial statements: {a) Statement of Profit or Loss for the year ended December 31, 2018 09 (b) Statement of Financial Position as at December 31, 2018 09 Question No. 3 Proposed Time: 42 Min. | Total Marks : 22 Modem Garments Limited is a public limited company (listed), which imports ladies and gents stitched garments from abroad to cater the needs of local market in Pakistan. Following is the statement of financial position of the company as at December 31, 2018: Modern Garments Limited ‘Statement of Financial Position as at December 31, 2018 Rs, 000" 2018 2017 ASSETS Non-current Assets Property, plant and equipment 90,000 80,000 Current Assets Stock-in-trade 33,250] [38,500 Trade and other receivables 41,750 | 47,500 Cash and bank balances 3,000 - Total Assets 168,000 _ 166,000 EQUITY AND LIABILITIES Equity ‘Share capital (Rs. 10 each) 40,000] [ 32,000 Revaluation reserve 3,000 - Retained earnings 60,875 | | 66,500 103,875 98,500 Non-current Liabilities 10% Loan notes 25,000 20,000 Current Liabilities Trade and other payables 35,625 | [ 39,000 Income tax payable 3,500 4,000 Bank overdraft - 4,500 39,125 __ 47,500 Total Equity and Liabilities 168,000 166,000 Additional Information: (An equipment was sold for Rs. 2 million, the book value of which was Rs. 1.5 million (ii) Land and buildings were revalued during the year. (ii) An item of plant was purchased for Rs. 21 million during the year. The cost of the plant was settled by paying Rs. 16 million in cash and by issuing 500,000 ordinary shares in Modem Garments Limited at par. (iv) Trade and other payables include accrued amounts of interest of Rs. 625,000 and Rs. 500,000 for the years of 2018 and 2017 respectively. () Finance costs and income tax expense amounting to Rs.2.4 million and Rs.3.5 million respectively, were charged to the profit or loss during the year. (vi) Profit before tax for the year was Rs. 18 milion. Required: Prepare Statement of Cash Flows for the year ended December 31, 2018 using ‘indirect method’ under IAS 7 — Statement of Cash Flows. 22 FAFal 2016 20f4Question No. 4 Proposed Time : 38 Min. | Total Marks : 20 (a) {b) (c) (a) Briefly describe the purposes of the IASB’s Conceptual Framework? Momin Limited had two outstanding bank loans as at July 01, 2017: * Rs. 100 million, which carries interest rate of 12% per annum + Rs.60 million, which carries interest rate of 10% per annum On July 01, 2017, Momin Limited began construction of a qualifying asset using above-mentioned borrowings. Following amounts were drawn for expenditure on the project © Rs, 18 million on November 01, 2017 * Rs, 10 million on March 01, 2018 Required Calculate borrowing cost, which was capitalized for the qualifying asset as at June 30, 2018. Under IAS 12 - Income Taxes, what is meant by the following terms: (i) Taxable Temporary Differences (ii) Deductible Temporary Differences In 2018, Fahad Limited estimated taxable profits of Rs. 540,000 and the company is subject to the tax rate of 30%. In the previous year 2017, income tax on profits had been estimated as Rs. 135,000, Required Calculate tax payable and the tax charge for 2018, if the tax due on 2017 profits was subsequently agreed with the tax authorities as: (i) Rs. 135,000 (ii) Rs. 157,500 Rs. 112,500 Note: Any under or over-payment of tax of @ particular year is settled along with the following year’s tax payment. Question No. 5 Proposed Time: 30 Min. | Total Marks : 16 (a) {b) List the criteria for an asset to be classified as “Asset Held for Sale” under IFRS 5 — Non-current Assets Held for Sale and Discontinued Operations. On July 01, 2008, ABC Limited had purchased a building for its factory for Rs. 500 million. The building had an expected useful life of 50 years with no residual value. On June 30, 2018, the market value of the building was Rs. 380 million. The management of the company decided to sell the factory building at the market value. There were three buyers willing to buy the building at this price and the management was confident that they would be able to sell it quickly. It was further estimated that the selling cost would be around 5% of the selling price. The company uses straight-line-method of depreciation Required How the building will be treated in the company’s Statement of Financial Positions as at June 30, 2018, Fa-Fal! 2018 30f4 Marks 05 05 02 02 02 02 02 06 05 PTO(c) A cash-generating unit consists of the following assets at their carrying values as at December 31, 2018: Rs. ‘000" Building 45,000 Plant 20,000 Goodwill 15,000 Current assets 30,000 An impairment review was undertaking on December 31, 2018 and it was found that the estimated recoverable amount of the cash-generating unit was Rs. 80 million. Required How the amount of impairment loss of the cash generating unit will be allocated to different assets as per |AS 36 — Impairment of Assets? Question No. 6 Proposed Time: 26 Min. | Total Marks : 14 (a) How the following terms are defined under IAS 37 - Provisions, Contingent Liabilities and Contingent Assets’ (i) Contingent Asset (ii) Contingent Liability (b) Mega Discount Super Store has been in operation for the last 10 years in Islamabad. It sells a variety of products, which include food items as well. In June 2018, it sold some food items to a customer, which resulted in food poisoning and the wife of the customer had to be hospitalised for nearly a month. Fortunately, she survived but the customer sued the owner of the store and sought damages amounting to Rs. 2 milion. The super store was still engaged in legal dispute with the customer as at December 31, 2018, Required As per IAS 37, how the following possibilities will be accounted for in the financial statements of the of Mega Discount Super Store as at December 31, 2018: (i) If possible damages are Rs. 2 million but the owner of the store is not expected to pay this amount (li) If damages are expected to be paid but the amount of the damages cannot be reliably measured. If damages are expected to be paid and the amount of the damages can reliably be measured. (i (ec) In accordance with IAS 10 - Events After The Reporting Period, briefly explain the following events’ (i) Adjusting events after the reporting period (ii) Non-adjusting events after the reporting period (d) Classify the following events into adjusting and non-adjusting events after the reporting period in accordance with IAS 10 (i) Announcing, or commencing the implementation of, a major restructuring (ii) Abnormally large changes after the reporting period in asset prices or foreign exchange rates. (iii) The determination after the reporting period of the cost of assets purchased, or the proceeds from assets sold, before the end of the reporting period. THE END FAFal 2016 40f4 Marks 05 01 03 o1 o1 o1 02 02 o1 o1 01