ADVANCED FINANCIAL ACCOUNTING & STRATEGIC LEVEL-1 @ l Cc MA CORPORATE REPORTING [S1] oe Pakistan ‘SUMMER 2019 EXAMINATIONS Thursday, the 2nd May 2019 Extra Reading Timer 16 Minutes Writing Time: 03 Hours (Attempt al questions, (il) Write your Rol No. in the space provided above, (ii) Answers must be neat, relevant and briet. tis 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 soript 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 diagrarn/ chart, where appropriate, (vi) DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script. (vii) 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 Question No. 1 Proposed Time : 47 Min. | Total Marks : 26 Parent Limited is a listed manufacturing company having its registered office in Sindh. The directors of the company have done due diligence of Children Limited and decided to acquire 75% shares of Children Limited. This acquisition took place on October 01, 2017 by means of shares exchange of three new shares in Parent Limited for every five shares acquired in Children Limited. In addition to the shares exchange, it was also committed by Parent Limited that after exact one year they will pay Rs. 11 to each share acquired in Children Limited. As both the companies are listed in the stock exchange and their shares’ market values at acquisition were Rs.30 and Rs. 25 respectively. Additionally, Parent Limited has cost of capital of 11% per annum. None of the considerations have been recorded by Parent Limited. Below are the summarized draft financial statements of both companies Statements of Profit or Loss and Other Comprehensive Income for the year ended June 30, 2018 Rs, ‘000° Parent Limited Revenue 5,112,888 Cost of sales (3,740,739) Gross profit 1,372,149 490,053 Distribution cost (163,351) (98,011) Administrative expense (285,864) (175,551) Finance cost (16,335) (28,535) Profit before tax 906,599 187,956 Income Tax expense (253,194) (81,676) Profit after tax 653,405 106,280 Other comprehensive Income Gain on Revaluation of property 122,513 Total Comprehensive Income 775,918 106,280 AFACR-Summer 2018 10f6 Marks PTOMarks ‘Statements of Financial Position as at June 30, 2018 Rs. 000" Parent Limited Children Limited ASSETS Non-current assets Property, Plant & Equipment 7,509,008 1,135,290 11% Loan - 100,000 Investments 100,000 1,609,008 1,235,290 Current assets Inventory 251,205 108,011 Trade Receivables 483,875 199,189 Banks - 19,503 735,080 326,703 Total Assets 2,344,088 1,561,993 EQUITIES AND LIABILITIES Equity Equity shares of Re. 1 each 800,000 10,000 Revaluation surplus 163,351 - Retained eamings 531,311 285,864 1,494,662 295,864 Non-current Lia 11% loan 100,000 - 12% Loan - 40,000 Current Liabilities Trade payables 381,887 4,119,113 Running finance 138,848 - Current tax payables 228,691 107,016 749,426 1,226,129 Total Equities and Liabilities 2,344,088 1,561,993 Below is the relevant information for the above. (i) On June 30, 2018, Parent Limited received Rs. 100 million 11% loan from Children Limited i) Intra-group average monthly sales from Parent Limited to Children Limited amounted to Rs, 24.503 million (ili) Itis group policy to charge mark up on cost @ 25% for all intra-group sales. (iv) The goodwill was impaired by Rs.5 million during the year and reported as administrative expense. This was due to a fraud that occurred in Children Limited (v) At acquisition, both carrying and market values of net assets of Children Limited were same except a property, which was situated in a posh area. Children Limited hired a valuator to evaluate this property's actual worth and he reported that the property had a fair value of Rs. 11.702 million above its carrying value. Children Limited had not reported the same in its financial statements. Additionally, for consolidation purposes re-valued property's post acquisition depreciation amounted to Rs. 8.168 milion and needed to be recorded, AFACR-Summer 2018 20f6(vii) Since inception, the Board of Directors of Parent Limited had resolved to revalue all of its properties at the close of every year. Accordingly, the increases have already been recorded in the financial statements of Parent Limited, however, Children Limited does not have such policy, therefore, they had not re-valued its properties. Since acquisition the value of Children Limited's properties have further increased by Rs. 49.005 million which remained unrecorded (viii) On June 30, 2018, Parent Limited shows trade receivables of Rs. 98.011 million from Children Limited, however, the said balance was not reconciled from the books of Children Limited. After reconciliation it was found that one cheque of Rs. 32.670 million paid by Children Limited on June 30, 2018 was cleared in the subsequent period (ix) Closing inventory of Children Limited included intra-group sales of Rs. 49.005 million at cost to Children Limited (x) Itis group policy to value non-controlling interests at the fair value at the date of acquisition. For this purpose Children Limited's share prices at that date may be deemed to be representative of the fair values of the shares held by non-controliing interests. Required: (a) Prepare Consolidated Statement of Profit or Loss and Other Comprehensive Income of Parent Limited for the year ended June 30, 2018. (b) Prepare Consolidated Statement of Financial Position of Parent Limited as at June 30, 2018. Question No. 2 Proposed Time : 36 Min. | Total Marks : 20 At the beginning of year 1, Malta Mills Limited grants 1,000 share options to each of its 60 employees, on the condition that the employees will work for the company for the next three years. The share options have a life of 10 years. The exercise price is Rs. 40 and the entity's share price is also Rs. 40 at the date of grant. At the date of grant, the entity concludes that it cannot estimate reliably the fair value of the share options granted Add + At the end of year 1, 5 employees have ceased employment and the entity estimates that a further seven employees will leave during years 2 and 3, nal Informati + Three employees leave during year 2, and the entity estimates that further two employees will leave during third year. * Four employees leave during year 3 hence, 48,000 share options vested at the end of year 3. + The entity's share price during years 1-10, and the number of share options exercised during years 4-10, are set out below. Share options that were exercised during a particular year were all exercised at the end of that year. 43 45 55 59 54 55 69 72 79 75 Cor sHsONH 3 Required: ‘As per IFRS-2, Share-based Payment, identify the annual charges to the statement of profit or loss for each year. AFACR-Summer 2018 30f6 Marks "1 15 20 PTOQuestion No. 3 Proposed Time : 45 Min, | Total Marks : 25 Agri Equipment Limited is a public limited company operating in Pakistan since 1998. It manufactures a variety of agricultural equipment for local market. At the beginning of the current year it had 100% share-holding in Aamir Industries, which was acquired in 2005. It also had acquired 40% interest in Bagar Limited in the same year. On January 01, 2018, it acquired 75% interest in Chaudhary Trading Company, Following are extracts from draft consolidated statement of profit or loss and other comprehensive income for the year ended December 31, 2018: Rs. 000" Income from long-term investments, 3,000 Share of profit from associate (net of tax) 5,250 Finance cost charged to profit or loss (2,250) Profit before tax 28,275 Tax charged to profit or loss: Income tax (5,865) Deferred taxation (1,560) Attributable to investment income (675) Net profit attributable to: ‘Owners of the Parent Limited 18,675 Non-controlling interest 1,500 Draft Statement of Financial Position as at December 31, 2018 2018 ASSETS Non-current Assets Property, plant and equipment 58,125 37,500 Goodwill 1,500 - Investments in associate 16,500 15,000 Long-term investments 6,150 6,150 82,275 58,650 Current Assets Inventories 29,625 Trade and other receivables 27,750 Cash and cash equivalents 67,725 125,100 Total Assets 207,375 EQUITY AND LIABILITIES Equity Share capital 59,100 30,000 ‘Share premium 43,245 31,425 Retained eamings 51,675 37,500 154,020 98,925 Non-controlling interest 1,725 - AFACR-Summer 2018 40f6 MarksRs, ‘000° 2018 2017 Non-current Liabilities Obligations under finance leases 10,650 2,550 Loans 21,900 7,500 Deferred tax 450 195 33,000 10,245 Current Liabilities Trade and other payables 7,500 4,200 Obligations under finance leases 3,600 3,000 Tax payable 6,930 3,255 Interest payable 600 450 18,630 Total Equity and Liabilities Additional Information: (i) Machinery with carrying value of Rs. 6.00 million was sold for Rs. 7.50 million. During 2018, new machinery amounting to Rs. 12.75 million was acquired under finance leases. (ii) Information relating to the acquisition of Chaudhary Limited during the year: Rs, 000" Plant & Machinery 2,475 Inventories 480 Trade and other receivables 420 Cash and cash equivalents 1,680 Trade and other payables (1,020) Income tax payable (255) 3,780 Non-controlling interests (NCI) (945) 2,835 Goodwill 1,500 Consideration paid in cash 335 (iii) Loans were issued at discount in 2018 and the carrying amount of the loans at December 31, 2018 included Rs. 600,000 representing the finance cost attributable to the discount and allocated in respect of the current reporting period. (iv) Current year charge for depreciation was Rs. 4,875,000. Required Prepare Consolidated Statement of Cash Flows of Agri Equipment Group for the year ended December 31, 2018 as per IAS-7 Statement of Cash Flows using ‘Indirect Method! for cash flows from operating activities. Question No. 4 Proposed Time : 27 Min. | Total Marks : 15 On April 01, 2017, Yasir Limited issued a convertible debt of Rs. 2,250,000. The debt carries an effective interest rate of 8%, Each Rs. 1,000 nominal value of the debt will be convertible from 2022 to 2024 into ordinary shares as set out below: * On December 31, 2022: 124 shares * On December 31, 2023: 122 shares * On December 31, 2024: 118 shares AFACR-Summer 2018 5of6 Marks 25 PTOMarks Following is the issued share capital at December 31, 2016 and since then there was no further issue of any class of shares: 25,000 10% cumulative irredeemable preferences shares of Rs. 100. 400,000 ordinary shares of Rs. 10 each. Relevant income tax rate is 30%. Trading results for the years ended December 31, were as follows’ Rupees 2018 2017 Profit before interest and tax 5,500,000 4,959,090 Interest on 8% convertible debt (180,000) (135,000) Profit before tax 5,320,000 4,824,090 Income tax (1,596,000) (1,447,227) Profit after tax 3,724,000 3,376,863 Required: Disclose Basic and Diluted eamings per share for the period ended June 30, 2017 and 2018 in accordance with International Financial Reporting Standards. 15 Question No. 5 Proposed Time : 25 Min. | Total Marks : 14 (a) (i) Differentiate between IFRS and US GAAP. 03 Explain the concept of Social Responsibility as practiced in Pakistan being non-financial reporting 03 Describe the elements of Management Commentary. 04 (b) Equity Limited is listed in Pakistan Stock Exchange Limited (PSX) having its registered office in Pakistan and its reporting currency is in Pak Rupees. On July 01, 2017, the said company has taken over 100% shares of a UAE company named Al-Nayan Limited by paying consideration of Dirham 200,000. Simultaneously, to settle the payment consideration, the company has applied for a loan of USD 50,000 in a foreign bank, Due to good reputation of the company the loan was approved and transaction of 200,000 Dirham was settled through USD loan. Exchange rates on various dates are appended below. Date Dirham USD July 04, 2017 33.90 136.40 June 30, 2018 34.60 138.10 Required: (i) Calculate Exchange Gain/ (Loss) on Investment carrying value at June 30, 2018 02 (i) Calculate Exchange Gain/ (Loss) on Loan carrying value at June 30, 2018. 02 THE END AFACR-Summer 2018 6 of6