EXAMINERS’ COMMENTS

WINTER 2019 EXAMINATIONS

Examiners’
FINANCIAL Comments
ACCOUNTING – MANAGERIAL LEVEL-2 M4

Question No. 2
(a) Income Taxes:
In this part, eight different situations were given and examinees were required to calculate the carrying values and
tax bases for each of the given assets/ liabilities. They were further required to determine whether these situations
gave rise to temporary differences or not and if temporary differences were created whether these differences were
taxable or deductible:
 Most of the examinees were confused in this part of question. Only a small number of examinees calculated
taxable temporary differences correctly. Few of the adjustments were done correctly. Overall, below average
performance was seen.
(b) Operating Lease:
In relation to a 10-year operating lease of a property, extracts of the financial statements for the current year were
required to be prepared. The given data included amount of rental payment, cost of alteration to the property
before it could be used and restoration cost at the end of the lease term. Following shortcomings were noted:
 Many examinees tried to solve the question as per IAS 17, which has been replaced by IFRS 16.
 Very few examinees calculated the correct figure of finance cost, which was a part of statement of profit or
loss. As far as the balance sheet was concerned, majority of the examinees was confused in the disclosure of
non-current assets and non-current liabilities. Overall, below Average performance was seen in this part of the
question.

Question No. 3
Financial Statements:
Very nice and very detailed question and most of the examinees attempted this question but could not handle it very
successfully. They were required to prepare (a) statement of profit or loss and (b) statement of financial position. They
were confused perhaps because of length of the question. Following mistakes were committed while preparing these
financial statements:
 In the statement of profit or loss, most of the examinees calculated the figure of revenue correctly but
calculations of cost of sales were only partly correct.
 Examinees were totally confused in the calculation of distribution cost and administrative expenses. They did
not classify expenses under these headings as required by the relevant Standard.
 Revaluation loss was not incorporated in the statement of profit or loss. Resultantly, calculation of income tax
was also wrong.
 In the calculation of depreciation schedule, it was observed that structured approach had not been adopted by
the examinees and they performed calculations in an unstructured and inappropriate manner.
 As far as balance sheet was concerned, lots of mistakes were seen in the calculation of property, plant and
equipment, trade receivables, amount due from customers, cash and cash equivalent, share capital, share
premium, retained earnings, revaluation surplus and tax payable.
 Another important point was the calculations relating to construction contract. Most of them were not able to
calculate revenue and cost of sales in relation to the contract correctly, which were to be incorporated in the
statement of profit or loss of the company.
Overall, below average performance was seen in this question.
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WINTER 2019 EXAMINATIONS
Question No. 4
(a) Provisions:
This part provided five scenarios and in the light of IAS 37, examinees were asked to determine whether a
provision might be recognized and what amount would be provided under each of the given situation. Almost all
the examinees were confused and could not do this part correctly. Problem of understanding the question was
seen in this part of question. The expression / presentation / choice of words were not up to the mark:
 In sub-part (IV), where amount of provision was required to be calculated, the majority of the examinees were
confused and did not calculate the amount provision of Rs.1,552,300 correctly by applying the discount rate
of 10%.
 As regards sub-part (v), in which the company had a policy of refunding purchases to dissatisfied customers
even though it was under no legal obligation to do so, examinees were required to decide whether provision
would be made or not. Majority of the examinees were not conceptually well-equipped to deal with the given
situation and consequently produced wrong answers.
(b) Investment Property:
In this short case, a building that had been used as corporate office by a company till the beginning of the current
year, was vacated by the company and leased out under operating lease. The examinees were to discuss the
accounting treatment of the building in the financial statements in accordance with IAS 40, Investment Property. A
very simple and marks-scoring question for the examinees. Majority of the examinees attempted it correctly.
Overall, they showed a good conceptual knowledge of IAS 16 and IAS 40 and resultantly, above average
performance was seen in this part of the question.
(c) Purposes of the Conceptual Framework:
This part tested the theoretical knowledge of the examinees regarding the purposes of the Conceptual Framework.
Almost all the examinees were confused and attempted this question in their own way.
Overall, poor performance was seen in this part of the question.

Question No. 5
Statement of Cash Flows:
In this question, a statement of cash flows was to be prepared under ‘indirect method’ and in accordance with IAS 7,
Statement of Cash Flows. Once again a marks-scoring question and majority of the examinees attempted this question
successfully. However following common mistakes were observed during the marking of the answer scripts:
 Many examinees were confused in the calculation of cash payment for the acquisition of property, plant and
equipment (PPE) and could not calculate the correct figure of addition to PPE.
 Majority of the examinees was not able to calculate amount of dividend and its payment, which could be easily
computed by adding the profit for the year to the opening balance of the retained earnings and subtracting the
closing balance of the retained earnings from the resultant aggregate.
 Majority of the examinees could not calculate the amounts of depreciation and taxation. They were not
conversant with how to arrive at these figures.
Despite of aforementioned mistakes, it was a popular question among the examinees. Hence, above average
performance was observed in this question.
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WINTER 2019 EXAMINATIONS
Question No. 6
Share-based Payment:
For a given share-based scheme covering a 3-year period, examinees were required to (a) calculate the remuneration
expenses and liabilities relating to the scheme for three years and (b) produce extracts of financial statements in
respect of the share-based payment transactions.
Part (a) was a very simple and straight-forward question, which involved not-very-difficult calculations. Despite of it, the
majority of the examinees was confused and could not correctly attempt this question. They were mainly confused in
the calculation of number of employees. Overall, below average performance was noticed in this part of the question.
Answer of part (b) requiring amounts of expenses and liabilities to be shown in the financial statements was linked with
the first part and depended on the correct amounts calculated in the first part. Consequently, in this part also, below
average performance resulted.
 –x– 
 EXAMINERS’ COMMENTS
WINTER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING – MANAGERIAL LEVEL-2 M5
Question No. 2
Budgeting:
The examinees were expected to prepare three set of budgets by applying clear understanding of embedded variation
with respect to wastage, working capital ratios to reach the correct value. This question had three inter linked parts and
contingent upon the final value derived from production budget. The overall performance of the examinees was
average based on the following observations mentioned below:
(a) & (b) Production and Material Purchase Budget:
These parts of the question required preparation of total production of the two products and materials to be
purchased incorporated with working capital ratios treatment and dealing with wastage to reach the final value.
The examinees were able to perform averagely in these parts and solve the budgets an extent but failed to treat
the wastage accurately resulting in wrong value of production units that lead to incorrect values for material
purchased budget.
(c) Direct Labour Hours Budget:
This part of the question required calculation of total labour hours and the overtime required in order to achieve the
budgeted material production units. Majority of the examinees failed to apply the efficiency ratio correctly together
with incorrect values of production derived in the previous question resulted in loss of marks.

Question No. 3
Variance Analysis:
It was a consolidated question designed to test examinees regarding operating statements and reconciliation of the
same based on some of the key variances. The overall performance of the examinees remained average in this
question, apart from material mix and yield variances majority of the examinees were able to derived correct values to
solve this question. However, vague understanding with respect to reconciliation of the budgeted and actual results was
observed as most of the examinees either omitted or incorrectly followed the pattern ascribed for operating segment.

Question No. 4
Investment Appraisal:
This question was designed to test understanding of examinees regarding different aspects of investment appraisal
including replacement decision, real rate cash flows and sensitivity analysis. The overall performance of the examinees
remained poor and lacking in basic concepts concerning relevant cash flows. The question had two parts and the
following observations were made on review:
(a) Replacement Decision:
This part required examinees to calculate the initial and final year cash flows based on incremental technique that
revolves around matching of cash flows of both options available to company. The examinees performed
reasonably well in order to derive Initial cash flows however, were not able to follow the appropriate method to
solve the final year cash flows.
(b) NPV in real terms and Sensitivity Analysis:
In these parts, the examinees were expected to apply nominal rate formula to calculate real rate and apply it to the
recurring cash flows and in sub part (2) the impact of changes in volume and changing selling price if NPV is NIL.
The overall performance in these parts remained unsatisfactory as the examinees even failed to treat the total cost
correctly resulting in incorrect NPV while the application of sensitivity analysis was not attempted by majority of
examinees. None of the examinees understood the question well and achieve minimum marks.
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WINTER 2019 EXAMINATIONS
Question No. 5
Break-Even Analysis:
This was an average question to test the understanding regarding break even analysis of service industry. It was one of
the poorly attempted question as the examinees even failed to derive the number of beds required to be used in break-
even formula and justify the benchmark provided. The question was designed to test the decision making skills of the
examinees but they even failed to solve for the appropriate fixed costs under the benchmark provided in the question.

Question No. 6
Pricing Decision (Marginal Costing):
This question was formula based and bit technical question composed of two parts. Using the formula provided the
examinees were expected to calculate the price and profitability at current level and after 25% increase in costs. It was
expected from examinees to be able to incorporate the change in demand and maximum price provided in the question
along with the formula in order to achieve the appropriate value. This question pertained to decision making and
unfortunately students lacked the strategic thinking and knowledge and they faced the difficult situations to solve this
question resulting in highly unsatisfactory results. In both parts (a) and (b) majority of the examinees skipped the
question and those who tried attempting this question failed to apply the formula appropriately.

Question No. 7
Receivable Management:
It was a simple question requiring examinees to evaluate the credit policies of the company and comparing it with the
prevailing policy treating the increase in costs of funds, Bad Debts and cash inflows. It was observed that the
examinees had sound understanding of this area and performed well scoring good marks. However, few of them failed
to calculate the costs of funds reach the correct answer.
 –x– 
 EXAMINERS’ COMMENTS
WINTER 2019 EXAMINATIONS
CORPORATE GOVERNANCE, BUSINESS LAWS & ETHICS – MANAGERIAL LEVEL-2 M6
Question No. 2
(a) Legal Requirements to be Complied with:
Examinees were asked to state briefly the legal requirements to be complied with under section 205 (disclosure of
interest by directors) and 207 (interested director not to participate or vote in proceedings of the board) of the
Companies Act, 2017 under the given scenarios. Majority of the examinees were able to correctly answer this part
and scored good marks.
(b) Power to Purchase Own Shares by a Listed Company:
This part was related to the power to purchase its own shares by a listed company in the light of section 88 (3) and
(4) of the Companies Act, 2017. It was well attempted by majority of the examinees.
(c) Section 453 of the Companies Act, 2017:
In this part, section 453 of the Companies Act, 2017 was tested which was poorly attempted by the examinees.

Question No. 3
(a) Instrument of Proxy/ Request letter for video-link Facility:
In this question, most of the examinees correctly drafted instrument of Proxy as specified under clause 42 of the
First Schedule (Table A) of the Companies Act, 2017 but could not draft a request letter to attend the AGM through
video-link facility under section 132 (2) of the Companies Act, 2017.
(b) Statutory Books required to be Maintained:
Majority of the examinees correctly mentioned the statutory books required to be maintained by the company
secretary under the Companies Act, 2017.

Question No. 4
(a) Section 38 and 59 of the Companies Act, 2017:
Section 38 and 59 of the Companies Act, 2017 was tested in the given scenario. Overall average performance was
observed.
(b) Obligation to Register Certain Associations, Partnerships as Companies:
Examinees were asked to explain the obligation to register certain associations, partnerships as companies under
section 9 of the companies Act 2017, and also to explain the types of business which are specifically excluded to
register under aforesaid provisions of the Companies Act, 2017. Majority of the examinees were able to attempt
the second part correctly while average performance was observed in first part of the question.

Question No. 5
(a) Guiding Promoters in given Scenario:
It was required to guide the promoters specifically in the given scenario to proceed for registration of the proposed
name under the Regulation 4 of the Companies (Incorporation) Regulations, 2017 related to: Prohibition of certain
names and Names which are considered undesirable under the aforesaid regulations. Most of the examinees
partially answered first part while second part was not attempted by most of the examinees.
(b) Regulation 14 of the Listed Companies (Code of Corporate Governance) Regulations, 2017:
Examinees were asked to elucidate any five (05) issues as specified under the Regulation 14 of the Listed
Companies (Code of Corporate Governance) Regulations, 2017. It was poorly answered by majority of the
examinees.
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WINTER 2019 EXAMINATIONS
(c) Eligibility for Appointment as a Director of a Company:
It was asked to briefly explain the conditions where a non-member person may be a director of a company as
specified under section 153 of the Companies Act, 2017. Average performance was observed as some examinees
correctly answered this part while rest of them partially answered.

Question No. 6
(a) Conditions to Proceed for Winding up a Modaraba Voluntarily:
Examinees were required to briefly explain the conditions as described under section 22 of the Modaraba
Companies and Modaraba (Floatation and Control) Ordinance, 1980. Most of the examinees poorly attempted this
part.
(b) Non-Banking Finance Companies (NBFC):
Examinees were asked to define the term “Deposit taking NBFC” and briefly explain the requirements for creation
of reserve fund by a deposit taking lending NBFC, as prescribed under the Regulation 16 of the Non-Banking
Finance Companies and Notified Entities Regulations, 2008. Examinees failed to answer this part of the and most
of them could not attempt the question.
(c) Stated Grounds and Action the Court may take against Official Liquidator:
It was asked to explain the stated grounds and action the Court may take against the official liquidator, where the
Court is of opinion that the liquidator is responsible for causing loss or damage to the company due to the stated
grounds. Majority of the examinees attempted this part but failed to provide correct answer.

Question No. 7
(a) Clause 5.5.14 (closure of share transfer books) in Pakistan Stock Exchange Rule Book:
Clause 5.5.14 (closure of share transfer books) in Pakistan Stock Exchange Rule Book was tested in this question
but examinees had no idea about book closure therefore, could not give answer correctly. Most of the examinees
partially answered the question.
(b) Explanation of given requirements in the light of “Ethical Conflicts and Resolution” as guided in the Code
of Ethics issued by ICMA Pakistan:
Examinees were asked to mention factors a Cost and Management Accountant may consider resolving a conflict
in complying with the fundamental principles and if a significant conflict could not be resolved what is/ are other
option(s) a Cost and Management Accountant may consider to resolve the conflict. It was tested in the light of
“Ethical Conflicts and Resolution” as guided in the Code of Ethics issued by ICMA Pakistan. Most of the
examinees self-produced the answer, while some of them used guess work instead of writing the correct answer.
 –x– 
 EXAMINERS’ COMMENTS
WINTER 2019 EXAMINATIONS

ADVANCED FINANCIAL ACCOUNTING & CORPORATE REPORTING – STRATEGIC LEVEL-1 S1

Question No. 1
(a) Share Appreciation Rights (SARs):
Goldmine Limited offered 200 Share Appreciation Rights (SARs) to each of its 1,000 employees on the condition
that they would remain with the company for three years. The examinees were asked to work out (i) expenses to
be recognized in the Statements of Profit or Loss and (ii) liabilities to be recognized in the Statements of Financial
Position for five years. The question was very straight forward but majority of the examinees could get above
average marks:
 They were unable to exactly understand how to treat the employees who left and the employees who
exercised their SARs.
(b) Hedge Accounting:
The examinees were supposed to explain the meaning of hedging and the criteria to be met in order to use hedge
accounting. This theoretical question was set on IFRS 9, Financial Instruments. Examinees mixed the definition of
hedging and the criteria of using Hedge Accounting. They seemed to have studied the topic very moderately
ignoring the fact that this is the age of IFRS that are very specific and technical. The examinees must work hard to
understand and master applications of the IFRS. The writing skills also need improvement.

Question No. 2
Consolidated Financial Statements:
Requirement of this question was preparation of consolidated statement of profit or loss and other comprehensive
income and statement of financial position. The question was attempted by almost all the examinees. However, they
could not demonstrate in-depth understanding of the topic to deal with practical issues of the topic:
 A few examinees failed to note that the holding interest was gained only three months before closing of the year. It
was strange to note that some of them applied three-month period on balance sheet items too.
 Profit on de-recognition of an associate was rarely calculated correctly betraying examinees lack of command on
the topic.
 Appropriation of profit between controlling and minority interest could not be worked out correctly by many
examinees. This shows lack of practice on the topic.
 Fair value adjustment in land was not handled correctly by many examinees.
 Goodwill was hardly calculated correctly although it is very common and interesting issue of the topic.
 The calculation of consolidated reserves was not correct, which is very preliminary step in the consolidation
process. They were unable to understand pre/ post-acquisition profits concepts. Consequently, the non- controlling
interest was also miscalculated.

Question No. 3
Consolidated Statement of Cash Flows:
Examinees were instructed to prepare consolidated statement of cash flows using ‘indirect method’ as per IAS 7,
Statement of Cash Flows. It was the most favourite topic of the examinees. Even then, most of the examinees showed
lack of good understanding of the underlying Standard i.e., IAS 7 and hence could not come up with the professional
presentations and good command on the topic.
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WINTER 2019 EXAMINATIONS
 Most of the examinees failed to calculate the profit before tax, the very starting point of the statement.
 Acquisition of non-current assets for cash could not be calculated correctly. Similarly, loss on sale of a non-current
asset was also incorrectly determined.
 Dividend declared and paid were dealt with incorrectly.
 Interest expense and interest paid were not incorporated in the statement correctly.
 It was sad to note that some examinees at this stage of their study are not able to prepare T-accounts correctly.
They lacked the concept of ‘normal’ balances and hence were not able to put opening balances of liabilities and
assets on the right side and left side of the T-accounts, respectively, which rendered all of their calculations wrong.
Casting and balancing of T-accounts were also not done in professional manner.

Question No. 4
Earnings per Share (EPS)
This question tested the knowledge of the examinees as regards the topic of Earnings per Share (EPS). Examinees
were required to (a) compute Basic EPS, (b) determine whether 8% convertible loans was dilutive and (c) compute
diluted EPS. This question on earnings per share was a difficult question for the examinees. They were not able to
comprehend the question and made un-scientific and un-professional attempts on it and wasted their precious time.
 Examinees could not work out theoretical ex- rights price per share correctly.
 Most of the examinees did not understand/ calculate incremental earnings and incremental shares, which were
required for solving part (b) and (c) of this question.
 Calculation of the weighted average number of shares for determining the basic earnings per share also proved
difficult for the examinees, which resulted in wrong calculation of Basic EPS.

Question No. 5
Foreign Currency Transactions:
This question was an easy one which required preparation of journal entries relating to import of goods from a foreign
country. It was attempted by the examinees with comfort and confidence. In spite it, following common mistakes were
noted:
 Many examinees made mistakes in the calculation of exchange gain or loss showing lack of knowledge of foreign
exchange matters.
 Some examinees could not apply the financial year/ cut-off point concept correctly.

Question No. 6
Environmental and Sustainability Reporting:
Examinees were asked to (a) describe briefly “triple bottom line reporting’ under ‘sustainability reporting’ and (b) define
environmental reporting as well as issues covered by it. The question was set on modern reporting trends and
practices, Sustainability Reporting and Environment Reporting:
 The examinees demonstrated a meagre knowledge of the subject and poor writing skills. The examinees should
be made aware of the fact that accountants, now-a-days are not just figure crunchers but have to be alive to the
contemporary problems of society, globe and international business.
 Some of the examinees were unable to define and mention environmental reporting and issues covered by it
correctly.
 –x– 
 EXAMINERS’ COMMENTS
WINTER 2019 EXAMINATIONS
AUDIT & ASSURANCE – STRATEGIC LEVEL-1 S2

Question No. 1
Going Concern:
Examinees were asked to mention the five (05) potential indicators, which depicts that the company in given scenario is
not a going concern, and the procedure under ISA 570 (Revised), “Going Concern”, to determine or assess the going
concern position of the company. Overall good performance was observed as majority of the examinees correctly wrote
the indicators and the procedure.

Question No. 2
Tests of Controls to assess the Effectiveness of Non-Current Asset Controls:
It was required to provide the tests of controls which will be performed to assess the effectiveness of given non-current
asset controls. It was a well attempted question as most of the examinees correctly provided the required tests of
controls i.e. select a sample of capital additions during the year and confirm through a review of the capital expenditure
approving committee minutes that this purchase was authorized, inspect the non-current assets register and verify that
there are no duplicated serial numbers etc.

Question No. 3
(a) (i) Procedures to be Performed to update the Understanding of an Entity and its Environment:
It was asked to write the procedures to be performed to update the understanding of the entity and its
environment, including its internal control in accordance with ISRE 2410, “Review of Interim Financial
Information Performed by the Independent Auditor of the Entity”. Overall better performance was observed as
examinees wrote the procedures like considering any significant risks, including the risk of management
override of controls that were identified in the audit of the prior year’s financial statements, inquiring of
management about the effect of changes in the entity’s business activities etc.
(ii) Duties to be performed by an Auditor:
In this sub part, examinees were required to write the duties to be performed by an auditor, in accordance
with section 249 of the Companies Act, 2017. Majority of the examinees provided correct answer like, a
company‘s auditor must carry out such examination to enable him to form an opinion, in case of a listed
company, the auditor shall issue a review report to the members on the company’s Statement of Compliance
with Listed Companies (Code of Corporate Governance) Regulations, 2017 etc.
(b) Internal and External Possibilities of Fraud:
This part of the question was related to internal and external possibilities of fraud that can be identified during the
process of assessing risk of a charitable organization. Overall good performance was observed in this question.

Question No. 4
(a) Matters required to Communicate to Audit Committee:
It was asked to write the matters required to communicate to Audit Committee in accordance with ISA 260
(Revised), “Communication with Those Charged with Governance”. Overall good performance was observed as
examinees wrote correct answer like Significant difficulties, if any, encountered during the audit; Circumstances
that affect the form and content of the auditor's report etc.
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WINTER 2019 EXAMINATIONS
(b) Procedures to Identify Litigation and Claims:
Procedures to identify litigation and claims were tested, which may give rise to a risk of material misstatement, in
the light of ISA 501, “Audit Evidence – Specific Considerations for Selected Items”. Reviewing legal expense
accounts, reviewing minutes of meetings of those charged with governance and correspondence between the
entity and its external legal counsel were the partially correct answers provided by average number examinees.
(c) Misstatements of Financial Statements:
It was asked to explain in the light of ISA 450, “Evaluation of Misstatements Identified during the Audit”, what would
result in the misstatements of the financial statements of the company. Examinees could not perform well in this
part and provided general answers.
(d) Procedures required to Perform to Identify the Subsequent Events:
In accordance with ISA 560, “Subsequent Events”, procedures required to perform to identify the subsequent
events. Instead of writing: obtaining an understanding of any procedures management has established to ensure
that subsequent events are identified, reading the entity's latest subsequent interim financial statements,
examinees provided self-produced and irrelevant answers.

Question No. 5
(a) Management Representations Letter:
In this part it was asked to draft the ‘Management Representations Letter’ in accordance with ISA 580, “Written
Representations”, covering the given matters. Overall good performance was observed as majority of the
examinees were able to draft the letter accordingly.
(b) Requirements to be complied as a Cost Auditor:
Examinees were asked to fulfil the given requirements, in the light of Companies (Audit of Cost Accounts)
Rules, 1998 and Regulation 32 (1) and (2) of the Code of Corporate Governance, 2017.Overall poor performance
was observed, as examinees provided general and irrelevant answers.

Question No. 6
(a) Matters the Group Engagement Team shall Request the Component Auditor to Communicate:
In pursuance of ISA 600, “Special Considerations – Audits of Group Financial Statements (Including the work of
Component Auditors)”, matters the group engagement team shall request the component auditor to communicate,
relevant to the group engagement team’s conclusion with regard to the group audit were tested. Instead of writing
identification of the financial information of the component on which the component auditor is reporting etc.
examinees provided general answers.
(b) Circumstances, the External Auditor shall Plan to Use Less of the Work of Internal Audit Function and
Perform more of the Work Directly:
Circumstances were asked, that the external auditor shall plan to use less of the work of internal audit function and
perform more of the work directly in accordance with ISA 610 (Revised 2013), “Using the Work of Internal
Auditors”. The higher the assessed risk of material misstatement at the assertion level, with special consideration
given to risks identified as significant, the lower the level of competence of the internal audit function etc. were the
correct answers which examinees failed to provide.
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(c) Circumstances for Auditor’s Inability to Obtain Sufficient Appropriate Audit Evidence:
In accordance with ISA 705 (Revised), “Modifications to the Opinion in the Independent Auditor’s Report”, ‘the
auditor’s inability to obtain sufficient appropriate audit evidence (also referred to as a limitation on the scope of the
audit) may arise in some circumstances. Examinees were asked to write these circumstances like circumstances
beyond the control of the entity, circumstances relating to the nature or timing of the auditor's work etc. but almost
all the examinees provided wrong and irrelevant answers.
(d) Other Information Section to be included in the Auditor’s Report:
When the auditor’s report is required to include an Other Information section, what should be included in this
section in accordance with ISA 720 (Revised), “The Auditor’s Responsibilities Relating to Other Information”.
Instead of writing the correct answer like, a statement that management is responsible for the other information, a
description of the auditor's responsibilities relating to reading, considering and reporting on other information as
required by this ISA, no examinee could attempt this part correctly.
 –x– 
 EXAMINERS’ COMMENTS
WINTER 2019 EXAMINATIONS
BUSINESS TAXATION – STRATEGIC LEVEL-1 S3
Question No. 1
(a) Computation of Taxable Income and Tax Liability:
Examinees were required to compute taxable income and tax liability of an individual for the tax year 2020 under
the provisions of the Income Tax Ordinance, 2001. Majority of the examinees attempted this part correctly and
scored full marks.
(b) Section 75A of the Income Tax Ordinance, 2001:
In this part, examinees were asked to guide regarding purchase of assets through banking channel in the light of
section 75A of the Income Tax Ordinance, 2001. This part was misunderstood by the examinees as they were
unable to explain the answer accordingly.
(c) Offshore Assets and Offshore Enabler:
This part was poorly attempted by the examinees as no one was able to explain offshore assets and offshore
enabler.

Question No. 2
Computation of Taxable Income and Tax Payable under Normal Tax Regime (NTR) and Final Tax Regime (FTR):
Examinees were asked to compute company’s taxable income and tax payable under normal tax regime (NTR) and
final tax regime (FTR) for the tax year 2019 as per relevant provisions of the Income Tax Ordinance, 2001. Almost all
the examinees failed to attempt this question correctly. The sequence followed to solve the question was also not up to
the mark. The main gist of the question was to divide the revenue and expenses between local and foreign sales which
was not done by almost all examinees.

Question No. 3
(a) Details for Priority of Claiming Tax Credits and Provisions of Tax Credit for Persons Employing Fresh
Graduates under the relevant provisions of the Income Tax Ordinance, 2001:
This part was divided into two sub-parts: priority of claiming tax credits under section 4(3) and provisions of tax
credit for persons employing fresh graduates under section 64C. Part (i) was well attempted by the examinees,
however, part (ii) was not answered correctly by many examinees.
(b) Explanation of given Scenarios under Rule 13C and 141 of the Income Tax Rules, 2002:
This part was also further divided into two sub-parts which were regarding procedure for determination of holding
period of securities, short position and future contracts with reference to Rule 13C and rule for attachment of share
in moveable property under Rule 141. Both parts were poorly answered or not answered by majority of the
examinees.

Question No. 4
(a) Calculation of Sales Tax Payable/ (Refundable):
In this part, examinees were required to calculate sales tax payable by/ (refundable) to a manufacturer for the
month, in the light of provisions of the Sales Tax Act, 1990 and Rules. Majority of the examinees performed well in
this part and scored goods marks. Examinees treated almost all items and it was relatively an easy question.
(b) Effects of Blacklisting or Suspension of Registration:
In this part, it was asked to describe the effects of blacklisting or suspension of registration of a private limited
company under section 21(3) of the Sales Tax Act, 1990, which was also well attempted by majority of the
examinees.
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Question No. 5
(a) In the light of provisions of the Federal Excise Act, 2005, It was asked to define the terms: Dutiable supply – u/s
2 (8c) and Un-manufactured tobacco – u/s 2 (24A). Most of the examinees well attempted this part.
(b) Liability to Pay Duty:
In this part under various circumstances examinees were asked to define the liability of relevant person to pay duty
under the provisions of the Federal Excise Act, 2005. It was an analytical question and majority of the examinees
well analyzed and correctly answered the question.

Question No. 6
Determination of Tax Treatment of given transactions:
Examinees were required to determine the tax treatment of each of the given transactions independently in the light of
the relevant provisions of the Sales Tax Act, 1990. It was also an analytical question under which six different scenarios
were given to the examinees and they were required to explain the tax treatment under sales tax act. Most of the
examinees correctly defined treatment of the given transactions.
 –x– 
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WINTER 2019 EXAMINATIONS

STRATEGIC MANAGEMENT ACCOUNTING – STRATEGIC LEVEL-2 S4

Question No. 1
Total Quality Management:
(a) Cost of Quality Report:
In this part of the question, examinees were required to prepare the cost of quality report mentioning each cost
under its appropriate heading specified under quality management. The cost must contain the cost as a
percentage of total sales and total quality cost. It was an old concept tested in quantitative terms from the
examinees. The overall performance of the examinees was observed to be average in this area and they reflected
vague understanding with respect to quality costs and its respective treatment especially in the area of cost and
units related to free replacement. Majority of the examinees were not able to understand the requirement of the
question correctly and very few of them were able to solve this part in its appropriate direction to an extent.
(b) Validity of including Opportunity Cost in the Report:
This was the theoretical part of the question to test the appropriateness of using opportunity cost from the
examinees. However, the examinees did not answer the part satisfactorily and gave vague answers.
(c) How Cost of Quality Report could facilitate the development and implementation of a Total Quality
Management:
This was again the theoretical part requiring examinees to evaluate the feasibility of adopting and implementing the
Total Quality Management culture in the company and its aspects impacting the environment of the company. This
part was averagely answered but very few of them were able to satisfactorily answer the requirement and attain
reasonable marks.

Question No. 2
Relevant Costing:
This question had two parts. Examinees, in this part (a), were required to re-evaluate the quotation price using the
relevant costing principles and explaining each item reflecting treatment and underlying reason for deriving the value.
Overall good performance of the examinees was witnessed posting sound understanding related to relevant costing
method. Whereas in part (b), theoretical area regarding relevance of adopting relevant costing technique was being
tested and most of the examinees gave generalized answers rather than aligning it with the question resulting in loss of
marks.

Question No. 3
(a) Linear Programming- Graphical Method:
This question had two main parts, one for preparation of graph and determine optimum contribution attainable from
the combination of both products. The overall performance of the examinees was above in this area and
examinees were able to devise appropriate equations to solve this part. In equation derivation many examinees
converted minutes into hours rather than converting each stage allocated time into minutes resulting in minor
deviation in the solution which too was one appropriate approach undertaken by the examinees as well as
construction of graph on answer scripts not on graph paper impacting the accuracy of the figures and graphical
representation. However, majority of the examinees skipped incorporating iso-contribution line in the graph
restraining them to score full marks.
(b) Slack and Surplus Resources:
The examinees in this part were asked to calculate the slack or surplus time in each of the three stages and was
observed to be one properly worked out part by the examinees achieving full marks. Few of the examinees though
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WINTER 2019 EXAMINATIONS
skipped mentioning the implications of slack/surplus resources in decision making process ultimately leading to
loss of marks.
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WINTER 2019 EXAMINATIONS

Question No. 4
Transfer Pricing:
This question was composed of two main parts and four sub parts, requiring examinees to reflect decision making skills
and assess the range of transfer price in the circumstances provided in the question and the reason therein. The
performance of the examinees was satisfactory in this area and majority of the examinees calculated the acceptable
range correctly scoring good marks overall. As with the theoretical sub part, concerning potential benefits of operating a
Transfer Pricing System within a divisionalized company, many examinees gave answers explaining the divisionalized
structure instead of integrating the answers with the transfer pricing system resulted in loss of marks.

Question No. 5
Annualized Return on Investment (ROI):
It was the worst attempted question of the paper. The question was to calculate the annualized return of the company
for each process. The question had the structure of process costing that required to deal with the returns and process
loss and treating abnormal loss. This question had three parts but the examinees performed unsatisfactorily in this
question overall. The examinees failed retrieve information present in the question and depreciate the assets
accordingly resulting in wrong calculations and marks deduction in the part (a). In part (b), the examinees remained
deficient in answering the suitability of applying the ROI technique in each process but discussed the ratios in general.
The part (c) mostly remained unanswered.
 –x– 
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WINTER 2019 EXAMINATIONS
STRATEGIC FINANCIAL MANAGEMENT – STRATEGIC LEVEL-2 S5

Question No. 1
Dividend Policy:
This question had two parts revolving around the concepts of dividend policy considering inflationary impact to derive
the intrinsic value of the company and comparing it with the prevailing market price. The examinees were observed to
have performed averagely to solve this question addressing the embedded changes in the question, however, mistakes
with regards to the derivation and application of appropriate inflation rate was too witnessed in the answer scripts and
many of the examinees failed to choose the appropriate dividend per share price in order to determine the market price.
As with the part (b), some of the examinees were able to discount the dividend per share for each year accurately but
failed to derive the market price with the resultant increase of 2% in the rate.

Question No. 2
Adjusted Present Value (APV):
This question was one irregular concept being tested by the examinees involving the cash flows, tax treatments one
year in areas, gearing, spreads MIRR. It was a technical question composed of two parts to which below average
performance was observed on reviewing the answer scripts. The examinees failed to determine appropriately the
relevant and irrelevant cash flows and considered the activity based indirect costs and research and development
(R & D) costs as relevant cash flows that were irrelevant to the decision making. Many examinees treated the first year
allowance and written down allowance in the same year that impacted the cash flows and cost of capital to discount the
cash flows.

Question No. 3
SWAP Arrangement (Derivatives):
The examinees were tested to determine the net payment and rate to be paid/received by the company under SWAP
arrangement based on two main and one sub part. It was an average question and the examinees performance
remained satisfactorily in this area. Though, examinees were observed struggling while making the payment schedule
to illustrate the payments to be made in two years duration. Most of the examinees were able to calculate the net
percentage that was required to be paid or received if the KIBOR fluctuates.

Question No. 4
Bond Issue:
The question was designed to test both the technical and analytical skills of examinees with respect to treatment of
spreads in accordance with changes in the credit rating to determine the current and prospective WACC for the
company if it undertakes the capital investment abroad. It was the worst attempted question amongst all in the paper.
Majority of the examinees skipped this questions and the once that did were at most able to calculate the current and
changes capital structure for the company.

Question No. 5
Leasing:
It was one comprehensive question formulated on incremental basis to determine the best option for the company to
either purchase or lease the machinery required. The question was simple and straightforward and the examinees
performed it well. Some of the common mistakes found on review of answers scripts included incorrect treatment of
depreciation allowance and annual lease payments that penalized the examinees resulting in loss of marks.
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WINTER 2019 EXAMINATIONS
Question No. 6
(a) Business Valuation:
This part was composed of three sub parts. Examinees were expected to determine market value of the company
based on business valuation tools in this question. All in all examinees performed above average but majority of
them miscalculated the Earning per share for the year 2019 that had to calculated based on average number of
outstanding shares, similarly, while calculating the fair market value of the company using dividend growth model,
the examinees misjudged the model to be used and applied dividend discount model.
(b) Significant effects of taxation in at least three areas of financial management:
It was theoretical part in which the examinees were required to illustrate three major areas in financial
management that are impacted by taxation. Majority of the examinees gave generalized and repetitive answers
and were able score above average marks for this part.
 –x– 
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WINTER 2019 EXAMINATIONS
STRATEGIC MANAGEMENT – STRETEGIC LEVEL-2 S6
Question No. 1
Case Study:
(a) The factors which are likely to block cultural change within Spectrum Pakistan:
In part (a), the examinees were required to bring forth their understanding related to the factors that may likely to
resist change within Spectrum Pakistan keeping in mind the Cultural Web Model. The performance of the
examinees in this question was average as a lot of students were not able to even answer the correct cultural web
tools and illustrated the answer in a generalized manner rather than aligning the factors with the case provided.
Very few answered the correct tools and explained it properly.
(b) Using Porter’s Diamond model, whether Spectrum Pakistan might gain a competitive advantage as a
result of being based in Pakistan:
In this part, the examinees were expected to deliver their knowledge concerning the competitive advantage for
Spectrum as a result of residing in Pakistan, by basing the answer on Porter’s Diamond Model. There was lack of
understanding for the required model was observed in the answer scripts as well as in synchronization of the
answer with the case study provided. Almost all of the examinees wrote the porters five forces model rather than
the Porters Diamond Model. Very few examinees were able to answer it correctly in the bullets form but lacked in
illustrating the answer in detail. Overall performance was below average.
(c) Evaluate the proposal made by Spectrum Pakistan’s directors to develop and host a more sophisticated
website:
Examinees were required to analyze Spectrum Pakistan’s decision regarding developing new website by
incorporating the SAF framework. It was expected from the examinees to explain the factors that may or may not
satisfy the Sustainability, Acceptability and Feasibility of the development of website under consideration. This
part of the case study were averagely performed by the examinees giving generic answers and scoring
reasonable marks.

Question No. 2
(a) Triple Bottom Line (TBL) reporting system and how it can be used for sustainable development:
It was one comprehensive and straight-forward question given to test the understanding of examinees regarding
the contents of TBL (Proxies) as well as how the system could help in bringing sustainable development for Crizal
Limited. The performance of the examinees was below than the expectation as many of them skipped the
question while the other poorly performed reflecting little or no knowledge of the requirements even to
appropriately explain the matter, leading to loss of marks.
(b) How producing a TBL report may help Crizal Limited’s management focus on improving the financial
position of the company:
In this part, the examinees were asked to explain the benefits that could accrue to the companies in financial
terms by adopting TBL reporting system. Similar to the part (a) of this question again the explanation was not
according to the requirement of the question, examinees needed to explain it in detail. Below average
performance in this question as well.
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WINTER 2019 EXAMINATIONS
Question No. 3
How to build a competitive advantage assessing critically the competitive strategies available to the business
using, ‘Porter’s Generic Strategies & Bowman’s Strategy Clock’:
Examinees were required to use ‘Porter’s Generic Strategies & Bowman’s Strategy Clock’ to build a competitive
advantage available to the business, and again the answers lacked the proper explanation as required on this level.
Very short explanation was made for a 20 marks question. Below average performance in this one as well. The
examinees mixed the concepts of both strategies and many of them wrote vague concepts of the strategies used
together with inaccurate recommendation presenting deficiency with regard to the conceptual understanding and
decision making skills in this area.

Question No. 4
The eight (8) types of waste that lean manufacturing model recognizes within an organization:
It was an easy question requiring examinees to explain with examples eight types of commonly known waste in lean
manufacturing model. Examinees performance was poor in this question. Mostly examinees wrote irrelevant types of
wastes in this question which showed that they did not understand the requirement or were not well prepared. Further,
few only wrote mention the types of waste without giving any description.

Question No. 5
How an organization can create a culture of prudent risk taking among its employees:
In this question, ways were being asked for disseminating the prudent risk culture amongst employees of an
organization. The question was largely elaborated in a generalized manner rather than specific to risk management
culture. The examinees failed to understand the requirement of the question and performed unsatisfactorily and gave
repeated answers. Overall poor performance was observed.
 –x– 