Past Paper Questions Up To Winter 2015 PDF

Winter 2015 - Topic Marks Winter 2014 - Topic Marks Winter 2013- Topic Marks Winter 2012- Topic
er 2013- Topic Marks Winter 2012- Topic Marks Winter 2011- Topic Marks
Consolidation Foreign subsidiary 23 Consolidation Foreign subsidiary 25 Step Acquistion & def. consideration 8 Impairment of goodwill 5 Consolidated cash flows 23
Intangible note 16 Revenue & Intangible assets 20 Equity method 4 Disposal 18 Finance lease restructuring 16
Deferred tax note 15 Construction Contracts 15 Unrealized profits & Dividend 6 Equity method & impairment loss 6 Trade vs. settlement date 16
Report on financial position 15 Financial instruments 16 Loyality Programme 8 Fair value hedge 5 Change in accounting policy 22
Biological assets 6 Cash flow statement 8 Future economic benefits 6 Compound financial instrument 8 Share valuation methods 13
NCA held for sale 6 Cash Flow Analysis 7 Separate FS 4 Development expenditure 6 Non-performing advances 10
Financial instruments hedging 9 Gratuity fund 9 Reclassification 6 Defined benefit plan 18 Total 100
Bank accounts note on cash and bank 10 Total 100 Transfer from owner-owned property 6 Share based compensation 4
Total 100 Sale plan of a subsidiary 12 Settlement provisions 5
Cash flow hedge 16 Report on financial position 15
AFR Past Papers Analysis Ratio Analysis 14 Bank Borrowing note 10
© GCA Consuluntants - www.gcaofficial.org Banks (Cash and balances) 10 Total 100
Total 100
June 2015 -Topic Marks June 2014 -Topic Marks June 2013 -Topic Marks June 2012- Topic Marks June 2011- Topic Marks
Consolidated cash flows 22 Mixed Group 20 Acquistion 12 Acquistion 16 Step Acquisition 12
Operating segments 15 Exchange gain on net investment 8 Unrealized profits 4 Disposal 4 Un realized profit 4
Employee benefits 14 Finance lease 10 Impairment loss 4 Unrealized gain 4 Compound fin.instrument 5
Leases 4 Revenue 6 Fine & cost of disposal 13 Financial liability & impairment 18 Income from associate 5
Financial instruments 5 Income Taxes 16 Impairment loss and reversal 14 Reportable segment 12 Impairment loss 5
Investment property 4 PPE & Intangible assets 15 Exchange gain on net investment 16 Transfer of property scenarios 19 Deferred tax 10
Share based payments 11 EPS / IAS 19, 32, 40 & IFRS 2 15 Deferred tax liability/asset 12 Discontinued opertaion & EPS 17 Restoration cost liability 17
Earning per share 15 Non-performing loans 10 Earning per share 15 Statement of expense 10 Defined contribution plan 14
Insurance Profit & Loss 10 Total 100 Statement of investment income 10 Total 100 EPS 16
Total 100 Total 100 Movement in unitholdrs' fund 12
Total 100
Final Examinations
Module E
The Institute of 10 December 2015
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Advanced Accounting and Financial Reporting

Q.1 The following information has been extracted from draft financial statements of RY Limited
(RYL) and its investee companies, DT Limited (DTL) and GN Limited (GNL) for the year
ended 30 June 2015:
RYL DTL GNL

------ Rs. in million ------ G$ in million
Sales 6,000 4,800 52
Cost of sales (3,200) (3,950) (32)
Gross profit 2,800 850 20
Operating costs (855) (595) (9)
Profit from operations 1,945 255 11
Investment income 1,400 26 6
Finance cost (233) (84) (2)
Profit before taxation 3,112 197 15
Income tax (568) (41) (3)
Profit after taxation 2,544 156 12
Ordinary share capital (Rs./G$ 10 each) 1,800 350 5

Retained earnings
At 1 July 2014 2,451 459 27
Profit for the year 2,544 156 12
Dividend paid* (300) (120) (8)
Shareholders’ equity 6,495 845 36
* Final dividend for the year ended 30 June 2014 paid in August 2014
Additional information:
(i) RYL bought 26.25 million shares in DTL on 1 October 2012 for Rs. 1,200 million
when DTL’s retained earnings were Rs. 240 million. At acquisition date the fair value
of DTL's net assets was equal to their carrying amount. There have been no changes
in the share capital since acquisition. The fair value of non-controlling interest on
acquisition was Rs. 340 million. Prior to 1 July 2014 impairments amounting to
Rs. 250 million had been recorded in DTL’s goodwill.
(ii) On 1 January 2015, RYL sold 15.75 million shares in DTL for Rs. 1,950 million. The
fair value of RYL's remaining shares on this date was Rs. 1,300 million.
(iii) On 1 October 2014 RYL bought 400,000 shares in GNL, a company located overseas,
for G$ 50 million. Professional fees relating to the acquisition were Rs. 100 million
and these have been added to the cost of investment. At 1 October 2014, the fair value
of GNL’s net assets was equal to their carrying amount except a building whose fair
value exceeded the carrying amount by G$ 8 million. The building had a remaining
useful life of 8 years at the date of acquisition. The market price of GNL’s shares on
acquisition date was G$ 120.
(iv) Investment income appearing in RYL’s separate profit and loss statement includes
profit on sale of DTL’s shares and dividend received from DTL.
(v) RYL values its non-controlling interest on acquisition at fair value.
Advanced Accounting and Financial Reporting Page 2 of 5
(vi) The exchange rates per G$ were as follows:

1 October 2014 Rs. 76
30 June 2015 Rs. 79
Average for October 2014 to June 2015 Rs. 78
It may be assumed that profits of all companies had accrued evenly during the year.
Required:
In accordance with the requirement of International Financial Reporting Standards, prepare
consolidated statement of comprehensive income of RYL for the year ended 30 June 2015.
(Ignore taxation) (23)
Q.2 Beta Foods Limited (BFL) is in process of finalizing its consolidated financial statements for
the year ended 30 June 2015. Following information pertains to BFL’s intangible assets.
(i) Value of intangible assets as at 30 June 2013:

Goodwill Patents
Rs. in million
Cost 1,500 400
Accumulated amortization / impairment 300 160
(ii) On 1 July 2013, BFL acquired the entire shareholdings of Gamma Enterprises (GE)
for Rs. 5,400 million. The value of patents, development expenditure and other net
assets of GE on the date of acquisition was Rs. 2,100 million, Rs. 48 million and Rs.
1,430 million respectively.
The break-up of development expenditure was as follows:
Products Rs. in million

A – 214 25
B – 917 23
Total 48
(iii) Research and development expenditure during the year ended 30 June 2014 and 2015
was as follows:
Research Development
Year Product Name
------ Rs. in million ------
A – 214* - 8
2014
B – 917 10 45
2015 B – 917 - 50
*because of certain reasons the management had decided to abandon this project in May 2014.
(iv) Trial production of B-917 commenced in March 2015. Net cost of trial production up
to 30 June 2015 amounted to Rs. 22 million.
(v) Patents are amortized over their remaining useful life of 10 years on straight line
method.
(vi) Recoverable amounts of assets having indefinite life, determined as a result of
impairment testing, were as follows:
2015 2014
------ Rs. in million ------
Goodwill 2,800 2,550
Product B-917 160 65
Required:
Prepare a note on intangible assets, for inclusion in BFL’s consolidated financial statements
for the year ended 30 June 2015 in accordance with the requirements of International
Financial Reporting Standards. (16)
Q.3 Financial statements of Waseem Industries Limited (WIL) for the year ended 30 June 2015
are in the process of finalization. In this respect, the following information has been
gathered from WIL’s accounting and tax records:
(i) 2015 2014

Rs. in million
Property, plant and equipment – Accounting WDV 1,950 1,800
Property, plant and equipment – Tax WDV 1,120 1,050
Provision for bad debts 110 60
Unused tax losses carried forward 40 35
Exchange translation reserve 53 145
Liabilities older than 3 years, disallowed in previous years 7 3
(ii) On 1 July 2013, WIL granted 600,000 share options to its Managing Director under
the terms of his employment, vesting three years later on 30 June 2016. The value of
each option measured at the grant date was Rs. 300 and the intrinsic value of each
share option was Rs. 140 at 30 June 2014 and Rs. 110 at 30 June 2015. According to
the tax law, intrinsic value of the option on the exercise date is an admissible expense.
(iii) A building costing Rs. 200 million was purchased on 1 July 2011 with an expected
useful life of 10 years. It was revalued at Rs. 230 million on 1 July 2013.
(iv) 25% of WIL's income and expenses for both years fall under the Final Tax Regime
(FTR) and this trend is expected to continue in future also.
(v) Applicable tax rate is 32%.
Required:
Prepare a note related to deferred tax liability /asset along with the reconciliation that may
be included in WIL's financial statements for the year ended 30 June 2015, in accordance
with the International Financial Reporting Standards and the Companies Ordinance, 1984,
as applicable. (Comparative figures are not required) (15)
Q.4 You have significant investment in XYZ Limited. Your brokerage house has provided you
with a report which is based on the financial statements of XYZ Limited for the year ended
30 June 2015. You have reviewed the report and the financial statements and obtained the
following information:
(i) Deferred tax assets

The company has recognized substantial amount of deferred tax asset in respect of
carried forward losses, which will expire in next three years. The losses were incurred
during the last five years and in current year it made a small profit before tax due to
non-operating gains.
(ii) Convertible preference shares

Convertible preference shares have been disclosed as a liability.
(iii) Unrealised gains and losses

The company uses fair value method for investments held as “Available for sale” and
“Held for trading” and unrealised gains and losses on such investments are recorded
in other comprehensive income.
You have also received information that the company has revised its pension scheme
significantly, subsequent to the issuance of the above financial statements. However there is
no information as regards the actuarial valuation subsequent to the revision.
Required:
Assume that the report has been prepared without considering the possible impact of the
adjustments required because of the above information, if any. Discuss how this could affect
the evaluation carried out by the brokerage house in terms of liquidity, solvency and
profitability ratios and business valuation of XYZ Limited. (15)
Q.5 (a) (i) Briefly explain the term “biological asset” and state when a biological asset is
recognised in the financial statements under the International Financial
Reporting Standards. (03)
(ii) The Dairy Company (TDC) owns three farms and has a stock of 3,200 cows.
During the year ended 30 June 2015, 300 animals were born, all of which
survived and were still owned by TDC at year-end. Of those, 225 are infants
whereas 75 are nine month old having market values of Rs. 26,000 and Rs.
53,000 per animal respectively. The incidental costs are 2% of the transaction
price.
Required:
In accordance with the requirements of the International Financial Reporting
Standards, discuss how the gain in respect of the new born cows should be
recognized in TDC’s financial statements for the year ended 30 June 2015.
(Show all necessary computations) (03)
(b) On 30 June 2014, ABC Limited classified an item of property, plant and equipment as
being held for sale when its carrying amount was Rs. 240 million, its fair value was
Rs. 225 million and the estimated costs to sell were Rs. 5 million. The asset had been
purchased for a cost of Rs. 300 million on 1 July 2012, and then had a 10 year useful
life.
ABC failed to sell the asset and therefore on 30 June 2015 it decided to reverse the
original decision and use it in the business. At 30 June 2015, the asset had a fair value
of Rs. 230 million and estimated costs to sell amounted to Rs. 5 million. ABC
estimated that annual cash flows from the asset would be Rs. 50 million per annum for
the remaining useful life of the asset.
ABC uses its weighted average cost of capital i.e. 12% as discount rate.
Required:
In accordance with the requirements of the International Financial Reporting
Standards, discuss how the asset should be accounted for in ABC’s financial
statements for the years ended 30 June 2014 and 2015. (06)
Q.6 Asia Sports Limited (ASL) signed a contract on 1 May 2015 to buy high speed machines to
cater to the growing demand of its products. The machines costed USD 6 million and the
amount was paid on 1 August 2015.
ASL hedged the foreign exchange risk by entering into a 3-month forward contract with a
bank to buy USD 6 million on 1 August 2015.
The spot and forward rates per USD were as follows:
Forward rates (for delivery

Dates Spot rates
on 1 August 2015)
1 May 2015 Rs. 103.20 Rs. 103.63
30 June 2015 Rs. 105.38 Rs. 105.50
1 August 2015 Rs. 106.00 Rs. 106.00
ASL’s financial year ends on 30 June.
Required:
Show all necessary accounting entries relating to these transactions on the following dates,
in accordance with the requirements of the International Financial Reporting Standards on
the assumption that conditions for hedge accounting are met:
(i) 1 May 2015 (ii) 30 June 2015 (iii) 1 August 2015 (09)
Q.7 Following amounts have been extracted from the trial balance of Noble Bank Limited for
the year ended 31 December 20X5:
20X5 20X4
-------- Rupees in ‘000 --------
Cash in hand – PKR 11,395,278 14,981,446
Cash in hand – USD 2,543,750 2,417,554
Cash in hand – EUR 1,090,179 1,036,095
Current account with SBP – PKR 8,817,802 33,095,825
Current account with SBP – USD 5,641,943 5,270,462
Deposit account with SBP – USD 16,947,158 15,728,111
Current account with NBP – PKR 22,360,829 16,220,092
National Prize Bonds 5,210,150 4,532,830
Current account with Central Bank of UAE – AED 25,713,299 20,139,442
Current account with Bank of England – GBP 17,142,200 13,426,295
Deposit account with Central Bank of UAE – AED 3,245,208 1,903,748
Deposit account with Bank of England – GBP 2,163,472 1,269,165
Other information:
(i) The foreign currency current and deposit accounts include remunerative accounts of
Rs. 37,118.596 million (20X4: Rs. 34,282.789 million).
(ii) The current accounts with SBP are maintained to meet the cash reserve requirement
of the SBP.
(iii) Foreign currency deposit account with SBP is maintained for special reserve
requirement of SBP as well as USD settlement account maintained with the SBP. This
account carries nil return.
(iv) Balances held with the Central Banks of respective countries are in accordance with
the requirements of the local statutory / regulatory requirements. Since the bank
operates in different countries, these balances earn mark-up at different rates as given
by the Central Banks of respective countries.
Required:
Prepare a note on ‘Cash and balances with treasury banks’ for inclusion in financial
statements of Noble Bank Limited for the year ended 31 December 20X5, in accordance
with the laws applicable in Pakistan. (10)
(THE END)
Final Examinations
Module E
The Institute of 4 June 2015

Q.1 Consolidated financial statements of Malik Group of Companies (MGC) for the year ended
31 December 2014 are presented below:
Consolidated statement of financial position as on 31 December 2014

2014 2013 2014 2013
Equity Rs. in million Non-current assets Rs. in million
Ordinary shares (Rs.10 each) 15,000 15,000 Goodwill 19,300 18,500
Retained earnings 17,550 10,850 Property, plant and equipment 25,450 16,250
Other reserves * 7,500 5,250 Investment in associate 6,200 5,400
40,050 31,100 50,950 40,150
Non-controlling interest 3,100 3,200
Non-current liabilities Current assets

Loans from banks 5,000 3,000 Inventories 4,700 4,350
Deferred tax 1,500 1,050 Trade and other receivables 3,900 3,300
Cash and bank 2,100 1,400
Current liabilities
Trade and other payables 8,000 7,250
Income tax 3,875 3,525
Accrued interest 125 75
61,650 49,200 61,650 49,200
* include revaluation reserve
Consolidated statement of comprehensive income for the year ended 31 December 2014
Rs. in million
Revenue 20,900
Operating expenses (11,550)
Profit from operations 9,350
Gain on disposal of subsidiary 1,000
Finance cost (350)
Income from associates 1,150
Profit before taxation 11,150
Income tax expense (2,250)
Profit for the year 8,900
Other comprehensive income for the year
Re-measurement of post-employment benefits 2,000
Other comprehensive income from associates 500
Total comprehensive income 11,400
Profit attributable to:

 Parent shareholders 7,950
 Non-controlling interest 950
8,900
Total comprehensive income attributable to:

 Parent shareholders 10,200
 Non-controlling interest 1,200
11,400
(i) During the year, MGC acquired 80% holding in Gomel Limited (GL) against a cash
consideration of Rs. 15,000 million. On the date of acquisition, the non-controlling
interest’s holding was measured at its fair value of Rs. 3,400 million. The fair value of
net assets of GL at acquisition comprised of the following:
Rs. in million
Property, plant and equipment 12,800
Inventory 1,500
Trade and other receivables 2,400
Cash and bank 800
Loans from banks (400)
Trade and other payables (1,800)
Income tax (400)
14,900
(ii) During the year, MGC also disposed of its 60% shareholdings in Stone Limited (SL)
and realised cash proceeds of Rs. 8,500 million. This subsidiary had been acquired
several years ago for Rs. 6,000 million. At acquisition, the fair value of SL’s net assets
and non-controlling interest was Rs. 7,300 million and Rs. 3,200 million respectively.
On the date of disposal, the net assets of SL had a carrying value in the consolidated
statement of financial position as follows:
Rs. in million
Property, plant and equipment 7,250
Inventory 1,650
Trade and other receivables 1,500
Cash and bank 500
Loans from banks (300)
Trade and other payables (800)
9,800
(iii) Property, plant and equipment:

 Depreciation charge for the year is Rs. 3,850 million.
 A plant having carrying value of Rs. 2,500 million was sold for
Rs. 2,750 million. Gain on disposal has been credited to operating expenses.
 On the basis of a professional valuation report, increase of Rs. 2,000 million has
been recognized in the value of property, plant and equipment.
(iv) During the year, Rs. 1,250 million was paid as final dividend to ordinary
shareholders.
Required:
Prepare consolidated statement of cash flow of MGC for the year ended 31 December 2014,
using the indirect method. (22)
Q.2 The financial statements of Integrity Steel Limited (ISL) for the year ended 31 March 2015
are in the final stage of their preparation and the following matters are under consideration:
(a) On 1 April 2014, ISL entered into a contract with Invest Bank. Under the contract, ISL
deposited an amount of USD 5 million, at an interest of 2.5% per annum with a
maturity date of 31 March 2017. Interest will be received on maturity along with the
principal. Further, an additional 2% interest per annum would be payable by Invest
Bank in the event the value of USD increases by 5% or more. The contract is in line
with ISL’s policy of making low risk investments in foreign as well as local currencies.
Required:
Explain how the above investment should be measured in ISL’s books of account at
31 March 2015. (05)
(b) On 1 October 2014, ISL shifted its corporate head office to a three storey building. The
fair value of building on the shifting date and as on 31 March 2014 was Rs. 325 million
and Rs. 310 million respectively.
This building was acquired five years ago at a cost of Rs. 240 million. Immediately
thereafter it was leased out to a subsidiary. Its remaining useful life is 10 years.
Depreciation on ISL’s buildings is charged on straight line basis over their useful lives.
Required:
Prepare journal entries to record the above transaction. (04)
(c) On 1 April 2014, ISL disposed of its power generation system to Komal Limited (KL)
for a consideration of Rs. 135 million. At the same time, ISL entered into a long-term
agreement with KL whereby the assets were leased back under a 10-year operating
lease. At the time of sale, the fair value and the carrying value of the assets were
Rs. 160 million. The lease rentals are Rs. 22 million per annum. The market value of
lease rentals of such type of assets is Rs. 24 million
Required:
Prepare journal entries to record the above transactions for the year ended
31 March 2015. (04)
Q.3 (a) Tanzeem Limited (TL) operates a defined benefit pension plan for its employees. The
following details relate to the plan:
2014 2013
Discount rate for plan obligation 9% 8%
Expected return on plan assets 10% 9%
----- Rs. in million -----
Present value of obligation at year-end 2,040 2,300
Fair value of plan assets at year-end 1,784 2,150
Current service cost 125 143
Benefits paid during the year 99 110
Contribution made during the year 105 118
 Present value of pension obligation and fair value of plan assets as on
1 January 2013 were Rs. 2,050 million and Rs. 1,995 million respectively.
 During the year 2013, TL amended the scheme whereby the benefits available
under the plan had been increased. It resulted in an increase in the present value
of the defined benefit pension obligation by Rs. 5 million and Rs. 8 million on
account of vested and non-vested benefits respectively. The period to vest is
4 years.
 On 31 December 2014, TL sold a business segment to Sachai Limited (SL).
Accordingly, TL transferred the relevant component of its pension fund to SL.
The present value of the defined benefit pension obligation transferred was
Rs. 280 million and the fair value of plan assets transferred was Rs. 240 million.
TL also made a cash payment of Rs. 20 million to SL in respect of the plan.
 Average remaining working lives of employees is 10 years.
Required:
(i) Prepare relevant extracts to be reflected in the statement of financial position,
statement of comprehensive income and notes to the financial statements for the
year ended 31 December 2014 in accordance with International Financial
Reporting Standards. (Show comparative figures) (11)
(ii) Prepare entries to record the pension obligation:
 on sale of business segment to SL
 at the year-end. (03)
(b) On 1 January 2015, Mr. Talented was appointed as the President of Meharban Bank
Limited (MBL). According to the terms of the employment contract, MBL granted
Mr. Talented the right to receive either 100,000 shares of the bank or a cash payment
equivalent to the value of 80,000 shares. This grant is conditional to completion of
3 years of service with the bank and can be exercised within 1 year of vesting date. If he
chooses the share alternative he would have to hold the shares for a period of two years
after the vesting date.
The par value of MBL’s shares is Rs. 10 each. At the grant date, MBL’s share price was
Rs. 145 per share. The share prices on 31 December 2015, 2016, 2017 and 2018 are
estimated at Rs. 150, Rs. 156, Rs. 165 and Rs. 175 respectively. Dividends are not
expected to be announced during the next three years.
After taking into account the effects of the post-vesting transfer restrictions, MBL
estimates that the fair value of the share alternative on the date of appointment of
Mr. Talented was Rs. 135 per share.
Required:
Suggest journal entries to record the above transactions in the books of MBL for the
years ending 31 December 2015, 2016, 2017 and 2018 if Mr. Talented chooses the
share alternative in July 2018. (11)
Q.4 (a) Millat General Insurance Limited is a listed company. The following information for
the year ended 31 December 2014 has been extracted from the records:
Fire &
Motor Misc.
property
insurance insurance
damage
------------ Rs. in ‘000 ------------
Premium written 286,000 154,000 89,000
Unearned premium reserve - opening 42,900 20,020 14,240
Unearned premium reserve - closing 51,480 18,480 11,570
Reinsurance ceded 228,800 15,400 53,400
Prepaid reinsurance premium ceded - opening 34,320 2,002 8,544
Prepaid reinsurance premium ceded - closing 41,184 1,848 6,942
Net claims 38,803 95,000 28,029
Commission expenses 27,742 15,554 9,167
(i) The reinsurers allowed commission on fire & property damage and miscellaneous
insurance at the rate of 15% of the ceded amount of reinsurance.
(ii) Other direct management expenses amounting to Rs. 45 million have been
charged to revenue account of different classes of insurance in proportion to their
net premium earned.
(iii) Other operating expenses and other income for the year are Rs. 28 million and
Rs. 17 million respectively.
Required:
Prepare an extract of profit and loss account for the year ended 31 December 2014, in
accordance with the requirements of Insurance Ordinance, 2000. (08)
(b) Briefly explain the 1/24th method of determining the unearned premium reserve. (02)
Q.5 Gohar Limited (GL), a listed company, is engaged in chemicals, soda ash, polyester, paints
and pharma businesses. Results of each business segment for the year ended 31 March 2015
are as follows:
Gross Operating
Business Sales Assets Liabilities
profit expenses
segments
------------------------- Rs. in million -------------------------
Chemicals 1,790 1,101 63 637 442
Soda Ash 216 117 57 444 355
Polyester 227 48 23 115 94
Paints 247 26 16 127 108
Pharma 252 31 12 132 98
Inter-segment sale by Chemicals to Polyester and Soda Ash is Rs. 28 million and
Rs. 10 million respectively at a contribution margin of 30%.
Operating expenses include GL’s head office expenses amounting to Rs. 75 million which
have not been allocated to any segment. Furthermore, assets and liabilities amounting to
Rs. 150 million and Rs. 27 million have not been reported in the assets and liabilities of any
segment.
Required:
In accordance with the requirements of International Financial Reporting Standards:
(a) determine the reportable segments of Gohar Limited; and (07)
(b) show how these reportable segments and the necessary reconciliation would be
disclosed in GL’s financial statements for the year ended 31 March 2015. (08)
Q.6 The following information has been extracted from draft statement of financial position of
Ittehad Industries Limited (IIL), as on 31 December 2014:
2014 2013
---- Rs. in million ----
Share capital (Rs.10 each) 1,800 1,200
Share premium 380 230
Accumulated profit 3,756 3,556
11.5% Term finance certificates (TFCs) 250 -
The following information is also available:

(i) The profit after tax earned by IIL during the year ended 31 December 2014 amounted
to Rs. 225 million.
(ii) On 1 April 2014, IIL issued 25% right shares to its existing shareholders at Rs. 15 per
share. Market value of the shares prior to the issue of right shares was Rs. 25 per share.
(iii) 20% bonus shares for the year ended 31 December 2013 were issued on 1 May 2014.
The right shares issued on 1 April 2014 were also entitled for the bonus.
(iv) On 31 December 2014, 5 million shares were not yet vested under the employee share
option scheme. The exercise price of the option was Rs. 12 per share and average
market price per share during 2014 was Rs. 15 per share. The amount to be recognized
in relation to employee share option in profit and loss account over future accounting
periods up to vesting date is Rs. 10 million.
(v) On 1 July 2014, IIL issued TFCs which are convertible into 20 million ordinary shares
on 31 December 2018.
(vi) IIL is subject to income tax at the rate of 35%.
Required:
Prepare relevant extracts to be reflected in the financial statements of Ittehad Industries
Limited for the year ended 31 December 2014 showing all necessary disclosures relating to
earnings per share. (Comparative figures are not required) (15)
(THE END)
Final Examination
Module E
The Institute of 2 December 2014

Q.1 Parent Company Limited (PCL) is a listed company and owns 80% and 75% equity in LS
Limited and FS Limited respectively. FS is registered and operates in a foreign country and
its functional currency is CU. Summarised statements of financial position as at 30 June
2014 and other information relating to the group companies are as under:
PCL LS FS
CU in
Rs. in million
million
Assets
Property, plant and equipment 4,200 3,500 250
Investments in LS and FS 6,500 - -
Current assets 3,500 4,000 450
14,200 7,500 700
Equity and liabilities
Share capital (Rs. 10/CU 10 each) 6,000 1,800 120
Retained earnings 3,500 900 280
Current liabilities 4,700 4,800 300
14,200 7,500 700
Profit after tax for the year ended 30 June 2014 700 400 30
Final dividend for the year ended 30 June 2013:
Cash (paid on 1 January 2014) 12% - 15%
Bonus shares (issued on 15 December 2013) 10% 20% -
(i) No. of At the acquisition date

Investment shares Cost Retained Fair value of
Company *
date acquired earnings NCI
----------------------- in million -----------------------
LS 1-Jan-2012 120 Rs. 2,000 Rs. 250 Rs. 540
FS 1-Jul-2012 9 CU 300 CU 160 CU 90
*
NCI stands for Non controlling interest
(ii) On the date of acquisition, fair value of the net assets of LS and FS were equal to their
book value. However, a contingent liability of Rs. 25 million was disclosed in the
financial statements of LS. PCL's legal adviser had at that time estimated that LS
would be liable to pay Rs. 6 million to settle the claim and it was finally settled at the
same amount in May 2014.
(iii) No further shares have been issued by LS and FS since their acquisitions, except for
the bonus issue as mentioned above.
(iv) An impairment test carried out on 30 June 2014 revealed that goodwill of FS is
impaired by CU 10 million.
(v) PCL values non-controlling interest on the date of acquisition at fair value.
(vi) The exchange rates in terms of Rs. per CU, were as follows:
Average for
1-Jul-2012 30-Jun-2013 1-Jan-2014 30-Jun-2014
2013-14
Rs. 15.00 Rs. 16.80 Rs. 16.90 Rs. 17.30 Rs. 17.00
(vii) The break-up of exchange reserve in the consolidated financial statements for the year
ended 30 June 2013 is as follows:
Relating to goodwill Rs. 148.50 million

Relating to translation of foreign operations Rs. 463.05 million
Required:
In accordance with the requirements of the International Financial Reporting Standards,
prepare:
(a) Consolidated statement of financial position as at 30 June 2014; and (17)
(b) Consolidated statement of other comprehensive income for the year ended 30 June
2014. (Ignore taxation) (08)
Q.2 Sky Link Limited (SLL) was incorporated as a public limited company on 1 July 2013. On 1
August 2013, SLL acquired an operating license from the telecommunication authority for a
mobile phone network for Rs. 50 million for twenty years. For obtaining the license, SLL
paid a professional fee of Rs. 6 million and incurred other indirect cost amounting to Rs. 4
million. SLL’s financial year ends on 30 June each year.
SLL signed an agreement with a media house for carrying out a marketing campaign at a
cost of Rs. 25 million for the period up to 30 September 2014. The media house billed Rs. 20
million for the activities carried out upto 30 June 2014.
The network was completed on 31 December 2013 at a cost of Rs. 1,350 million. SLL
commenced commercial operations on 1 January 2014 by announcing a normal call rate of
Rs. 2.00 per minute and introducing a package comprising of free mobile phone and 1200
free minutes per month.
The package requires payment of Rs. 3,000 per month payable in advance under a 12 month
contract. On expiry of the contract, ownership of the mobile phone would be transferred to
the subscriber. Subsequently, the subscriber would be allowed 1000 minutes for Rs. 1,250
per month. In either case, calls in addition to the free minutes are chargeable at Rs. 1.50 per
minute.
The cost of a mobile phone is Rs. 12,000 and such mobile phone is usually available in the
market at Rs. 15,000.
According to the business plan, SLL expected to sign 80,000 subscribers and earn net profit
of Rs. 30 million by the end of 30 June 2014. However, only 50,000 subscribers were signed
upto 30 June 2014. Average unexpired term of 50,000 contracts is 8 months. A further
20,000 subscribers were signed in July and August 2014. During the period upto 30 June
2014, SLL incurred a loss of Rs. 15 million. However, during the months of July and
August 2014 it earned a marginal profit of Rs. 5 million.
In a recent development, a foreign company intending to enter into Pakistan telecom market
has offered SLL a sum equivalent to Rs. 45 million for the operating license and to buy net
assets at their carrying value.
SLL’s financing cost is 12% per annum.
Required:
In accordance with the requirements of the International Financial Reporting Standards,
discuss the accounting treatment for the year ended 30 June 2014 in respect of the following:
(a) Initial recognition and subsequent measurement of operating license (09)
(b) Marketing campaign cost (01)
(c) Revenue recognition (07)
(d) Amount of revenue to be recognised in respect of the annual package, for the period
ended 30 June 2014. (03)
Q.3 Quality Works Limited (QWL) undertakes construction contracts. The following
information pertains to one of its contracts under progress as at 30 June 2014.
(i) Price of the contract is agreed at Rs. 3,000 million and cost to complete the contract is
estimated at Rs. 2,400 million. Construction work was started on 1 July 2012 and is
planned to complete on 31 December 2014. Progress of the contract is summarised as
under:
As at As at
30 June 2014 30 June 2013
Rs. in million
Accumulated actual costs 2,560 1,500
Revised estimated cost to complete the contract 2,900 2,600
Unpaid gross bills as at 30 June 2014 100 75
Work certified and billed 80% 45%

(ii) QWL recognises contract revenue and cost under percentage of completion method.
(iii) Actual cost includes cost of preparation of quotation amounting to Rs. 7 million.
(iv) Payment terms as agreed with the client are as under:
Payment of 10% of contract price on signing of the contract, adjustable from the
monthly progress billings.
Deduction of 5% retention money from the monthly progress billings. The
amount is refundable at the end of the warranty period i.e. one year after
completion of the contract.
(v) QWL is required to rectify defects, if any, during the warranty period. Cost of
rectification is estimated at 5% of the contract price.
Required:
In light of the International Financial Reporting Standards, prepare relevant extracts from
the following:
(a) Statement of financial position as at 30 June 2014. (08)
(b) Statement of comprehensive income for the year ended 30 June 2014. (07)
(Show comparative figures and ignore taxation)
Q.4 Sigma Limited (SL) operates an approved and funded gratuity plan for its management staff
who have completed the minimum qualifying period of three years service. The plan is
administered by the trustees nominated under the trust deed. Trial balance of the fund as at
30 June 2014 is as under:
Debit Credit
Rs. in '000
Balance with bank 500
Receivable from SL 800
Investment in shares available for sale – as at 1 July 2013 8,265
Defense saving certificates (DSCs), including accrued interest 14,235
Opening balance of members' fund 18,287
Amounts payable to outgoing members 150
Accrued expenses 15
Profit from DSCs 1,698
Dividend from investment available for sale 1,380
Contribution for the year 3,000
Gratuity paid/payable to outgoing members 700
Audit fee 23
Bank charges 7
24,530 24,530
The investments as shown above costed Rs. 8,450,000. The market value of these
investments as at 30 June 2014 amounted to Rs. 8,720,000.
Required:
For the year ended 30 June 2014, prepare the following in accordance with the requirements
of International Financial Reporting Standards.
(a) Statement of net assets available for benefits; and (05)

(b) Statement of changes in net assets available for benefits. (04)
Q.5 Opal Industries Limited (OIL) is a listed company. As at 30 June 2014 OIL has various
investments as detailed under:
At the acquisition date

Investment Equity Cost Share capital Retained
Company
date held (Rs. 100 each) earnings
--------------- Rs. in million ---------------
AL 1-Jul-2012 30% 50 80 60
BL 31-Dec-2011 10% 8 70 40
GL 1-Jan-2014 65% 195 150 95
Information pertaining to profit and dividend of the investee companies is as follows:
Profit/(loss) for the year ended Final cash dividend for year ended
Company 2014 2013
2014 2013
----------- Rs. in million -----------
AL 30 28 20% 16%
BL (10) 14 - 18%
GL 55 50 30% 15%
BL is a listed company and fair value of its shares as at 30 June 2014 was Rs. 110 per share
(2013: Rs. 160). OIL classifies investment in BL as available for sale.
AL and GL are private companies and market value of their shares is not available.
GL is the first subsidiary of OIL, since its incorporation. Following information pertains to
OIL:
2013 2012
Rs. in million
Share capital (Rs. 100 each) 2,875 2,500
Profit for the year 1,260 1,100
Closing retained earnings balance 850 465
Final dividend - cash 25% 20%
- bonus issue - 15%
OIL’s profit for the year ended 30 June 2014 prior to taking effects of the transactions of its
investee companies was Rs. 1,450 million and it has announced a final cash dividend of
30%.
Required:
Prepare following for inclusion in the first separate financial statements of OIL for the year
ended 30 June 2014 as required by the International Financial Reporting Standards.
(a) Movement in retained earnings for inclusion in the statement of changes in equity; and (06)
(b) Note on investments. (10)
(Show comparative figures and ignore taxation)
Q.6 The following information has been extracted from the financial statements of Zeta Limited
(ZL) for the year ended 30 June 2014:
(i) Statement of financial position:

2014 2013 2014 2013
Assets Equity and liabilities
Rs. in million Rs. in million
Property, plant & equipment 3,814 3,460 Share capital (Rs. 10 each) 2,921 2,540
Long-term receivables 15 31 Retained earnings 900 833
Deferred tax 28 35 Long-term borrowings 630 680
Inventories 780 729 Current maturity of long term
borrowings 50 70
Trade and other receivables 178 138 Trade and other payables 150 120
Cash and bank 8 10 Tax payable 32 25
Short-term borrowings 140 135
4,823 4,403 4,823 4,403
(ii) Profit after tax for the year amounted to Rs. 702 million. Applicable tax rate was 34%.
(iii) For the year provision in respect of doubtful debts and obsolete inventories amounted
to Rs. 14 million and Rs. 6 million respectively.
(iv) Finance expenses net of unwinding of interest for the year amounted to Rs. 110
million. There was no finance expense payable at the beginning and end of the year.
(v) Additions to fixed assets amounted to Rs. 694 million.
(vi) Long-term receivables represent present value of interest free loans to employees. The
gross value of the receivables is Rs. 20 million (2013: Rs. 40 million).
(vii) For the year ended 30 June 2014, final cash dividend of 25% (2013: Cash dividend at
10% and bonus shares at 15%) was approved.
Required:
(a) Prepare ZL's cash flow statement for the year ended 30 June 2014, using the indirect
method in accordance with the International Financial Reporting Standards. (08)
(b) Comment on the cash flows from operating, investing and financing activities of ZL
and give suitable recommendations as regards:
Financing policies
Dividend policy
Inventory and receivable management (07)
(THE END)
Final Examination 3 June 2014
Summer 2014 100 marks - 3 hours
Module E Additional reading time - 15 minutes
Q.1 Following are the draft balance sheets (summarized) of Delta Limited (DL), a listed
company, and its subsidiaries, Gamma Limited (GL) and Sigma Limited (SL) as at
31 December 2013:
DL GL SL
--------- Rupees in million ---------
Non-current assets 10,000 6,100 5,400
Investment (at cost) 9,675 2,800 -
Current assets 6,325 7,100 3,100
26,000 16,000 8,500
Share capital (Rs. 100 each) 9,000 7,000 3,000

Retained earnings 7,500 2,790 3,100
Non-current liabilities 6,000 3,000 1,000
Current liabilities 3,500 3,210 1,400
26,000 16,000 8,500

(i) Investments:
Retained earnings
Investment Investment No. of shares Cost
on acquisition
by date (in million) (Rs. in million)
(Rs. in million)
DL in GL 1-Jan-2008 52.50 7,500 2,500
DL in SL 1-Jul-2009 9.00 2,175 1,400
GL in SL 1-Jul-2013 14.00 2,800 3,010
On 1 July 2013, the fair value of SL’s shares was Rs. 200 per share.
(ii) On the date of acquisition by DL, the fair value of GL’s net assets was equal to their
book value, except a piece of land whose fair value was Rs. 150 million as against its
cost of Rs. 120 million. The said land was sold for Rs. 170 million in 2013.
(iii) On 1 January 2013, DL issued 2.5 million 10% convertible term-finance certificates
(TFCs) of Rs. 100 each. The TFCs are redeemable on 31 December 2015 at par. Each
TFC is convertible into one ordinary share at the option of the certificate holder at
any time prior to maturity. On the date of issue, the prevailing market interest rate for
similar debt without conversion option was 12% per annum. The TFCs are appearing
in the draft financial statements at their par value.
Interest payable annually on 31 December each year has been paid and accounted for
in the financial statements.
(iv) The companies settled their inter-company balances on 31 December 2013. However,
a cheque of Rs. 20 million received from SL on 31 December 2013 was credited to
DL's bank account on 5 January 2014.
(v) DL values non-controlling interest at its proportionate share of the fair value of the
subsidiaries' identifiable net assets.
Required:
Prepare a consolidated statement of financial position as at 31 December 2013 in
accordance with the requirements of the International Financial Reporting Standards. (20)
Q.2 Omega Limited (OL) is incorporated and listed in Pakistan. On 1 May 2012, it acquired
20,000 ordinary shares (2% shareholding) in Al-Wadi Limited (AWL), a Dubai based
company at a cost of AED 240,000 which was equivalent to Rs. 6,000,000. The face value
of the shares is AED 10 each. OL intends to hold the shares to avail benefits of regular
dividends and capital gains.
On 1 June 2013, AWL was acquired by Hilal Limited (HL), which issued three shares in
HL in exchange for every four shares held in AWL.
Other relevant information is as under:
AWL HL
Final dividend received on 31 March 2013:
Cash 15% -
Bonus shares 10% -
Final cash dividend received on 10 April 2014 - 20%
Fair value per share as at: 31 December 2012 AED 13.00 -
1 June 2013 AED 14.00 AED 18.00
31 December 2013 - AED 19.50
Exchange rates on various dates were as follows:
31-Dec-2012 31-Mar-2013 1-Jun-2013 31-Dec-2013 10- Apr-2014
1 AED Rs. 25.00 Rs. 26.50 Rs. 28.00 Rs. 28.70 Rs. 2 8.20
Required:
Determine the amounts (duly classified under appropriate heads) that would be included in
OL’s statement of comprehensive income for the year ended 31 December 2013 in respect
of the above investment. (08)
Q.3 (a) In December 2012, Arabian Automotives Limited (AAL) had launched a campaign
to offer Hybrid Technology cars under a finance lease arrangement.
On 1 January 2013, AAL provided 10 cars to a customer. Details of the lease of each
car are as under:
Rs. 300,000 were paid on delivery of the car.
Three equal annual installments of Rs. 580,000 each are payable in arrears.
Periodic servicing of the car will be free of charge for the entire lease period. The
estimated cost of servicing a car is Rs. 10,000 per year. AAL provides such
services at cost plus 20%.
Actual servicing cost incurred for the year ended 31 December 2013 amounted
to Rs. 11,000
Implicit rate of return is 12% which is equivalent to market rate of interest.
Ex-factory price fixed by the manufacturer is Rs. 1,800,000. AAL gets 15% discount
on the ex-factory price from the manufacturer. (10)
(b) On 1 January 2013, Elegant Generators Limited (EGL) sold a heavy duty generator
to Rivera Limited (RL) for Rs. 6,000,000 on the following terms and conditions.
10% of sales price was paid on delivery of the generator.
Remaining amount was payable on 31 December 2013. Interest charge on the
amount unpaid was agreed at 6% per annum.
The market interest rate is 12% per annum.
In December 2013, RL conveyed its inability to pay the amount due on 31 December
2013 and requested EGL to recover the amount in installments. After negotiations,
EGL agreed to receive four half yearly installments of Rs. 1,600,000 each,
commencing from 30 June 2014. (06)
Required:
Compute the impact of the above transactions on various items forming part of profit and
loss account and statement of financial position of AAL and EGL, for the year ended
31 December 2013 in accordance with International Financial Reporting Standards.
(Notes to the financial statements are not required)
Q.4 Following information pertaining to Moon Light Limited (MLL) is available for computing
tax charge/liability for inclusion in the financial statements for the year ended
31 December 2013.
Rs. in million
Profit before dividend and capital gains 500
Dividend income 25
Capital gains (exempt from tax) 28
Permanent add-backs under the tax laws 35
Actuarial gains for the year on defined benefits plans
(Balance as at 31 December 2012 amounted to Rs. 140 million) 60

(i) MLL’s tax assessment for the year ended 31 December 2011 was finalized in May
2013 raising an additional tax liability of Rs. 4.2 million. The assessment was not
contested and the liability was paid by MLL.
(ii) Following details are available in respect of provision for doubtful debts:
Balance as at 31 December 2012 amounted to Rs. 90 million
Write offs against provision amounted to Rs. 25 million
Balance as at 31 December 2013 amounted to Rs. 125 million
(iii) Property, plant and equipment:
2013 2012
Rs. in million
Accounting WDV 1,850 1,800
Tax WDV 1,880 1,750
(iv) Applicable tax rates for 2012 and 2013 are 35% and 10% for business and dividend
income respectively for both years.
Required:
Prepare notes on taxation for inclusion in the financial statements of MLL for the year
ended 31 December 2013, in accordance with the International Financial Reporting
Standards. (16)
Q.5 Peoples Bank Limited (PBL) operates in Pakistan. Following information pertains to
advances to customers and related provisions for the year ended 31 December 2013:
(i) Information relating to non-performing advances is as under:
As at 31 December 2013
Classification of non-performing
Forced sales value Provision to be
advances Balance
of collaterals maintained at
-----Rupees in million----- %
Loss 4,500 1,300 100
Doubtful 1,400 800 50
Sub-standard 1,200 400 25
Other assets especially mentioned 150 20 -
(ii) For the year ended 31 December 2013, PBL has:
made a provision of Rs. 370 million including general provision of Rs. 55
million.
written off a sum of Rs. 160 million against the specific provision.
(iii) General provision balance as at 31 December 2013 amounted to Rs. 225 million.
Required:
Prepare relevant notes on non-performing advances and provisions thereagainst for
inclusion in the financial statements of PBL for the year ended 31 December 2013 in
accordance with the guidelines issued by the State Bank of Pakistan. (10)
Q.6 Alpha Limited (AL), a listed company, acquired 80% equity in Zee Limited (ZL) on
1 July 2010. The following information has been extracted from their draft financial
statements:
AL ZL
----- Rs. in '000 -----
Balance as at 1 January 2013:
Share capital (Rs. 100 each) 80,000 35,000
12% Convertible bonds (Rs. 100 each) 30,000 -
Profit for the year ended 31 December 2013 (after tax) 60,000 25,000
Following information is also available:
(i) The bonds were issued at par on 1 January 2011 and are convertible at any time
before the redemption date of 31 December 2015, at the rate of five ordinary shares
for every four bonds.
(ii) Cost and fair value information of ZL’s investment property is as under:
31-Dec-2013 31-Dec-2012
-------- Rs. in '000 --------
Cost 65,000 60,000
Fair value 67,000 59,000
ZL uses cost model while the group policy is to use the fair value model to account
for investment property.
(iii) AL operates a defined benefit gratuity scheme for its employees. The actuary’s report
has been received after the preparation of draft financial statements and provides the
following information pertaining to the year ended 31 December 2013:
Rs. in '000
Actuarial losses 150
Current service costs 8,000
Net interest income 3,000
(iv) On 1 August 2013, under employees’ share option scheme, 60,000 shares were issued
by AL to its employees at Rs. 150 per share against the average market price of
Rs. 250 per share.
(v) Dividend details are as under:
AL ZL
2013 (Interim) 2012 (Final) 2013 (Interim) 2012 (Final)
Cash 18% 10% 12% 15%
Bonus shares - 20% - 16%
At the time of payment of dividend, income tax at 10% was deducted by AL and ZL.
(vi) Applicable tax rate for business income is 35%.
Required:
Extracts from the consolidated profit and loss account of Alpha Limited (including earnings
per share) for the year ended 31 December 2013 in accordance with the International
Financial Reporting Standards.
(Note: Comparative figures and information for notes to the financial statements are not required) (15)
Q.7 Fine Woods Limited (FWL) markets quality wood furniture through its sales offices located
in major cities of Pakistan. In March 2012, the management of FWL decided to introduce
online sales through its website. The expenses incurred in this regard during the year ended
31 December 2012 were as follows:
Feasibility was prepared by a consulting firm for upgrading the existing website to
facilitate online sales, at a cost of Rs. 3.5 million.
Purchase of hardware and operating software for Rs. 15 million and Rs. 8 million
respectively.
Website was upgraded by FWL’s IT team. The directly attributable costs amounted to
Rs. 5 million.
Online payment system was developed by external experts at a cost of Rs. 3 million.
IT personnel were trained to deal with security issues relating to online transactions at a
cost of Rs. 1.5 million.
In the financial statements for the year ended 31 December, 2012 the above expenses were
classified as capital work in progress.
In January 2013, after successful testing of online sales, FWL launched a campaign for
online sales and incurred an expenditure of Rs. 2.5 million in this respect.
In view of the increase in online sales, in September 2013, the management decided to close
two of its sales offices and announced their closure effective 1 January 2014. Following
information is available in respect of the two offices:
Office A:
Carrying value of property, plant and equipment as at 31 December 2013 amounted to
Rs. 50 million.
Negotiations with a party for sale of the office are at an advance stage and it is expected
that all the formalities will be finalised by the end of June 2014. Sale price of property,
plant and equipment net of expenses is estimated at Rs. 60 million.
Office B:
Carrying value of property, plant and equipment as at 31 December 2013 amounted to
Rs. 65 million.
As advised by a property consultant, FWL is carrying out modifications of the office
premises to get a better price. The cost of modifications is estimated at Rs. 15 million to
FWL and is expected to be completed in six months. Sale price net of expenses after
modifications is estimated at Rs. 95 million.
Required:
Discuss the accounting treatment in respect of the above, in the financial statements of
FWL for the year ended 31 December 2013 in accordance with the requirements of
International Financial Reporting Standards. (15)
(THE END)
Final Examination 3 December 2013
Winter 2013 100 marks - 3 hours
Q.1 On 1 October 2012, Alpha Industries Limited (AIL) held 15% and 35% equity in Beta
(Private) Limited (BPL) and Delta (Private) Limited (DPL) respectively. The following
balances pertain to the three companies, as on the above date.
AIL BPL DPL

Rs. in million
Share capital (Rs. 100 each) 100 60 50
Retained earnings 35 30 15
Other comprehensive income - fair value reserve related to BPL 6 - -
Total equity 141 90 65
Non-current investments – BPL*1 (Cost Rs. 18 million) 20 - -

Non-current investments – DPL*2 (Cost Rs. 40 million) 43 - -
*1 recorded as available for sale
*2 recorded as investment in associate
On 1 April 2013, AIL acquired a further 55% equity in BPL when:

the fair value of the net assets of BPL was Rs. 100 million which was equal to their
carrying value; and
the fair value of the 15% equity already held in BPL was Rs. 25 million.
The purchase consideration comprised of 150,000 shares in AIL which were issued on the
date of acquisition at their market value of Rs. 160 per share and Rs. 42 million payable in
cash on 31 March 2014. AIL uses discount rate of 12% for determining the present value of
its future assets and liabilities.
Other relevant details are as follows:

(i) For the year ended 30 September 2013 the profits after tax of AIL, BPL and DPL
were Rs. 58 million, Rs. 40 million and Rs. 30 million respectively.
(ii) AIL values non-controlling interest at the acquisition date at its fair value which was
Rs. 32 million.
(iii) AIL sold goods at Rs. 65 million to BPL on 1 July 2013. The sales were invoiced at
30% above cost. 20% of these goods remained unsold as on 30 September 2013.
(iv) DPL’s sales to AIL amounted to Rs. 70 million. DPL earns a profit of 20% of sales
value. On 30 September 2013, inventory of AIL included Rs. 20 million in respect of
such goods.
(v) For the year ended 30 September 2012 AIL, BPL and DPL paid final cash dividend
of 15%, 20%, and 12% respectively.
Required:
(a) Compute the amount of goodwill, retained earnings and investment in associate as
they would appear in the consolidated statement of financial position of AIL as at 30
September 2013, in accordance with IFRS. (Ignore taxation) (18)
(b) Describe how the investment in BPL and DPL may be accounted for and also
compute the amount of the investments as it would appear in the separate statement
of financial position of AIL as at 30 September 2013, in accordance with IFRS. (04)
Q.2 Mega Super Stores (MSS) introduced a customer loyalty scheme on 1 August 2013 which
was based on the following conditions:
Customers were granted 500 points with each purchase of Rs. 5,000 or above.
These points could be exchanged for goods supplied by MSS within two months from
the date the points were granted.
For every 500 points, goods having a retail price of Rs. 200 were to be given.
However, the scheme was discontinued from 1 October 2013. During the period covered by
the scheme, the customers were granted 1.5 million points out of which 0.5 million points
were redeemed. At year end, a study was carried out and it was established that
approximately 30% of the points granted would lapse unutilised. Actual results showed that
finally 470,000 points lapsed unutilised.
MSS sells goods at a margin of 40%. No entries in respect of grant of points have been
recorded so far.
Required:
Prepare accounting entries to record the above transactions in accordance with IFRS. (08)
Q.3 The financial statements of Bravo Limited (BL) for the year ended 30 September 2013 are
under finalisation and the following matters are under consideration:
(i) BL’s plant was commissioned and became operational on 1 April 2008 at a cost of
Rs. 130 million. At the time of commissioning its useful life and present value of
decommissioning liability was estimated at 20 years and Rs. 19 million respectively.
BL’s discount rate is 10%.
There has been no change in the above estimates till 30 September 2013 except for the
decommissioning liability whose present value as at 1 April 2013 was estimated at
Rs. 25 million. (06)
(ii) On 1 October 2011, BL acquired 160,000 12% debentures of Rs. 100 each, for
Rs. 15.5 million and classified them as ' held to maturity'.
On 30 September 2013, in view of financing requirements for a new project, BL is
uncertain about holding the debentures till redemption. Therefore, it has decided to
reclassify the debentures as 'available for sale'.
Other relevant information is as follows:
The debentures carry a fixed interest rate of 12%, payable annually in arrears.
The effective rate of interest is 14.09%.
The debentures are redeemable at Rs. 105 on 30 September 2015.
The market value per debenture as of 30 September 2012 and 2013 was Rs. 102
and Rs. 104 respectively. (06)
(iii) On 1 April 2013, BL shifted to a newly acquired building in the city centre. The
vacated building was leased as follows:
Date of commencement of the lease 1 April 2013
Lease period 3 years
Six semi-annual installments payable in advance Rs. 3 million
(to be increased by 5% annually)
On 1 April 2013, the carrying value and fair value of the vacated building was Rs. 55
million and Rs. 70 million respectively. As at 30 September 2013 the fair value of the
vacated building was reduced to Rs. 66 million. BL uses fair value model to account
for investment properties. (06)
Required:
For each of the above matters, compute the related amounts as they would appear in the
statements of financial position and comprehensive income of Bravo Limited for the year
ended 30 September 2013 in accordance with IFRS. (Ignore corresponding figures)
Q.4 Global Air Limited (GAL) owns 100% equity in Moon (Private) Limited (MPL). On
1 July 2013, GAL decided to dispose of 90% equity in MPL. It is expected that the sale will
be finalised by 30 June 2014 at an estimated sale price of Rs. 140 million with an estimated
cost to sell of Rs. 3.5 million. Relevant information pertaining to MPL is as under:
(i) Assets and liabilities as of 30 June 2013:

Rs. in million
Non-current assets 195.00
Current assets 50.00
Liabilities 90.00
(ii) It is estimated that MPL's trade debtors amounting to Rs. 6 million will not be
recovered; whereas provisions included in the liabilities amounting to Rs. 8 million
are no more required.
(iii) MPL's net loss after tax for the nine months period ended 30 June 2013 was
Rs. 30 million.
(iv) During the period 1 July 2013 to 30 September 2013, liabilities amounting to Rs. 26
million were paid and current assets of Rs. 18 million were recovered.
Goodwill of MPL as per the consolidated statement of financial position of GAL as at 30

September 2012 amounted to Rs. 15 million.
GAL had incurred expenses amounting to Rs. 1.5 million, for disposal of the equity upto 30
September 2013.
Required:
Prepare relevant extracts from the consolidated statements of financial position and
comprehensive income of GAL for the year ended 30 September 2013, in accordance with
IFRS. (12)
Q.5 Following is the extract of Trial Balance of Zee Bank Limited for the year ended 30 June
2013:
Rs. in million
Cash in hand - Local currency 10,000
- Foreign currency 2,000
National Prize Bonds 100
Rupee current account with SBP 30,000
Rupee current account with NBP 8,000
Foreign currency current account with SBP 3,000
Foreign currency deposit account with SBP 10,000
Deposit account with central bank of UAE 12,000
Current account with central bank of South Africa 9,800
Current account with Muslim Commercial Bank Ltd. 700
Deposit account with Barclays Bank, London 25,000
Current account with Citibank, New York 4,000
Balances with treasury banks and other banks include remunerative accounts amounting to
Rs. 10.8 million and Rs. 27.5 million respectively.
Required:
To the extent the information is available, prepare notes on ‘Cash and balances with
treasury banks’ and ‘Balances with other banks’ for inclusion in financial statements of Zee
Bank Limited for the year ended 30 June 2013, in accordance with the laws applicable in
Pakistan. (10)
Q.6 New Horizon (Private) Limited (NHPL) is engaged in the distribution and supply of
pharmaceutical products. The following information has been extracted from NHPL’s draft
financial statements for the year ended 30 September 2013:
Statement of comprehensive income for the year ended 30 September 2013
2013 2012
---------Rs. in million---------
Sales revenue 720.00 234.00
Cost of sales (534.00) (190.00)
Gross profit 186.00 44.00
Operating expenses (120.00) (45.00)
Operating profit/(loss) 66.00 (1.00)
Finance charges (35.00) (5.00)
Profit / (loss) before tax 31.00 (6.00)
Taxation (12.00) 1.30
Net profit / (loss) 19.00 (4.70)
Statement of financial position as at 30 September 2013

2013 2012 2013 2012
Share capital 300.00 300.00 Property, plant & equipment 555.00 361.50
Retained earnings 65.00 46.00 Intangible assets 32.00 17.50
365.00 346.00 587.00 379.00
Long term loans 198.00 40.00
Current liabilities Current assets
Trade payables 96.00 25.00 Inventories 30.00 18.00
Other payables 5.50 1.00 Trade receivables 48.00 12.00
Borrowings 10.50 4.00 Cash and bank balances 10.00 7.00
112.00 30.00 88.00 37.00
675.00 416.00 675.00 416.00
Following further information is available:

(i) On June 2012, NHPL acquired exclusive distribution rights of a range of life saving
drugs from a Malaysian company for 12 years at a cost of Rs. 18 million. NHPL has
capitalized the cost of rights and it is to be amortized over the period of distribution
rights.
(ii) In October 2012, NHPL launched a country-wide sales promotion campaign to
introduce the Malaysian drugs. The cost of the advertisement campaign was Rs.
25million. As the benefits of the campaign are long term, NHPL has decided to
amortize the costs over a period of 5 years.
(iii) The prices offered by the Malaysian company are quite low as compared to prices of
similar quality drugs in Pakistan. Since this matter was publicized vigorously in the
advertisement campaign, the Malaysian drugs were able to capture the market.
(iv) In 2013, the sales of drugs imported from Malaysia accounted for 70% of the
company's revenue. The level of credit sales has remained constant at 40% of total
sales.
(v) NHPL is also negotiating the acquisition of distribution rights of the products of
another foreign company.
Required:
Comment on the financial and operating performance of NHPL for the year ended 30
September 2013, supported by relevant accounting ratios. (14)
Q.7 Dynamic Steel Limited (DSL) signed an agreement on 1 June 2013 for import of equipment
for SK 50 million. According to the agreement, the plant was delivered on 1 November
2013 and invoice thereof was paid on 1 December 2013.
In order to hedge the commitment to pay SK 50 million, on 1 June 2013, DSL entered into
a forward contract to buy the required SK on 1 December 2013 at a fixed exchange rate of
SK 1=Rupees 15. Exchange rates on various dates are as follows:
1-Jun-2013 30-Sep-2013 1-Nov-2013 1-Dec-2013

SK 1
Spot rate Rs. 14.50 12.00 11.15 10.00
Forward rate Rs. 15.00 12.39 11.35 -
It is DSL's policy to adjust any gain or loss arising on forward contracts to the carrying
value of the imported goods. DSL’s accounting year end is 30 September.
Required:
Prepare accounting entries relating to the above transactions, on each of the above dates, in
accordance with the requirement of IFRS. (16)
(THE END)
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Q.1 Qudsia Limited (QL) has investments in two companies as detailed below:
Manto Limited (ML)

On 1 January 2010, QL acquired 40 million ordinary shares in ML, when its retained
earnings were Rs. 150 million.
The fair value of ML’s net assets on the acquisition date was equal to their carrying
amounts.
Hali Limited (HL)

On 30 November 2012, QL acquired 16 million ordinary shares in HL, when its retained
earnings stood at Rs. 224 million.
The purchase consideration was made up of:
- Rs. 190 million in cash, paid on acquisition; and
- 4 million shares in QL. At the date of acquisition, QL’s shares were being traded at
Rs. 15 per share but the price had risen to Rs. 16 per share by the time the shares were
issued on 1 January 2013.
The fair value of the net assets of HL on the date of acquisition by QL was equal to their
carrying amounts, except a building whose fair value exceeded its carrying amount by
Rs. 28 million. The building had a remaining useful life of seven years on
30 November 2012.
The draft summarised statements of financial position of the three companies on

31 December 2012 are shown below:
QL ML HL
---------Rs. in million---------
Assets
Property, plant and equipment 5,000 550 500
Investment in ML 630 - -
Investment in HL 190 - -
Current assets 5,480 400 350
11,300 950 850
Ordinary share capital (Rs.10 each) 6,000 500 400
Retained earnings 2,900 100 240
Current liabilities 2,400 350 210
11,300 950 850
The following additional information is available:

(i) QL considers ML as a cash-generating unit (CGU). As on 31 December 2012, the
recoverable amount of the CGU was estimated at Rs. 700 million.
(ii) QL values the non-controlling interest at its proportionate share of the fair value of the
subsidiary’s net identifiable assets.
(iii) On 1 October 2012, ML sold a machine to QL for Rs. 24 million. The machine had
been purchased on 1 October 2010 for Rs. 26 million. The machine was originally
assessed as having a useful life of ten years and that estimate has not changed.
(iv) In December 2012, QL sold goods to HL at cost plus 30%. The amount invoiced was
Rs. 52 million. These goods remained unsold at year end and the invoiced amount was
also paid subsequent to the year end.
Required:
Prepare a consolidated statement of financial position for QL as on 31 December 2012 in
accordance with the requirements of International Financial Reporting Standards. (20)
Q.2 Healthcare Limited (HCL) manufactures a large variety of nutrition products. In addition to
its branded products, HCL produces a special food supplement for export to Childcare
Centre (CCC) in the Middle East. Under the terms of the contract, HCL is liable to pay a
compensation of Rs. 6 million per month to CCC, if HCL is unable to supply the
supplement.
On 15 March 2013, a product of HCL was found to be contaminated. On receiving the

complaint, the Health Department sealed the factory premises and initiated legal
proceedings against the company.
As per the legal advice, it is highly probable that the case would be decided against HCL. It
is expected that the decision would be announced in September 2013. The maximum fine
payable under the law is Rs. 15 million. However, the legal adviser is of the opinion that the
amount of the penalty would be Rs. 9 million approximately.
HCL has investigated the incident and the findings as reported on 5 April 2013 are as under:
The contamination was caused due to the use of an ingredient supplied by Food
Chemical Enterprises (FCE) which was close to the date of expiry. However, only one
product was affected and various laboratory tests have confirmed that the contamination
is not health hazardous.
Production batches of the contaminated product were identified. The cost of
contaminated inventory in hand on 15 March 2013 was Rs. 70 million. The cost of
unsold inventory recalled from the customers amounted to Rs. 132 million. HCL earns a
margin of 25% on all of its products.
Due to closure of the factory, HCL would not be able to supply the supplement to CCC
for three months.
Cost of disposal of the contaminated inventory is estimated at Rs. 0.5 million.
On 6 April 2013, HCL lodged a claim for damages of Rs. 211.5 million against FCE for the
cost of contaminated inventory, cost of disposal thereof and the amount of the penalty that
HCL is likely to incur. However, no response has been received from FCE so far and HCL is
considering to file a suit for recovery of the amount.
Required:
Explain the accounting treatment and the disclosure requirements in respect of the above in
HCL’s financial statements for the year ended 31 March 2013 in accordance with the
Q.3 The following information pertaining to Krishna Limited (KL) has been extracted from its
financial statements for the year ended 31 December 2012.
(i) Total comprehensive income for the year:
Rs. in ‘000
Profit from continuing operations - net of tax 200,000
Profit from discontinued operations - net of tax 10,000
Fair value gain on investments available for sale - net of tax 16,000
Total comprehensive income 226,000
(ii) Share capital as on 1 January 2012:

8,000,000 Ordinary shares of Rs. 10 each.
500,000 Convertible preference shares of Rs. 100 each entitled to a cumulative
dividend at 12%. Each share is convertible into two ordinary shares and the
dividend is paid on 28 February, every year.
(iii) 20% bonus shares being the final dividend for the year ended 31 December 2011 were
issued on 31 March 2012.
(iv) On 30 April 2012, holders of 80% convertible preference shares converted their shares
into ordinary shares.
(v) On 1 July 2012, KL issued 20% right shares to its ordinary shareholders at Rs. 70 per
share. The market price prevailing on the exercise date was Rs. 80 per share.
(vi) On 1 August 2011, KL granted 2,500 share options to each of its twenty technical
managers. The managers would become eligible to exercise these options on
completion of further five years of service with KL. By 31 December 2012, two
managers had already left and it is expected that a further six managers would leave
KL before five years. As of 31 December 2012 estimated fair value of each share
option was Rs. 40.
Required:
Prepare a note relating to basic and diluted earnings per share for inclusion in KL’s financial
statements for the year ended 31 December 2012, in accordance with International Financial
Reporting Standards. (15)
Q.4 Ashfaq General Insurance Limited (AGIL) is engaged in general insurance business. The
following information is available for the year ended 31 December 2012:
2012
Rs. in ‘000
(i) Information extracted from statement of cash flows:
Profit received on bank deposits 4,000
Profit / interest received on investments
held for trading 28,000
held to maturity 9,000
available for sale 16,000
Dividend received from investments
Proceeds from disposal of investments
(ii) Information extracted from profit and loss account:

Loss on sale of investments held for trading 12,000
Unrealized loss on revaluation of investments held for trading 1,000
Provision for impairment in the value of investments available for sale 2,000
Amortisation of premium on investments available for sale 3,000
Gain on sale of investments available for sale 15,000
Investment related expenses 7,000
(iii) Information extracted from statement of financial position:

1-1-2012 31-12-2012
Accrued profit/interest on: --------Rs. in 000--------
- Term deposits 2,000 1,500
- Investments - held for trading 11,400 13,000
- Investments - held to maturity 600 1,800
- Investments - available for sale 2,700 3,000
Required:
Prepare the statement of investment income for inclusion in AGIL’s financial statements for
the year ended 31 December 2012. (10)
Q.5 On 1 January 2009 Qasmi Investment Limited (QIL) purchased 1 million 12% Term
Finance Certificates (TFCs) issued by Taj Super Stores (TSS), which operates a chain of five
Super Stores. The terms of the issue are as under:
The TFCs have a face value of Rs. 100 each and were issued at a discount of 5%. These
are redeemable at a premium of 20% after five years.
Interest on the TFCs is payable annually in arrears on 31 December each year.
Effective interest rate calculated on the above basis is 16.426% per annum.
Due to a property dispute, TSS had to temporarily discontinue operations of two stores in
2010. Consequently, TSS was unable to pay interest due on 31 December 2010 and
31 December 2011.
At the time of finalization of accounts for the year ended 31 December 2010, QIL was quite
hopeful of recovery of the interest and therefore, no impairment was recorded. However, in
2011, after a thorough review of the whole situation, QIL’s management concluded that it
would be able to recover the face value of the TFCs along with the premium on the due date
i.e. 31 December 2013, but the interest for the years 2010 to 2013 would not be received.
Accordingly, QIL recorded impairment in the value of the TFCs on 31 December 2011.
In 2012, TSS reached an out of court settlement of the property dispute and the stores
became operational. Subsequently, QIL and TSS agreed upon a revised payment schedule
according to which the present value of the agreed future cash flows on 31 December 2012 is
estimated at Rs. 115 million.
Required:
Prepare journal entries in the books of QIL for the years ended 31 December 2011 and 2012.
Show all the relevant computations. (14)
Q.6 Chughtai Limited (CL) has 75% share holdings in John Limited (JL) which is registered and
operates in a foreign country. JL's functional currency is RAM. The following information
has been extracted from JL's statement of changes in equity for the year ended
31 December 2012:
Subscribed and Unappropriated
paid-up capital profit
---------RAMs in million---------
Balance as on 1 January 2012 50 85
Final dividend for the year ended 31 December 2011
- Cash dividend at 10% - (5)
- Bonus shares at 20% 10 (10)
Profit after tax for the year ended 31 December 2012 - 40
Balance as on 31 December 2012 60 110

(i) CL's profit after tax for the year ended 31 December 2012 amounted to Rs. 700 million
which includes a cash dividend of Rs. 41 million received from JL.
(ii) On acquisition, JL’s goodwill amounted to RAMs 30 million. However, an
impairment test carried out as at 31 December 2012 revealed that the goodwill has
been impaired by RAMs 6 million.
(iii) CL values the non-controlling interest on acquisition at fair value.
(iv) JL has not issued any ordinary shares after acquisition by CL, except for the bonus
issue as mentioned above.
(v) The following exchange rates are relevant to the financial statements:
31-Dec-2011 31-Dec-2012 Average for 2012

------------------Rs. to 1 RAM------------------
10.00 11.00 10.20
Required:
Prepare the relevant extracts from the consolidated statement of comprehensive income of
CL for the year ended 31 December 2012 in accordance with the requirements of
Q.7 Financial statements of Niazi Company Limited (NCL) for the year ended
31 December 2012 are in the process of finalisation. In this respect, the following
information has been gathered from the company’s accounting and tax records.
(i) Property, plant and equipment (PPE)

31-12-2012 31-12-2011
--------Rs. in million--------
Accounting WDV (at revalued amount) 2,700 2,000
Tax WDV 2,400 1,600
Details of the revaluation are as under:

Revaluation of freehold land and buildings on 31 December 2005 resulted in a
revaluation surplus of Rs. 15 million and Rs. 20 million respectively.
Plant and machinery costing Rs. 150 million was commissioned on 1 January 2010
with an expected useful life of 10 years. It was revalued at Rs. 145 million on
31 December 2012.
(ii) Provision for retirement benefits and doubtful debts

Rs. in million
Balance on 31 December 2011 50
Write offs during the year 5
Provision for the year, net of payments of Rs. 3 million 6
(iii) Liabilities outstanding for more than three years

NCL’s tax assessment for the year ended 31 December 2010 was finalized on
30 April 2012 in which liabilities outstanding for more than three years and amounting
to Rs. 8 million were added back to income.
A sum of Rs. 2 million included in the above liabilities was paid while a liability of
Rs. 3 million was written back by NCL in 2012.
(iv) Applicable tax rate is 35%.
Required:
Prepare a note related to deferred tax liability/asset for inclusion in NCL’s financial
statements for the year ended 31 December 2012, in accordance with the International
Financial Reporting Standards. (12)
(THE END)
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The Institute of Chartered Accountants of Pakistan


Q.1 Following are the extracts from the draft financial statements of three companies for the year
ended 30 June 2012:
INCOME STATEMENTS
Tiger Limited Panther Limited Leopard Limited
(TL) (PL) (LL)
-------------------Rs. in million-------------------
Revenue 6,760 568 426
Cost of sales (4,370) (416) (218)
Gross profit 2,390 152 208
Operating expenses (1,270) (54) (132)
Profit from operations 1,120 98 76
Investment income 730 - 10
Profit before taxation 1,850 98 86
Income tax expense (400) (20) (17)
Profit for the year 1,450 78 69
STATEMENTS OF CHANGES IN EQUITY

Ordinary share capital
Retained earnings
of Rs. 10 each
TL PL LL TL PL LL
---------------------------Rs. in million--------------------------
As on 1 July 2011 10,000 800 600 2,380 270 70
Final dividend for the year
ended 30 June 2011 - - - (1,000) - (60)
Profit for the year - - - 1,450 78 69
As on 30 June 2012 10,000 800 600 2,830 348 79

(i) Several years ago, TL acquired 64 million shares in PL for Rs. 1,000 million when PL’s
retained earnings were Rs. 55 million. Up to 30 June 2011, cumulative impairment
losses of Rs. 50 million had been recognized in the consolidated financial statements, in
respect of goodwill.
On 31 December 2011, TL disposed off its entire holding in PL for Rs. 1,300 million.
(ii) On 1 July 2011, 42 million shares of LL were acquired by TL for Rs. 550 million. An
impairment review at 30 June 2012 indicated that goodwill recognized on acquisition
has been impaired by Rs. 7 million.
(iii) During the year, LL sold goods costing Rs. 50 million to TL at a mark-up of 20% on
cost. 40% of these goods remained unsold on 30 June 2012.
(iv) Investment income appearing in TL’s separate income statement includes profit on sale
of PL’s shares and dividend received from LL.
(v) TL values the non-controlling interest at its proportionate share of the fair value of the
subsidiary’s identifiable net assets.
It may be assumed that profits of all companies had accrued evenly during the year.
Required:
Prepare TL’s consolidated income statement and consolidated statement of changes in equity
for the year ended 30 June 2012 in accordance with the requirements of International
Financial Reporting Standards. (Ignore deferred tax implications) (23)
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Q.2 The following information pertains to Crow Textile Mills Limited (CTML) for the year ended
30 June 2012:
(a) Stocks include 4,000 maunds of cotton which was purchased on 1 April 2012 at a cost of Rs.
6,200 per maund. In order to protect against the impact of adverse fluctuations in the price of
cotton, on the price of its products, CTML entered into a six months futures contract on the
same day to deliver 4,000 maunds of cotton at a price of Rs. 6,300 per maund.
At year end i.e. 30 June 2012, the market price of cotton (spot) was Rs. 5,500 per maund and
the futures price for September delivery was Rs. 5,550 per maund.
All necessary conditions for hedge accounting have been complied with. (05)
(b) On 1 July 2011, 2 million convertible debentures of Rs. 100 each were issued. Each debenture
is convertible into 25 ordinary shares of Rs. 10 each on 30 June 2014. Interest is payable
annually in arrears @ 8% per annum. On the date of issue, market interest rate for similar
debt without conversion option was 11% per annum. However, on account of expenditure of
Rs. 4 million, incurred on issuance of shares, the effective interest rate increased to 11.81%. (08)
Required:
Prepare Journal entries for the year ended 30 June 2012 to record the above transactions.
(Show all necessary calculations)
Q.3 In order to pursue expansion of its business, Parrot Limited (PL) has made the following
investments during the year ended 30 June 2012:
(a) On 1 July 2011, PL acquired 20% shares of Goose Limited (GL), a listed company, when
GL’s retained earnings stood at Rs. 250 million and the fair value of its net assets was
Rs. 350 million. The purchase consideration was two million ordinary shares of PL whose
market value on the date of purchase was Rs. 33 per share. PL is in a position to exercise
significant influence in finalizing the financial and operational policies of GL.
The summarized statement of financial position of GL at 30 June 2012 was as follows:
Rs. in million
Share capital (Rs. 10 each) 100
Retained earnings 280
380
Net assets 380
Recoverable amount of GL’s net assets at 30 June 2012 was Rs. 370 million. (06)
(b) Costs incurred for development and promotion of a brand are enumerated below:
Rupees
(i) Research on size of potential market 800,000
(ii) Products designing 1,500,000
(iii) Labour costs in refinement of products 950,000
(iv) Development work undertaken to finalize the product design 11,000,000
(v) Cost of upgrading the machine 18,000,000
(vi) Staff training costs 600,000
(vii) Advertisement costs 3,400,000 (06)
Required:
Discuss how the above investments/costs would be accounted for in the consolidated financial
statement for the year ended 30 June 2012.
Q.4 Primate Mart Limited (PML) operates a network of several retail stores throughout the
country. In order to retain its market share and achieve growth in revenue, PML has extended
substantial credit facilities to its major customers. Consequently, PML’s bank borrowings
have increased substantially over the past few years. PML has recently requested its bank for
further increase in its borrowing facilities.
The bank is concerned about the increase in the quantum of loans extended to PML and has
appointed you to analyse the financial performance of PML for the last three years. The
information available in respect of the company is as follows:
(i) Statement of financial position

2012 2011 2010
-------------- Rs. in million --------------
Property, plant and equipment 322 290 278
Stock-in-trade 620 540 440
Trade debts 443 385 344
Cash 15 12 12
1,400 1,227 1,074
Share capital 90 90 90
372 378 381
Long term loans from bank 420 355 212
Short term running finance 320 200 200
Trade creditors 280 284 277
Tax payable 8 10 4
1,400 1,227 1,074
(ii) Income statement

2012 2011 2010
-------------- Rs. in million --------------
Sales – Cash 1,050 940 790
– Credit 450 380 320
Total sales 1,500 1,320 1,110
Cost of sales (996) (864) (723)
Gross profit 504 456 387
Other operating costs (384) (341) (288)
Profit from operations 120 115 99
Financial charges (102) (79) (57)
Profit before taxation 18 36 42
Taxation (6) (12) (14)
Profit for the year 12 24 28
Depreciation for the year 33 36 42

Proposed dividend 10% 20% 20%
(iii) The present borrowing limit sanctioned to PML is Rs. 750 million.
Required:
Prepare a report for the bank containing an analysis of the financial performance of the
company for the period covered by the financial statements. Your report should focus on the
particular concern of the bank regarding the rapidly increasing level of lending exposure to
PML and suggest matters which the bank may discuss with the PML’s management.
(Assume your name is Bashir Ahmed) (15)
Q.5 Lion Engineering Limited (LEL) operates an approved pension scheme (defined benefit plan) for
all its permanent employees who have completed one year’s service. The details for the year ended
30 June 2012 relating to the pension scheme are as follows:
Rs. in million
Present value of pension scheme obligation at 30 June 2011 100
Fair value of scheme’s assets at 30 June 2011 70
Unrecognized actuarial loss at 30 June 2011 20
Current service cost 29
Contribution made during the year 30
Benefits paid during the year 45
Present value of pension scheme obligation at 30 June 2012 110
Fair value of scheme’s assets at 30 June 2012 80
(i) With effect from 1 July 2011, LEL had amended the scheme whereby the employees’
pension entitlement had been increased. The benefits would become vested after three years.
According to actuarial valuation the present value of the cost of additional benefits at
1 July 2011 was Rs. 15 million.
(ii) The discount rate and expected rate of return on the plan assets on 30 June 2012 were as
follows:
Discount rate 13%
Expected rate of return on plan assets 10%
(iii) LEL was required to pay Rs. 40 million to the scheme, during the year ended 30 June 2012.
Because of cash flow constraints, LEL was able to contribute Rs. 30 million only.
(iv) Average remaining working lives of employees is 10 years.
(v) LEL uses the corridor approach to recognize actuarial gains and losses.
(vi) Last actuarial valuation was made on 30 June 2012 using the Projected Unit Credit Method.
Required:
Prepare the relevant extracts from the statement of financial position and the related notes to the
financial statements for the year ended 30 June 2012. Show all necessary workings.
(Accounting policy note is not required. Deferred tax may be ignored) (18)
Q.6 Eagle Bank Limited (EBL) is listed on all the stock exchanges in Pakistan. At the year end, the total
borrowings of the bank amounted to Rs. 29,761 million, which included borrowings outside
Pakistan amounting to Rs. 11,712 million. Details of borrowings at the year-end were as follows:
(i) All local borrowings are in Pak Rupees.

(ii) Inter-bank call money borrowings amounted to Rs. 3,600 million. These borrowings were
unsecured and carried mark-up ranging between 8.7% and 12.1% per annum.
(iii) EBL operates in several countries where it maintains nostro accounts. The overdrawn nostro
accounts amounted to Rs. 456 million. Mark-up on overdrawn nostro accounts was charged
by the foreign banks at the rates prevailing in the respective countries.
(iv) Outstanding loans from the State Bank of Pakistan (SBP) under the Export Refinance
Scheme amounted to Rs. 14,182 million. These loans carried mark-up ranging between
9.7% and 11% per annum and were secured by EBL’s cash and other securities held by SBP.
(v) The borrowings under repurchase agreements amounted to Rs. 11,523 million and carried
mark-up ranging between 6.3% and 12.5% per annum. These borrowings are secured against
government securities amounting to Rs. 24,802 million and are repayable latest by
April 2013.
Required:
Prepare note on ‘Borrowings’ for inclusion in the Financial Statements of Eagle Bank Limited with
appropriate disclosures in accordance with the State Bank of Pakistan guidelines. (10)
Q.7 Quail Pakistan Limited (QPL), a listed company, is reviewing the following transactions which
have not yet been accounted for in the financial statements for the year ended 30 June 2012:
(a) On 1 July 2011, QPL announced a bonus of Rs. 30 million to its employees if they achieved
the annual budgeted targets by 30 June 2012. The bonus would be paid in the following
manner:
 25% of the bonus would be paid in cash on 31 December 2012 to all employees
irrespective of whether they are still working for QPL or not.
 The balance 75% will be given in share options, to those employees who are in QPL’s
employment on 31 December 2012. The exercise date and number of options will be fixed
by the management on the same day.
The budgeted targets were achieved. The management expects that 5% employees would
leave between 30 June 2012 and 31 December 2012. (04)
(b) On 30 June 2012, a plant having a list price of Rs. 50 million was purchased. QPL has
allowed the following options to the supplier, in respect of payment thereagainst:
 To receive cash equivalent to price of 1.5 million shares of the company after 3 months; or
 To receive 1.7 million shares of the company after 6 months.
QPL estimates that price of its shares would be Rs. 35 per share after three months and
Rs. 40 per share after six months. (05)
Required:
Discuss how the above share-based transactions should be accounted for in QPL’s financial
statements for the year ended 30 June 2012. Show necessary calculations.
(Journal entries are not required)
(THE END)

Q.1 The following summarised statements of financial position pertain to Bee Limited and its investee
companies as at 31 December 2011:
Bee Limited Cee Limited Tee Limited
--------------Rs. in million------------
ASSETS
Non-current assets
Property, plant and equipment 75,600 2,800 800
Investment in Cee Limited – at cost 3,900 - -
Investment in Tee Limited – at cost 300 - -
Current assets
Stock in trade 24,100 1,700 700
Trade and other receivables 16,400 2,900 820
Cash and bank 800 700 -
121,100 8,100 2,320
EQUITY AND LIABILITIES

Equity
Ordinary share capital (Rs.10 each) 44,300 2,800 1,000
Retained earnings 15,800 1,200 900
Long term loan 36,400 - -
Current liabilities
Trade and other payables 24,600 4,100 300
Bank overdraft - - 120
121,100 8,100 2,320

(i) Bee holds 252 million shares of Cee which were acquired in 2005 when the retained earnings
of Cee stood at Rs. 350 million. At the date of acquisition, the fair values of Cee’s net assets
were the same as their carrying amounts with the exception of a legal claim having a fair
value of Rs. 7 million which had been disclosed in the financial statements as a contingent
liability. The claim was settled on 30 November 2011, for the same amount.
(ii) Bee acquired 80% share capital of Tee several years ago for Rs. 1,200 million when Tee’s
retained earnings stood at Rs. 100 million. On 1 October 2011, Bee sold 75% of its holding in
Tee for Rs. 2,000 million. On the date of disposal, the fair value of remaining holding was
Rs. 650 million.
(iii) During the year, Cee sold goods to Bee at cost plus 25%. The amount invoiced during the
year amounted to Rs. 32 million. 40% of these goods were held by Bee at year end. Bee has
paid Rs. 20 million against the invoiced amount, upto 31 December 2011.
(iv) At year end, an impairment review indicated that 10% of Cee’s goodwill is required to be
written off.
(v) During the year ended 31 December 2011, Cee and Tee earned profits after tax of Rs. 250
million and Rs. 200 million respectively. It may be assumed that the profits had accrued
evenly throughout the year.
(vi) Bee follows a policy of valuing the non-controlling interest at its proportionate share of the
fair value of the subsidiary’s identifiable net assets.
Required
Prepare the consolidated statement of financial position of Bee Limited as at 31 December 2011 in
accordance with the requirements of International Financial Reporting Standards. (24 marks)
Note:
Ignore tax and comparative figures.
Notes to the consolidated statement of financial position are not required.
Show workings wherever necessary.
Q.2 Dee General Insurance Limited is a listed company. The following information relates to the year
ended 31 December 2011:
Direct and facultative Treaty
Fire and Marine,
Miscellan- Proport-
property aviation Motor
eous ional
damage and transport
----------------------------Rs. in million----------------------------
Commissions:
Paid / payable 321.41 126.87 215.00 90.94 0.30
Deferred: opening 148.79 11.31 128.50 38.59 -
Deferred: closing 160.43 5.68 114.23 35.17 -
Receipts from reinsurers 270.44 5.70 12.72 82.40 -
Net premium earned 907.75 768.70 2,745.64 948.48 0.70
During the year, management expenses (other than commission) amounted to Rs. 978 million.
These expenses are allocated on the basis of net premium earned.
Required:
Prepare a statement of expenses for inclusion in the financial statements for the year ended 31
December 2011. (Ignore comparative figures) (10 marks)
Q.3 The following information relates to Que Limited (QL) for the year ended 31 December 2011:
(i) Issued share capital on 1 January 2011 consisted of 80 million ordinary shares of Rs. 10
each.
(ii) Profit after tax amounted to Rs. 130 million. It includes a loss after tax from a discontinued
operation, amounting to Rs. 40 million.
(iii) On 30 September 2011, QL issued 20% right shares at a price of Rs. 11 per share. The market
value of the shares immediately before the right issue was Rs. 12.50 per share.
(iv) There are 25,000 share options in existence. Each option allows the holder to acquire 120
shares at a strike price of Rs. 10 per share. The options have already vested and will expire
on 30 June 2013. The average market price of ordinary shares in 2011 was Rs. 12 per share.
(v) QL had issued debentures in 2008 which are convertible into 6 million ordinary shares. The
debentures shall be redeemed on 31 December 2012. The conversion option is exercisable
during the last six months prior to redemption. The interest on debentures for the year 2011
amounted to Rs. 11 million.
(vi) Preference shares issued in 2009 are convertible (at the option of the preference shareholders)
into 4 million ordinary shares on 31 December 2013. The dividend paid on preference shares
during 2011 amounted to Rs. 5.75 million.
(vii) The company is subject to income tax at the rate of 35%.
Required:
Prepare extracts from the financial statements of Que Limited for the year ended 31 December
2011 showing all necessary disclosures related to earnings per share. (Ignore comparative figures)
(17 marks)
Q.4 Zee Power Limited (ZPL) has been facing short term liquidity issues during the financial year
ended on 31 December 2011. As a result, the following transactions were undertaken:
(i) On 27 December 2011, ZPL sold its investment in listed Term Finance Certificates (TFCs) to
Vee Investment Company Limited with an agreement to buy them back in 10 days. Relevant
details are as follows:
Rupees
Sale price 10,150,000
Buy back price 10,183,337
Value in ZPL’s books as on 27 December 2011 10,144,332
Market price as on 31 December 2011 10,163,125
ZPL intends to hold these TFCs till maturity.
(ii) On 1 January 2009, ZPL had obtained a bank loan of Rs. 100 million at 10% per annum.
The interest was payable annually on 31 December and principal amount was repayable in
five equal annual installments commencing from 31 December 2009. On 1 January 2011, the
bank agreed to facilitate ZPL as follows:
Balance amount of the principal would be paid at the end of the loan’s term i.e. on 31
December 2013.
With effect from 1 January 2011, interest would be paid at the rate of 10.5% per annum.
The market rate for similar debt is 10%.
(iii) On 1 July 2011, ZPL sold its plant and machinery to Kay Leasing Limited, a related party,
for Rs. 90 million and leased it back for five years at semi-annual rentals amounting to
Rs. 9.66 million, payable in arrears on June 30 and December 31. The carrying amount of
plant and machinery on the date of sale was Rs. 80 million and its fair value was Rs. 60
million.
The lease qualifies as an operating lease and the rentals are based on fair market rate.
Required:
Prepare journal entries to record the above transactions in the books of Zee Power Limited.
(18 marks)
Q.5 (a) Specify the criteria for identification of operating segments, in accordance with the
International Financial Reporting Standards. (03 marks)
(b) Jay Limited is an integrated manufacturing company with five operating segments.
Following information pertains to the year ended 31 March 2012:
Internal External Total Profit /

Operating Assets Liabilities
revenue revenue revenue (loss)
segments
-----------------------Rs. in million-----------------------
A 38 705 743 194 200 130
B - 82 82 (22) 44 40
C - 300 300 81 206 125
D 35 - 35 10 75 60
E 38 90 128 (63) 50 25
Total 111 1,177 1,288 200 575 380
Required:
In respect of each operating segment explain whether it is a reportable segment. (09 marks)
Q.6 Gee Investment Company Limited (GICL) acquires properties and develops them for diversified
purposes, i.e. resale, leasing and its own use. GICL applies the fair value model for investment
properties and cost model for property, plant and equipment.
The details of the buildings owned are as follows:
Useful Residual Fair value as on 31 December

Date of Cost
Property life value 2011 2010
acquisition
(years) -------------------Rs. in million-----------------
A 1 August 2006 20 130 14 100 150
B 1 January 2009 15 240 24 240 210
C 1 July 2009 10 160 20 150 120
D 1 July 2008 10 10 1 Not available
E 1 August 2011 20 48 4 51 -
Property A GICL had been trying to sell this property for the last two years. However, due to
weak market, the directors finally decided to lease it with effect from 1 October 2011
when its fair value was Rs. 120 million.
Property B The possession of this property was acquired from the tenants on 30 June 2010 when
the company shifted its head office from Property C to Property B. The fair value on
the above date was Rs. 195 million.
Property C When the head office was shifted from this property, it was leased to a subsidiary at
market rate. On the date of lease, the fair value was equal to its carrying amount.
Property D This property is situated outside the main city and its fair value cannot be
determined. It was rented to a government organization soon after the acquisition.
Property E This property is an office building comprising of three floors. After acquisition, two
floors were rented out. On 1 November 2011, GICL established a branch office on
the third floor.
Details of costs incurred on acquisition are as follows:
Rs. in million
Purchase price 42.50
Agent’s commission 0.50
Registration fees and taxes 2.00
Administrative costs allocated 3.00
48.00
Required:
(a) Prepare a note on investment property, for inclusion in GICL’s separate financial statements
for the year ended 31 December 2011. (Ignore comparative figures) (16 marks)
(b) Explain how Property C would be accounted for in the consolidated financial statements for
the year ended 31 December 2011. (03 marks)
(THE END)

Q.1 Hi-Tech Pakistan Limited (HPL) is a public limited company and deals in medical equipments. On 1
October 2009 HPL had introduced a Robotic Surgery System for the first time in Pakistan.
In November 2009, HPL had launched a country wide sales promotion campaign to introduce the
system in various hospitals at a cost of Rs. 16 million whereas expenditure on training of the
technical staff amounted to Rs. 12 million.
On 1 April 2010 HPL signed a lease agreement with Comforts Hospital for sale and 3-year
maintenance of the system. The terms of the agreement are as under:
Lease period 3 years

Initial payment on signing of the agreement Rs. 20 million
6 half yearly installments commencing 30 September 2010 Rs. 25 million
Implicit rate of interest per annum 15.192%
Cost of the system is Rs. 100 million whereas maintenance cost of the system for the three years was
estimated at Rs. 8.4 million. To cash customers, the system is sold at a mark-up of 25% on cost. HPL
expects a gross margin of 30% on such maintenance contracts, whereas actual costs incurred on the
maintenance, during the year ended 30 September 2011 amounted to Rs. 2.5 million (2010: Rs. 1.7
million).
The hospital was unable to pay the installment due on 31 March 2011 due to solvency problems.
After intense negotiations, HPL and the hospital agreed to a restructuring arrangement, whereby the
hospital would settle its obligation by paying 4 half yearly installments of Rs. 32 million each,
commencing from 30 September 2011.
Required:
Compute the impact of the above transactions on various items forming part of the statements of
comprehensive income and financial position of Hi-Tech Pakistan Limited for the year ended 30
September 2011 in accordance with International Financial Reporting Standards. Give comparative
figures. (Notes to the financial statements are not required.) (16 marks)
Q.2 Global Investment Limited (GIL) is listed in Pakistan. During the year ended 30 September 2011,
GIL entered into the following contracts with a UAE based company:
(i) On 28 September 2011 GIL committed to buy certain financial assets on 3 October 2011 for
AED 20,000. The fair value of these assets on balance sheet date and settlement date was AED
21,000 and AED 21,500 respectively.
(ii) On 29 September 2011 GIL agreed to sell certain financial assets on 4 October 2011 having a
carrying value of AED 34,000 (Rs. 809,200) for AED 35,000. The fair value of these assets on
the balance sheet date and settlement date was AED 35,200 and AED 34,800 respectively.
The above types of financial assets are classified by GIL as held for trading. Exchange rates on the
relevant dates were as under:
Date 1 AED = Rs.
28 September 2011 24.00
29 September 2011 23.00
30 September 2011 23.50
03 October 2011 25.00
04 October 2011 26.00
Required:
Prepare accounting entries to record the above transactions on the relevant dates in accordance with
International Financial Reporting Standards, using:
(a) Trade date accounting (b) Settlement date accounting (16 marks)
Q.3 Alpha Pakistan Limited (APL) is a listed company and has 60% holding in Bravo Limited (BL). The
company is in the process of preparation of its consolidated financial statements for the year ended
30 September 2011. Following are the extracts from the information that has been gathered so far:
Consolidated Statement of Comprehensive Income (Draft)
2011
Rs. in million
Sales 65,000
Cost of products sold (59,110)
Other operating income 2,000
Operating expenses (3,000)
Financial expenses (890)
Income tax expense (1,200)
Profit for the year 2,800
Profit attributable to
Owners of the holding company 2,500
Non-controlling interest 300
2,800
Consolidated Statement of Financial Position (Draft)

2011 2010 2011 2010
Equity and liabilities Assets
Share capital (Rs. 10 each) 550 500 Property, plant and equipment 1,100 900
Retained earnings 5,950 3,600 Goodwill 15 15
Non-controlling interest 235 120 Long term receivables 24 29
Long term loans 440 145 Stock in trade 6,760 4,280
Deferred tax 210 10 Trade debts 7,534 5,421
Trade and other payables 4,688 3,970 Other receivables 900 725
Accrued financial expenses 35 30 Cash and bank balances 2,645 2,980
Provision for taxation 200 25
Short term borrowings 6,670 5,950
18,978 14,350 18,978 14,350
Following additional information is available:

(i) During the year, BL sold goods amounting to Rs. 140 million to APL at a margin of 25% of
cost. 40% of the above amount remained unpaid and 30% of the goods remained unsold as on
30 September 2011. No adjustments in this regard have been made in the above statements.
(ii) Depreciation charge for the year was Rs. 75 million and Rs. 15 million for APL and BL
respectively.
(iii) During the year APL acquired property, plant and equipment amounting to Rs. 250 million
against a long term loan.
(iv) The amount of long term receivables represents present value of interest free loans to
employees. The gross value of the loans is Rs. 27 million (2010: Rs. 33 million).
(v) Operating expenses include bad debt expenses amounting to Rs. 44 million. During the year,
trade debtors amounting to Rs. 30 million were written off.
(vi) Trade and other payables include APL’s unclaimed dividend amounting to Rs. 8 million (2010:
Rs. 10 million). At APL’s Board meeting held on 30 November 2011, final cash dividend of Rs.
3.0 per share has been proposed (2010: Final cash dividend of Rs 2.0 per share and 10% bonus
shares).
Required:
Prepare a consolidated statement of cash flows including all relevant notes for Alpha Pakistan
Limited for the year ended 30 September 2011 using the direct method in accordance with
International Financial Reporting Standards. (Ignore corresponding figures.) (23 marks)
Q.4 On 1 October 2009 Sky Limited (SL) acquired 25% holding (2.5 million ordinary shares) in Mars
Limited (ML) for Rs. 900 million. On the date of acquisition, ML’s equity was as follows:
Rs. in million
Ordinary share capital (Rs. 100 each) 1,000
Share premium 150
Retained earnings 2,898
12% cumulative preference share capital 200
On the above date, fair value of a building owned by ML exceeded its carrying value by Rs. 12
million and its estimated useful life was 15 years. Fair values of all other assets and liabilities of ML
were equal to their carrying values.
(i) ML’s profit after tax for the year ended 30 September 2011 was Rs. 250 million (2010: Rs. 240
million). Dividend received from ML amounted to Rs. 30 million (2010: nil).
(ii) Cost of goods purchased from SL and included in ML’s closing inventory was Rs. 10 million
(2010: Rs. 16 million). SL makes a profit of 20% on all sales.
(iii) Applicable tax rate is 35% and 10% for business and dividend income respectively.
On 1 January 2011, SL acquired 70% holding (7 million ordinary shares) in Jupiter Limited (JL) for
Rs. 1,400 million. SL has been following a policy to account for investments in associates using
equity basis of accounting. Since SL is now required to prepare consolidated financial statements, it
needs to change its accounting policy for investments in associates, for the purpose of preparation of
its separate financial statements, to comply with the requirements of International Financial
Reporting Standards.
Required:
Prepare the following notes (relevant portion only) for incorporation in the separate financial
statements of Sky Limited for the year ended 30 September 2011:
(a) Change in accounting policy
(b) Investments
(Show all the necessary disclosures and comparative figures in respect of the above, in accordance with
International Financial Reporting Standards.) (22 marks)
Q.5 XL (Private) Limited is a long established company and provides a range of services to business
organizations for development of their human resources. Most of its staff consists of qualified and
experienced professionals.
The company plans to expand its business by establishing a research division. In this respect, XL is
evaluating a proposal for raising finance by issuing ordinary shares. To estimate value of its shares,
XL has identified a listed company, PL Limited, which is engaged in similar business.
Financial statistics and other information as of 30 September 2011, for XL and PL, are given below:
XL Limited PL Limited
--- Rs. in million ---
Ordinary share capital as at 1 October 2010 (Rs. 10 each) 400 1,000
10% cumulative preference shares as at 1 October 2010 (Rs. 10 each) 120 -
Right shares issued on 1 April 2011 (Rs. 10 each) - 100
Total comprehensive income 292 600
Dividend paid 168 500
PL issued right shares on 1 April 2011 at Rs. 25 per share. The prevailing market price per share on
the date of issue and on 30 September 2011 was Rs. 35 and Rs. 40 respectively.
PL’s total comprehensive income includes unrealized gain of Rs. 15 million on investments available
for sale.
Annual rate of growth in earnings and dividends for XL and PL is estimated at 5% and 4.5%
respectively. The cost of equity of companies having similar businesses is estimated at 15% per
annum.
Required:
(a) Compute the value of XL’s shares as on 30 September 2011 based on:
(i) P/E ratio
(ii) Dividend yield
(b) Identify any two weaknesses of each of the above valuation methods. (13 marks)
Q.6 Al-Amin Bank Limited is listed on all the stock exchanges in Pakistan. At year end, the total
advances amounted to Rs 75,000 million which include non-performing advances of Rs. 5,000
million. The break-up of the non-performing advances and the provisions there-against is as under:
Other assets
Sub-
especially Doubtful Loss Total
Standard
mentioned
----- Rs. in million -----
Advances 100 660 840 3,400 5,000
Provisions required and held 5 120 530 3,345 4,000
The sub-standard category includes advances of Rs. 260 million pertaining to overseas operations of
the bank. The required provision of Rs. 50 million has been made against such advances.
During the year the movement in the specific provision was as under:
Rs. in million
Opening balance 3,320
Charge for the year 802
Reversals (90)
Amounts written off (50)
Exchange rate adjustment 18
Total 4,000
In addition to the above specific provisions, it is the bank’s policy to make additional general
provision based on the judgment of the bank. Opening balance for general provision was Rs. 65
million. During the year, the bank made provisions of Rs. 25 million and Rs. 15 million against
consumer and agriculture advances respectively.
Required:
Prepare relevant notes on non-performing advances and provisions for inclusion in the financial
statements of Al-Amin Bank Limited giving appropriate disclosure in accordance with the guidelines
issued by the State Bank of Pakistan. (10 marks)
(THE END)

Final Examinations June 7, 2011
Reading time – 15 minutes
Summer 2011 – Module E 100 marks – 3 hours
Q.1 The draft statements of financial position of Oceana Global Limited (OGL), and its subsidiary
Rivera Global Limited (RGL) as of March 31, 2011 are as follows:
OGL RGL
Rs. in million
Assets
Property, plant and equipment 700 200
Intangible assets 4 -
Investment in RGL (opening balance) 23 -
Investment in RGL (acquired during the year) 108 -
Current assets 350 150
1,185 350
Equity and Liabilities
Share capital (Ordinary shares of Rs. 100 each) 300 100
Retained earnings 550 80
Fair value reserve 3 -
853 180
Non-current liabilities 150 40
Current liabilities 182 130
1,185 350
The details of OGL’s investments in RGL are as under:
Face value of Purchase
Acquisition date shares acquired consideration
Rs. in million
July 1, 2009 10 20
October 1, 2010 45 108
Other information relevant to the preparation of the consolidated financial statements is as under:
(i) On October 1, 2010 the fair value of RGL’s assets was equal to their carrying value except for
non-depreciable land which had a fair value of Rs. 35 million as against the carrying value of
Rs. 10 million.
(ii) On October 1, 2010 the fair value of RGL’s shares that were acquired by OGL on July 1,
2009 amounted to Rs. 28 million.
(iii) RGL’s retained earnings on October 1, 2010 amounted to Rs. 60 million.
(iv) Intangible assets represent amount paid to a consultant for rendering professional services for
the acquisition of 45% equity in RGL.
(v) During February 2011 RGL sold goods costing Rs. 25 million to OGL at a price of Rs 30
million. 25% of these goods were included in OGL’s closing inventory and 50% of the
amount was payable by OGL, as of March 31, 2011.
(vi) OGL follows a policy of valuing non-controlling interest at its fair value. The fair value of
non-controlling interest in RGL, on the acquisition date, amounted to Rs. 70 million.
Required:
Prepare a consolidated statement of financial position for Oceana Global Limited as of March 31,
2011 in accordance with International Financial Reporting Standards. (16 marks)
Q.2 Following are the extracts from draft statement of comprehensive income of Kahkashan Limited
(KL) for the year ended March 31, 2011:
Rs. in million
Net sales 800
Cost of sales (640)
Selling and distribution expenses (32)
Administrative expenses (15)
Finance costs (10)
Other operating income 13
Profit before tax 116
The following issues need to be resolved, to finalize the accounts:
(i) On April 1, 2010 the company had issued 0.5 million 12% Term Finance Certificates (TFCs)
of Rs. 100 each. The principal amount of Rs. 50 million is included in non-current liabilities.
Interest is payable annually in arrears. On the date of issue, the prevailing interest rate for
similar debts without conversion option was 14% per annum. TFCs would mature on March
31, 2014 but are convertible into eight ordinary shares of Rs. 10 each, at the option of the
certificate holders, at any time prior to maturity. Interest was paid on March 31, 2011 and
charged to finance cost.
(ii) KL entered into a sale and leaseback arrangement on October 1, 2010 for one of its plants
having remaining useful life of 5 years with a nil residual value. Relevant information is as
under:
Rs. in million
Carrying value of the plant as of October 1, 2010 43
Selling price 53
Installments payable semi-annually, in advance, for a period of 5 years 7
Income of Rs. 10 million has been recognized on disposal of the plant and is included in other
operating income. Interest rate implicit in the lease is 13.597%.
(iii) On April 1, 2010 KL acquired 25% holding in SL Limited by purchasing 50,000 ordinary
shares for Rs 6 million. In March 2011 a dividend of Rs. 20 per share was received by KL and
credited to other operating income. SL’s profit and other comprehensive income, net of tax,
for the year ended March 31, 2011 was Rs. 10 million and Rs. 2 million respectively.
(iv) On April 1, 2006 KL had acquired a plant at a cost of Rs. 30 million. The useful life of the
plant was estimated at 15 years and it is being depreciated under the straight line method. On
October 1, 2010 the plant suffered physical damage but is still working. A valuation was
carried out to determine the impairment loss. The following information is available from the
valuer’s report received on April 5, 2011:
Value in use Rs. 16 million
Selling price, net of costs to sell Rs. 12 million
Estimated remaining useful life as of October 1, 2010 5 years
Depreciation for the year ended March 31, 2011 has been accounted for without considering
the impact of the valuer’s report.
(v) Tax assessment for the accounting year ended March 31, 2010 was finalized in February 2011
in which liabilities outstanding for more than three years amounting to Rs. 6 million were
added to income. 30% of these liabilities have already been paid during the year ended March
31, 2011. Tax effect of these transactions has not been accounted for.
(vi) Applicable tax rate for business income and dividend income is 35% and 10% respectively.
The amount of tax depreciation is the same as accounting depreciation, except for any
difference arising out of information provided in Para (iv).
Required:
Prepare a statement of comprehensive income for the year ended March 31, 2011 in accordance
with International Financial Reporting Standards. (25 marks)
Q.3 Waste Management Limited (WML) had installed a plant in 2005 for generation of electricity from
garbage collected by the civic agencies. WML had signed an agreement with the government for
allotment of a plot of land, free of cost, for 10 years. However, WML has agreed to restore the site,
at the end of the agreement.
(i) Initial cost of the plant was Rs. 80 million. It is estimated that the site restoration cost would
amount to Rs. 10 million.
(ii) It is the policy of the company to measure its plant and machinery using the revaluation
model.
(iii) When the plant commenced its operations i.e. on April 1, 2005 the prevailing market based
discount rate was 10%.
(iv) On March 31, 2007 the plant was revalued at Rs. 70 million including site restoration cost.
(v) On March 31, 2009 prevailing market based discount rate had increased to 12%.
(vi) On March 31, 2011 estimate of site restoration cost was revised to Rs. 14 million.
(vii) Useful life of the plant is 10 years and WML follows straight line method of depreciation.
(viii) Appropriate adjustments have been recorded in the prior years i.e. up to March 31, 2010.
Required:
Prepare accounting entries for the year ended March 31, 2011 based on the above information, in
accordance with International Financial Reporting Standards. (Ignore taxation.) (17 marks)
Q.4 Extracts from statement of comprehensive income of Rahat Limited (RL) for the year ended March
31, 2011 are as under:
2011 2010
Rs. in ‘000
Profit after taxation 150,000 110,000
Exchange gain on foreign operations, net of tax 10,000 8,000
Total comprehensive income 160,000 118,000
Following further information is available:

(i) As of April 1, 2010 share capital of the company consisted of:
 5 million ordinary shares of Rs. 10 each.
 0.2 million convertible 15% cumulative preference shares of Rs. 100 each.
(ii) Each preference share is convertible into 7 ordinary shares at the option of the shareholders.
10,000 preference shares were converted into ordinary shares on July 1, 2010.
(iii) On September 10, 2010 a right issue of one million ordinary shares had been announced at an
exercise price of Rs. 12 per share. By October 1, 2010 which was the last date to exercise the
right, all the shares had been subscribed and paid. The market price of an ordinary share on
September 10 and October 1, 2010 was Rs. 15.50 and Rs. 15 respectively.
(iv) On April 30, 2011 the Board of Directors had declared a final cash dividend of 20%
(2010:18%) for the year ended March 31, 2011.
(v) There was no movement in share capital during the previous year.
Required:
Prepare a note related to earnings per share, for inclusion in the company’s financial statements for
the year ended March 31, 2011 in accordance with International Financial Reporting Standards.
Show comparative figures. (16 marks)
Q.5 Galaxy Textiles Limited (GTL) operates a funded gratuity scheme for all its employees.
Contributions to the scheme are made on the basis of annual actuarial valuation. The following
relevant information has been extracted from the actuarial report pertaining to the year ended
March 31, 2011.
Rs. in million
Present value of defined benefit obligations as of:
 April 1, 2010 133
 March 31, 2011 166
Fair value of plan assets as of:
 April 1, 2010 114
 March 31, 2011 120
Net cumulative unrecognized losses as of April 1, 2010 19
Benefits paid by the plan to the employees 6
Current service cost 15
Interest cost 16
Expected return on plan assets 14
Actuarial gains and losses are recognized using the corridor method, over the expected average
remaining working lives of the employees. As of March 31, 2011 the expected average remaining
working lives of the employees was 18 years.
Required:
Prepare a note on retirement benefits for presentation in the financial statements for the year ended
March 31, 2011 in accordance with International Financial Reporting Standards. (14 marks)
Q.6 Following information has been extracted from the records of A-One Asset Management Fund
Limited for the year ended March 31, 2011.
Rs. in million
Net assets at the beginning of the year (900 million units) 27,000
100 million units issued during the year 3,500
95 million units redeemed during the year 3,277
Investments classified as ‘available for sale’
 Fair value at year end 1,800
 Carrying value at year end 1,200
 Net unrealized appreciation in fair value of investments
at the beginning of the year 480
Investments classified as ‘at fair value through profit or loss -
held for trading’
 Fair value at year end 2,500
 Carrying value at year end 2,200
Element of income and capital gains included in prices of
units issued/redeemed and transferred to income statement 173
Capital gains 400
Other net income for the year 3,000
Final distribution for the year ended March 31, 2011 of Rs. 5.00 per unit (2010: Rs. 4.00 per unit)
was announced on April 16, 2011.
Required:
Prepare a statement of movement in unit holders' fund for the year ended March 31, 2011.
(12 marks)
(THE END)


Final Examinations – Winter 2010 December 7, 2010
Module E 100 marks - 3 hours
Q.1 Rainbow Textiles Limited (RTL) is a public limited company and owns 70% holding in Fabrics
Design Limited (FDL).
FDL is located in a foreign country and its functional currency is FC. RTL acquired FDL on July
1, 2009 for FC 12 million when FDL's share capital and retained earnings were FC 5 million and
FC 3 million respectively. On the acquisition date, fair value of FDL's net assets was FC 11 million.
The fair value of all the assets except leasehold land and buildings was equal to their carrying
amounts. The remaining lease period of the land and useful life of the buildings at the date of
acquisition was 20 years. RTL and FDL use straight line method of depreciation.
The following balances were extracted from the Statement of Comprehensive Income of RTL and
FDL for the year ended June 30, 2010:
Statement of Comprehensive Income
RTL FDL
Rs. in million FC in million
Sales revenue 1,000 25
Cost of sales (450) (15)
Gross profit 550 10
Selling and administrative expenses (250) (5)
Financial expenses (25) (1)
Profit before taxation 275 4
Taxation (100) (1)
Profit after taxation 175 3
The following additional information is also available:
(i) On April 10, 2010 RTL sold goods for Rs. 30 million to FDL at a margin of 20% of selling
price. Full payment was made by FDL on May 1, 2010. No exchange gain or loss was
recorded on the transaction. Goods valuing FC 1.0 million were still in closing inventory of
FDL as of June 30, 2010.
(ii) An impairment test was carried out on June 30, 2010 which indicated that the goodwill has
been impaired by 25%.
(iii) RTL follows a policy of valuing the non-controlling interest at its proportionate share of fair
value of the subsidiaries’ identifiable net assets.
(iv) FDL has not issued any shares after the acquisition.
(v) Exchange rates relevant to the preparation of the financial statements are as follows:
1 FC = Rs. 1 FC = Rs.
30-Jun-2009 / 1-Jul-2009 22.00 30-Jun-2010 23.50
10-Apr-2010 22.50 Average rate for the year 22.75
1-May-2010 23.00
Required:
Prepare the Consolidated Statement of Comprehensive Income of Rainbow Textiles Limited for the
year ended June 30, 2010. (23 marks)
Q.2 Modern Construction Limited (MCL) was established on July 1, 2008. It had entered into two
different contracts up to June 30, 2010 and their progress is as under:
Contract A Contract B
Contract start date 1-1-2009 1-9-2009
Work certified and billed upto June 30, 2009 25% -
Work certified and billed upto June 30, 2010 80% 20%
Work completed but not certified upto June 30, 2010 - 5%
--------- Rupees in million ---------
Contract price 800 400
Costs incurred upto June 30, 2009 180 -
Costs incurred during the year ended June 30, 2010 420 125
Estimated costs to complete on June 30, 2009 500 -
Estimated costs to complete on June 30, 2010 100 270
Unpaid bills (gross) as on June 30, 2010 140 -

(i) The company recognizes contract revenue and expenses using % of completion method.
(ii) 10% of contract price had been paid as advance on signing of each contract and is adjustable
from the progress payments.
(iii) A progress bill is raised on the basis of work % certified by the consultant. All customers
deduct 5% retention money from the progress bills.
(iv) Contract costs incurred during the year do not include:
Retainership fee amounting to Rs. 2 million paid to the consultant for technical assistance
on contracts A and B. 30% of the consultant’s time was used on contract A and 70% on
contract B.
Research cost for improving work quality and cost efficiency amounting to Rs. 1.9 million.
(v) The company is required to rectify all the defects during warranty period of one year. It is
estimated that rectification costs to be incurred during warranty period would be 5% of the
contract price.
Required:
Prepare appropriate extracts to be reflected in the Statement of Financial Position, Income
Statement and relevant notes to the accounts for the year ended June 30, 2010 in accordance with
IAS 11 (Construction Contracts). (20 marks)
Q.3 Mahfooz General Insurance Limited (MGIL) is a listed company. The information pertaining to
the business underwritten inside Pakistan for the year ended June 30, 2010 is as under:
Direct and facultative Treaty

Fire & Marine,
Accident &
property aviation & Motor Proportional
health
damage transport
------------------------------------ Rupees in million ------------------------------------
Claims:
Total claims paid 900 450 1,150 250 13
Outstanding - Opening 600 400 900 300 10
Outstanding - Closing 500 450 750 150 12
Reinsurance and other recoveries:

Total received 600 300 850 160 -
Outstanding - Opening 500 300 700 150 -
Outstanding - Closing 350 400 550 80 -
Required:
Prepare a statement of claims for the year ended June 30, 2010 in accordance with the Insurance
Ordinance, 2000. Ignore the comparative figures. (12 marks)
Q.4 The following balances were extracted from the Consolidated Income Statement and Consolidated
Statement of Financial Position of Karachi Group Limited (KGL) for the year ended June 30, 2010.
Consolidated Income Statement
2010
Rs. in million
Operating profit 189
Share of profit in associates 5
Financial expenses (14)
Profit before taxation 180
Taxation (65)
Profit for the year 115
Profit attributable to
Owners of the parent 100
Non-controlling interest 15
115
Consolidated Statement of Financial Position

Rs. in million
2010 2009 2010 2009
EQUITY AND LIABILITIES ASSETS
Equity Non-current assets
Share capital 200 200 Property, plant and equipment 510 500
Retained earnings 320 250 Investment in associates 12 10
520 450 Intangible assets 30 25
Non-controlling interest 28 10 552 535
548 460
Non-current liabilities Current assets
Long term Loans 125 120 Inventories 261 200
Trade debtors and other receivables 180 162
Current liabilities Short term deposits 10 -
Current maturity of long term loans 20 - Cash and bank balances 20 25
Trade creditors and other payables 262 287 471 387
Accrued financial expenses 8 5
Taxation 60 50
350 342
1,023 922 1,023 922
(i) One of KGL’s three subsidiaries, Auto Engineering Works Limited was acquired on July 1,
2009 by purchase of 80% shareholdings for Rs. 30 million. Fair value of the assets and
liabilities at the time of acquisition were as follows:
Rs. in million
Property, plant and equipment 20.50
Inventories 10.00
Trade debtors and other receivables 8.00
Cash and bank balances 6.00
Trade creditors and other payables (17.00)
27.50
It is KGL’s policy to value the non-controlling interest at its proportionate share of fair value
of the subsidiaries' net assets.
(ii) Book value of intangible assets on July 1, 2009 included trademarks of Rs. 6.0 million. There
was 50% impairment in the value of trademarks during the year ended June 30, 2010.
(iii) The following information pertaining to property, plant and equipment is available:
Total depreciation charge for the year was Rs. 70.0 million.
A machine costing Rs. 10.0 million and having book value of Rs. 6.5 million was traded-in
with another machine having a fair market value of Rs. 7.0 million with an additional cash
payment of Rs. 1.0 million.
Fully depreciated assets costing Rs. 10.0 million were scrapped during the year.
Proceeds of a long term loan amounting to Rs. 5.0 million were specifically used for
purchase of property, plant and equipment.
(iv) On August 5, 2010 the board of directors proposed a final dividend at 20% for the year ended
June 30, 2010 (2009: 15% dividend declared on August 10, 2009).
Required:
Prepare a Consolidated Statement of Cash Flows under the indirect method, for the year ended
June 30, 2010, including notes thereto as required by IAS 7 (Statement Of Cash Flows). (25 marks)
Q.5 Following are the extracts from the latest annual published accounts of the two companies which
are engaged in similar types of businesses.
Statement of Financial Position
AB Limited XY Limited
Rupees in million
Property, plant and equipment 275 390
Inventories 125 45
Account receivables 130 50
Cash and bank balances 10 6
540 491
Share capital (Shares of Rs. 10 each) 210 215

Retained earnings 190 90
Long term liabilities 60 105
Current liabilities (other than bank overdraft) 80 60
Bank overdraft - 21
540 491
Income Statement for the year
Sales 900 825

Cost of sales (500) (530)
Gross profit 400 295
Operating and other expenses (135) (150)
Financial expenses (6) (10)
Profit before taxation 259 135
Taxation (100) (55)
Profit after taxation 159 80
Share market price at year end 140 50
Required:
(a) Comment on the strategic outlook of the management of the above companies based on their
debt equity ratio and liquidity position.
(b) Based on the price earnings ratio comment on the attractiveness of the two companies, from
the investors point of view. (10 marks)
Q.6 Engineering Works Limited (EWL) is in the process of finalising its Financial Statements for the
year ended June 30, 2010. The issue as detailed below is being deliberated upon by the CFO.
It is the policy of EWL to pay annual bonus of Rs. 10,000 each to all of its 600 workers, after two
months of closure of the financial year. On June 1, 2010 the management announced a scheme
whereby each worker was given the option to purchase 1,000 shares of EWL on a payment of Rs. 8
per share, in lieu of cash bonus for the year ended June 30, 2010. The face value of the company’s
shares is Rs. 10 each. The last date to exercise the option was fixed at July 31, 2010. Other related
information is as follows:
60% employees exercised the option by June 30, 2010.

By July 31, 2010 further 20% employees had accepted this option.
The workers who exercise the option are required to retain the shares up to June 30, 2012 before
being eligible to sell them.
The shares were issued on September 1, 2010.
The market price and fair value of the shares at various dates were as under:
30-Jun-10 31-Jul-10 01-Sep-10

Market price per share Rs. 32 37 42
Fair value per share (after taking effect of post
vesting transfer restriction) Rs. 30 34 40
Required:
Prepare journal entries for the above transactions and adjustments during the years June 30, 2010
and 2011. (10 marks)
(THE END)
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN
Final Examinations Summer 2010
June 8, 2010
ADVANCED ACCOUNTING AND FINANCIAL REPORTING

(MARKS 100)
(3 hours)
Q.1 The following information has been extracted from statements of financial position and the
comprehensive income of Parent Limited (PL), Subsidiary Limited (SL) and Jointly
Controlled Entity Limited (JCEL) for the year ended December 31, 2009.
Statement of financial position

PL SL JCEL
Rupees in million
Assets
Non-current assets
Investment in SL – at cost 35 - -
Investment in JCEL – at cost 25 - -
Current assets
Stocks in trade 20 17 16
Trade and other receivables 25 5 8
Cash and bank 3 1 2
228 63 100
Equity and Liabilities

Equity
Ordinary share capital (Rs. 10 each) 50 15 50
Long term loans 75 12 -
Current liabilities 25 18 22
228 63 100
Statement of comprehensive income

PL SL JCEL
Rupees in million
Sales 1,267 276 654
Cost of sales (928) (161) (469)
Gross profit 339 115 185
Selling expenses (174) (68) (100)
Administrative expenses (88) (30) (57)
Other income 10 - -
Financial charges (12) (4) -
Taxation (26) (5) (10)
Net profit 49 8 18
(i) PL owns 80% equity of SL which was acquired on January 1, 2009. JCEL is a jointly
controlled entity in which 50% equity is held by PL since inception.
(2)
(ii) On the date of acquisition, the book values of all the assets of SL were approximately
equal to their fair values except for the following:
Fair value Book value

Rs. in million
Equipment 15 12
Inventory 12 10
The remaining useful life of the above equipment on the date of acquisition was 3
years. The entire inventory acquired prior to acquisition was sold during 2009.
(iii) JCEL measures inventory using the weighted average method whereas PL uses first in
first out (FIFO) method. On December 31, 2008 the cost of JCEL’s inventory using
either methods was approximately the same. However, on December 31, 2009 the
value of its inventory using the FIFO method was Rs. 14 million.
(iv) PL sells goods at cost plus 25%. During 2009 invoices raised by PL against sales made
to SL and JCEL amounted to Rs. 10 million and Rs. 20 million respectively. Out of
these, inventories worth Rs. 2 million and Rs. 4 million were held by SL and JCEL
respectively as on December 31, 2009.
(v) PL uses proportionate consolidation method for recognizing its interest in JCEL.
(vi) There is no impairment in the value of goodwill.
(vii) It is the policy of PL to value the non-controlling interest at its proportionate share of
the fair value of the subsidiary’s identifiable net assets.
Required:
Prepare the consolidated statements of financial position and comprehensive income of PL
for the year ended December 31, 2009 in accordance with the International Financial
Reporting Standards. (Ignore deferred tax implications) (30)
Q.2 The following information pertains to ABC Limited, in respect of year ended March 31,
2010.
Rs. in ‘000
Consolidated profit for the year (including minority interest) 15,000
Profit attriutable to minority interest 2,000
Dividend paid during the year to ordinary shareholders 4,000
Dividend paid on 10% Cumulative Preference shares for the year 2009 2,000
Dividend paid on 10% Cumulative Preference shares for the year 2010 2,000
Dividend declared on 12% Non Cumulative Preference shares for the year 2010 2,400
(i) The dividend declared on the non-cumulative preference shares, as referred above,
was paid in April 2010.
(ii) The cumulative preference shares were issued at the time of inception of the company.
(iii) The company had 10 million ordinary shares at March 31, 2009.
(iv) The 12% non-cumulative preference shares are convertible into ordinary shares, on or
before December 31, 2011 at a premium of Rs. 2 per share. 0.50 million non
cumulative preference shares were converted into ordinary shares on July 1, 2009.
(v) 1.20 million right shares of Rs. 10 each were issued at a premium of Rs. 1.50 per share
on October 1, 2009. The market price on the date of issue was Rs. 12.50 per share.
(vi) 20% bonus shares were issued on January 1, 2010.
(vii) Due to insufficient profit no dividend was declared during the year ended March 31,
2009.
(viii) The average market price for the year ended March 31, 2010 was Rs. 15 per share.
Required:
Compute basic and diluted earnings per share and prepare a note for inclusion in the
consolidated financial statements for the year ended March 31, 2010. (17)
(3)
Q.3 Auto Construction Pakistan Limited (ACPL) is engaged in the business of renting of
construction machinery. On March 15, 2009 ACPL negotiated and finalised an agreement for
purchase of used machinery from Malaysia. The price on FOB basis was agreed at US$ 0.4
million. The machinery was loaded on the ship on April 1, 2009 and arrived at the company
premises on May 31, 2009. According to the agreement a down payment of 10% was made
on the date of loading. The remaining amount was paid on June 30, 2009. The US$
conversion rates on April 1, May 31 and June 30 were Rs. 80.90, Rs. 81.60 and Rs. 82.70
respectively. A cost of Rs. 4 million was incurred on freight, taxes and other charges.
Economic life of the machinery is 10 years.
On July 1, 2009, ACPL sold the machinery to Smart Investment Limited for Rs. 40 million
and leased it back under the following arrangement:
(i) Lease term of 5 years commencing from July 1, 2009.

(ii) 10 half yearly instalments of Rs. 5.50 million each payable in arrears.
(iii) Interest rate implicit in the lease at 12.506%
On July 1, 2009 ACPL rented the machinery to a customer for three years at a half yearly
rent of Rs. 5 million each, payable in advance with 5% annual increase.
Required:
Prepare notes to the financial statements for the year ended December 31, 2009 in
accordance with the requirement of IAS 17 (Leases). (13)
Q.4 Secured Bank Limited (SBL) is listed on all the Stock Exchanges in Pakistan. The cost of
various types of Investments held by the bank as of December 31, 2009 are as follows:
2009 2008
Rupees in million
Market treasury bills 366 309
Pakistan investment bonds 69 61
Government of Pakistan bonds (USD/Euro) 26 30
Investments in associates 9 8
Fully paid-up ordinary shares – listed 6 5
Fully paid-up ordinary shares – unlisted 2 3
Corporate debt instruments – listed 19 30
Corporate debt instruments – unlisted 260 210
Investments of mutual funds 32 28
Overseas government securities 60 52
Other investments 19 29
Provision for diminution / impairment in the value of investments as at January 1, 2008

amounted to Rs. 28 million. Other information relevant to the provision is as under:
Impairment (reversal) / loss for the year (6) 2

Charge for the year 17 12
Amounts written off during the year 5 3
Required:
Prepare a note on ‘investments by segments’ for inclusion in SBL’s financial statements for
the year ended December 31, 2009 giving appropriate disclosures in accordance with the
guidelines issued by the State Bank of Pakistan. (12)
(4)
Q.5 The following is a summarised trial balance of Sun Enterprises Limited for the year ended
December 31, 2009:
Debit Credit
Rupees in ‘000
Ordinary shares of Rs.10 each 50,000
Retained earnings as at January 1, 2009 15,600
Property, plant and equipment at cost 81,000
Accumulated depreciation 17,000
Note receivable 8,000
Trade receivables 16,070
Inventory as of December 31, 2009 12,400
Cash and bank 2,000
Trade payables 16,700
Income tax payable 2,400
Deferred tax liability 3,300
Provision for environmental cost 500
Sales revenue 133,300
Cost of sales 85,000
Environmental costs 500
Operating expenses 16,000
Financial charges 1,000
Tax expense 11,830
Dividends paid on equity shares 5,000
238,800 238,800
On reviewing the financial statements, the audit committee is of the view that the
requirements of the Companies Ordinance 1984 and International Financial Reporting
Standards (IFRSs) have not been fully complied. It has asked you to look into the under-
mentioned items:
(i) Note Receivable: The note receivable dated January 1, 2009 represents the amount due
from a major customer of the company. Its due date is December 31, 2011. No interest
is being charged on the note in view of the large amount of business undertaken by the
customer. Normal commercial rate for such type of unsecured financing is 12%.
(ii) Inventory/cost of sales: Inventory valuation method has been changed during the
current year, from weighted average to FIFO. The value of inventory at December 31,
2009 applying weighted average method would have been Rs. 12 million. Value of
opening inventory under the weighted average method was Rs. 8.2 million whereas its
value under the FIFO method would have been Rs. 9 million.
Cost of sales includes an amount of Rs. 3 million which was spent on repair of
uninsured property which was damaged in an earthquake.
(iii) Environmental costs: It is estimated that cost of restoring the site of mines would
amount to Rs. 5 million. The estimate is based on expected prices prevailing at the end
of useful life of the mines which is 10 years. 1/10th of the cost has been provided in the
current year. The rate of inflation over the next 10 years is estimated at 10%.
(iv) Taxation: On account of certain disallowances, the amount of tax paid by the company
in 2009 in respect of tax year 2008 exceeded the amount provided in the accounts by
Rs. 0.20 million which was debited to Deferred Tax Payable account. The company
does not intend to file an appeal against these disallowances. Current year’s taxable
income exceeds the accounting income by Rs. 3 million of which Rs. 2.50 million are
temporary timing differences. Tax rate applicable to the company is 35%.
Required:
Prepare a Profit and Loss Account for the year ended December 31, 2009 in accordance with
IFRSs. (Ignore comparative figures) (16)
(5)
Q.6 In 2001, the management of Comfort Shoes Limited planned to acquire an international
trademark to boost its sales and enter into the international market. In this respect, the
management carried out a market survey and analysed the information obtained to initiate the
process. The relevant information is as follows:
(i) The cost incurred on the survey and related activities during the year 2001 amounted to
Rs. 1 million.
(ii) An agreement was finalised and the company acquired the trademark effective January
1, 2002. According to the agreement Rs. 5 million were paid on signing of the
agreement and Comfort Shoes was required to pay 1% of sale proceeds of the related
products on yearly basis. The analysis carried out at that time indicated that the
trademark would have an indefinite useful life.
(iii) The company has developed many new models under this trademark and successfully
marketed them in the country as well as in international markets. However, in 2008 the
company faced unexpected competition and had to discontinue the exports. It was
estimated that due to discontinuation of exports, net cash inflows for the foreseeable
future, would reduce by 30%. As a result the management was of the view that as of
December 31, 2008 the carrying value of the trademark had reduced to 90%.
(iv) Due to continuous inflation and flooding of markets with very low priced shoes, it was
decided in December 2009 that use of the trademark would be discontinued with effect
from January 1, 2011.
Required:
(a) Explain how the above transactions should have been accounted for in the years 2001 to
2007 according to International Financial Reporting Standards (IFRSs).
(b) Prepare a note to the financial statements for the year ended December 31, 2009 in
accordance with the requirements of IFRSs. Show comparative figures. (12)
(THE END)
Final Examinations Winter 2009
December 8, 2009
ADVANCED ACCOUNTING AND FINANCIAL REPORTING (MARKS 100)

(3 hours)
Q.1 The statements of financial position of Habib Limited (HL), Faraz Limited (FL) and Momin
Limited (ML) as at June 30, 2009 are as follows:
HL FL ML
Rupees in million
Assets
Non-current assets
Investments in FL - at cost 520 - -
Investments in ML - at cost 300 - -
1,798 595 380
Current assets
Stocks in trade 210 105 125
Trade and other receivables 122 116 128
Cash and bank 20 38 37
352 259 290
Total assets 2,150 854 670

Equity
Ordinary share capital (Rs. 10 each) 800 360 100
1,584 714 550
Non-current liabilities
12% debentures 270 - -
Current liabilities
Short term loan 124 - -
Trade and other payables 172 140 120
296 140 120
Total equity and liabilities 2,150 854 670
Following additional information is also available:

(i) HL acquired 60% shares of FL on January 1, 2003 for Rs. 400 million when the
retained earnings of FL stood at Rs. 250 million. On January 1, 2006, a further 20%
shares in FL were acquired for Rs. 120 million. FL’s retained earnings on the date of
second acquisition were Rs. 400 million.
(ii) 70% shares of ML were acquired by HL for Rs. 300 million, on July 1, 2006 when
ML’s retained earnings stood at Rs. 260 million. On December 31, 2008, HL disposed
off its entire holding in ML for Rs. 500 million. The disposal of shares has not yet
been recorded in HL’s financial statements.
(iii) On January 1, 2009, FL purchased a machine for Rs. 20 million and immediately sold
it to HL for Rs. 24 million. However, no payment has yet been made by HL. The
estimated useful life of the machine is 4 years and HL charges depreciation on the
straight line method.
(2)
(iv) During the year, HL sold finished goods to FL at cost plus 20%. The amount invoiced
during the year amounted to Rs. 75 million. 60% of these goods had been sold by FL
till June 30, 2009.
(v) During the year ended June 30, 2009, FL and ML earned profits of Rs. 10 million and
Rs. 50 million respectively. The profits had accrued evenly, throughout the year.
(vi) An impairment review at year end indicated that 15% of the goodwill recognised on
acquisition of FL, is required to be written off.
(vii) HL values the non-controlling interest at its proportionate share of the fair value of the
subsidiary’s identifiable net assets.
Required:
Prepare the consolidated statement of financial position of HL as at June 30, 2009 in
accordance with the requirements of International Financial Reporting Standards. (Ignore
current and deferred tax implications.) (25)
Q.2 Being the financial consultant of Insha Chemicals Limited (ICL), a listed company, you have
been approached to advise on certain accounting issues. Accordingly, you are required to
explain how the following transactions should be disclosed in ICL’s financial statements for
the year ended June 30, 2009 in accordance with International Financial Reporting
Standards:
(a) In a board meeting held on January 1, 2009, the board of directors showed concern
over the poor results of one of the company’s cash generating unit, Lahore Division
(LD). It was principally decided in the meeting that this division should be
discontinued.
ICL’s CEO announced the closure of LD in a press conference held on February 15,
2009. He also informed that negotiations to sell the entire division are in progress and
the sale is expected to be finalized within few months.
On June 14, 2009, the CEO reported to the board of directors that negotiations with
Bashir Limited are proceeding well and the disposal of LD is expected to materialise
before July 31, 2009. However, it is estimated that the assets would be sold at 95% of
their fair value. (08)
(b) ICL operates a factory in an underdeveloped rural area. Most of the employees in the
factory have been hired locally. On observing the positive effects of the project, the
government had approved a grant of Rs. 100 million for ICL, on February 1, 2009 for
development of a similar factory in another underdeveloped area. However, it had been
agreed that disbursement would be made in three phases. The relevant details are as
follows:
Amount
Phases Comments
Rs. in million
Before commencement 10 No condition is attached to this phase of the
of the construction grant and it was received on March 1, 2009.
During the construction 40 Total cost of construction is estimated at Rs.
of factory 200 million. The construction was 30%
complete, as of June 30, 2009. The estimated
life of the property, plant and equipment is 15
years and it would be depreciated on the
straight line basis.
When the factory 50 It has been agreed that 400 local persons would
becomes operational be employed. The amount will be given in five
equal annual installments. If employment drops
below 400 at any time in any of the five
subsequent years, no amount would be paid in
that year. (09)
(3)
Q.3 Rahman Limited (RL) is a listed company engaged in the manufacture of leather goods. Its
financial year ends on June 30. In a meeting held on July 1, 2009 its Board of Directors
acknowledged the outstanding performance of the company’s Chief Operating Officer
(COO) and in recognition thereof, decided to allow him either of the following options:
Option I Receive a cash payment equal to the current value of 64,000 shares of RL.
Option II Receive 80,000 shares of RL.
However, the above offer was subject to certain conditions. These conditions and other
relevant information are as follows:
(i) The right is conditional upon completion of three years’ service from the date the right
was granted and the decision to select the option shall also be exercised on the
completion of the said period.
(ii) The share price of RL on July 1, 2009 is Rs. 125 per share. It is estimated that the share
price at the end of year 2010, 2011 and 2012 will be Rs. 130, Rs. 138 and Rs. 150
respectively.
(iii) If the COO chooses option II, he shall have to retain the shares for two years i.e. up to
June 30, 2014 before being eligible to sell them. However, the fair value of the shares
after taking into account the effects of the post vesting transfer restrictions is estimated
at Rs. 110 per share.
(iv) RL does not expect to pay any dividend during the next three years.
Required:
Prepare the journal entries:
(a) to record the above transactions in the books of Rahman Limited for the year ending
June 30, 2010, 2011 and 2012.
(b) to record the settlement of right on June 30, 2012 under:
 Option I
 Option II. (15)
Q.4 Sachal Limited (SL) is planning to acquire 100% shareholdings in Waris Limited (WL).
Before submission of financial proposal, SL is carrying out an analysis of WL’s financial
and operating performance. The CFO of SL has gathered the following information which is
based on the financial statements for the year ended December 31, 2008:
WL’s Industry Ratios

Description
Ratios High Low Average
Operating Performance Ratios
Gross profit 29% 30% 20% 25%
Operating profit 11% 15% 10% 13%
Return on shareholders equity 9% 13% 7% 10%
Working Capital Ratios
Current ratio 1.54 : 1 2:1 1:1 1.5 : 1
Inventory turnover days 83 days 114 days 81 days 91 days
Receivables collection 93 days 95 days 60 days 74 days
Gearing Ratios
Debt equity ratio 55 : 45 60 : 40 40 : 60 50 : 50
Interest cover 1.3 times 3 times 1.2 times 2 times
Investors Ratios
Earnings per share Re. 0.9 Rs. 1.8 Re. 0.75 Rs. 1.2
Dividend per share Re. 0.2 Re. 0.9 Re. 0.25 Re. 0.6
Required:
(a) Draft a report to the board of directors, on behalf of the CFO, analyzing the financial
performance of Waris Limited by evaluating each category of ratios in comparison with
the industry. (Do not write your name or any identification in the report) (12)
(b) List any four types of additional information which would have helped you in a better
analysis. (04)
(4)
Q.5 Lateef Bank Limited (LBL) is listed on Karachi and Lahore Stock Exchanges and has 150
branches including 10 overseas branches. The LBL’s lending to financial institutions as of
September 30, 2009 comprised of the following:
(i) Call money lending at year end amounted to Rs. 850 million (2008: Rs. 1,200 million).
The markup on these unsecured lendings ranged between 15% to 17% (2008: 10% to
12%) and they matured on various dates, in October 2009.
(ii) Short term lending on account of repurchase agreement (reverse repo) amounted to Rs.
2,100 million (2008: Rs. 2,850 million). These carried markup ranging from 9.5% to
13.2% (2008: 8% to 10.5%) and matured on various dates, in October 2009. These
were secured against Market Treasury Bills of Rs. 1,650 million (2008: Rs. 1,850
million) and Pakistan Investment Bonds of Rs. 450 million (2008: Rs. 1,000 million).
The market value of these securities held as collateral, on September 30, 2009,
amounted to Rs. 2,250 million (2008: Rs. 2,930 million).
The above amounts include lendings in foreign currencies amounting to Rs. 110 million
(2008: Rs. 150 million).
Required:
Prepare a note on “Lendings to Financial Institutions” for inclusion in LBL’s financial
statements for the year ended September 30, 2009 giving appropriate disclosures in
accordance with the guidelines issued by State Bank of Pakistan. (12)
Q.6 Arif Industries Limited (AIL) owns and operates a textile mill with spinning and weaving
units. Due to recurring losses, AIL disposed of the weaving unit for an amount of Rs. 100
million on July 1, 2007 and invested the proceeds in Pakistan Investment Bonds (PIBs).
Details of investment in PIBs are as follows:
(i) The PIBs were purchased through a commercial bank at face value. The bank initially
charged premium and investment handling charges of Rs. 4,641,483. At the time of
purchase, AIL had envisaged to liquidate the investment after four years and utilize the
realized amount for expansion of its spinning business. The bank had agreed to
repurchase the PIBs on June 30, 2011, at their face value.
(ii) The markup on PIBs is 15% for the initial two years and 20% for the remaining three
years. The effective yield on investment at the time of purchase was 15.50%.
However, due to economic turmoil in the European and American markets, the existing
spinning unit is working below its rated capacity. Therefore, on June 30, 2009 AIL decided
to defer the expansion plan by one year. The bank agreed to extend the holding period
accordingly but reduced the repurchase price by 2%.
Required:
Compute the amount of interest income (including the effect of revision of holding period, if
any) to be recognized in the financial years ended(ing) 2009, 2010, 2011 and 2012. (15)
(THE END)
June 2, 2009

(3 hours)
Q.1 On January 1, 2002, Khan Limited (KL) acquired 375 million ordinary shares and 40
million preference shares in Gul Limited (GL) whose general reserve and retained
earnings on the date of acquisition, stood at Rs. 200 million and Rs. 1,000 million
respectively.
The following balances were extracted from the records of KL and its subsidiary on
December 31, 2008:
KL GL
Debit Credit Debit Credit
-------Rupees in million-------
Ordinary share capital (Rs. 10 each) - 6,800 - 5,000
12% Preference share capital (Rs. 10 each) - - - 1,000
General reserve - 1,750 - 500
Retained earnings - 2,000 - 1,200
Loan from KL at 15% rate of interest - - - 2,000
14% Term Finance Certificates (TFCs) (Rs. 100 each) - 2,250 - -
Accounts payable - 445 - 190
Dividend payable – preference shares - - - 60
Dividend payable – ordinary shares - 750 - 300
Property, plant and equipment - at cost 16,250 - 25,000 -
Property, plant and equipment - acc. depreciation - 9,750 - 17,000
Investment in ordinary shares of GL 5,500 - - -
Investment in preference shares of GL 400 - - -
Loan to GL at 15% rate of interest 2,000 - - -
Investment in KL's TFCs (purchased at par value) - - 1,500 -
Profit before tax, interest and dividend - 2,865 - 1,550
Dividend income - 273 - -
Interest income - 300 - 210
Dividend receivable 249 - - -
Current assets 1,069 - 1,316 -
Interest on TFCs 315 - - -
Interest on loan from KL - - 300 -
Taxation 650 - 474 -
Preference dividend - - 120 -
Ordinary dividend – interim 750 - 300 -
27,183 27,183 29,010 29,010
Following relevant information is available:

(i) At the date of acquisition, the fair value of buildings, included in property, plant and
equipment of GL was assessed at Rs. 1,000 million above its carrying value. All
other identifiable assets and liabilities were considered to be fairly valued. GL
provides for depreciation on buildings at 10% per annum on the straight line basis.
(ii) GL purchased the TFCs in KL on January 1, 2008.
(iii) The non-controlling interests are measured at their proportionate share of the GL’s
identifiable net assets.
(iv) There is no impairment in the value of goodwill since its acquisition.
(2)
(v) There are no components of other comprehensive income.
Required:
Prepare the following in accordance with the requirements of International Financial
Reporting Standards:
(a) Consolidated statement of financial position as at December 31, 2008.
(b) Consolidated statement of comprehensive income for the year ended December 31,
2008.
(c) Consolidated statement of retained earnings for the year ended December 31, 2008. (26)
Note:
Ignore deferred tax and corresponding figures.
Notes to the above statements are not required. However, show workings wherever it
is necessary.
Q.2 During the year ended December 31, 2008, a Pakistani Sugar Company (PSC) was facing
severe problems in meeting its foreign currency obligations especially in view of the steep
increase in the foreign exchange rates. In October 2008, PSC commenced negotiations
with the foreign lenders for restructuring of loans.
Following is a summary of the foreign exchange liabilities of the company as of December

31, 2008 prior to making adjustments on restructuring:
Lenders
SBD JICA AFI
Loan amount (US$) 350,000 500,000 270,000
Remaining number of installments including
due on December 31, 2008 5 4 3
Interest / markup rate 2.50% 3.00% 2.00%
The loans are repayable in equal annual installments. All the above liabilities are
appearing in PSC’s books at the exchange rate of US$ 1 = Rs. 65 which was the rate at the
beginning of the year. The exchange rate as at the end of the year is US$ 1 = Rs. 80.
Agreements with SBD and AFI were finalized and signed before year-end, however, the
agreement with JICA was finalized in January 2009 but before finalization of the financial
statements. Following is the information in respect of rescheduling agreements.
Lenders
SBD JICA AFI
Revised value of loan amount (US$) 370,000 525,000 280,000
Revised present value as per original effective
interest rate (US$) 390,000 535,000 250,000
Revised present value as per market interest
rate for similar instruments (fair value) (US$) 400,000 510,000 220,000
First installment due on 31-Dec-10 31-Dec-11 31-Dec-12
Required:
(a) Prepare accounting entries in the books of PSC to record the
(i) effect of exchange differences.
(ii) effect of rescheduling, if any.
(b) In respect of each of the above loans, identify the amounts to be reported as current
portion of the loan in the financial statements, as at December 31, 2008. (11)
(3)
Q.3 Jamshed Limited has recently hired your services for the position of Accountant. The
following summarized trial balance for the year ended December 31, 2008 along with the
CFO’s comments, has been provided to you:
Debit Credit
CFO’s Comments
----- Rupees -----
Share capital 75,000,000
Retained earnings (1/1/2008) 54,134,997
Obligation under finance leases 15,436,900
Accounts payable 4,100,000
Owned fixed assets – net 110,187,500
Leased fixed assets – net 17,152,115
Deferred tax asset (1/1/ 2008) 750,000
Stock in trade 31,400,250
Accounts receivable 13,075,000
Provision for bad debts 653,750
Advance tax paid 11,999,247 Including tax of Rs. 51,250
deducted on dividend
received.
Cash and bank 1,025,000
Sales 177,633,594
Cost of sales excluding depreciation 122,106,875
Depreciation expense – owned assets 9,385,542 Tax depreciation for the
year is Rs. 8,501,758.
Depreciation expense – leased assets 1,815,212
Donations 562,500 Not allowable for tax
purposes.
Financial charges 2,237,500 Includes Rs. 1,750,222
relating to obligations under
finance lease.
Other expenses 6,150,000 Includes bad debt expenses
of Rs. 853,750.
Dividend income 512,500 Taxable under Final Tax
Regime.
Gain on sale of machines 375,000 Carrying amount at disposal
was Rs. 650,000.
327,846,741 327,846,741
Following relevant information is also available:
(i) Bad debts written off during the year amounted to Rs. 200,000.
(ii) There was no addition or deletion in the leased assets. The principal repayment
towards obligation under finance lease was Rs. 2,061,359.
(iii) The tax written down value of owned fixed assets as of December 31, 2007 was
Rs. 96,550,000.
(iv) During the year, the company purchased fixed assets amounting to Rs. 7,500,000.
(v) The tax written down value of machines sold was Rs. 450,000. There was no other
disposal of property, plant and equipment in the year 2008.
(vi) On account of an apparent mistake in the return relating to year ended December
31, 2007, a revised return was filed and the taxable income was reduced by
Rs. 1,800,000.
(vii) Up to the year ended December 31, 2007, the company’s assessed brought forward
losses amounted to Rs. 14,251,700.
(viii) Applicable tax rate is 35%.
Required
Prepare a note to the statement of comprehensive income for the year ended December 31,
2008, giving appropriate disclosure related to current and deferred tax expenses. (23)
(4)
Q.4 On January 1, 2008, Misbah Holding Limited, dealing in textile goods, acquired 90%
ownership interest in Salman Limited (SL), a ginning company, against cash payment of
Rs. 450 million. At that date, SL’s net identifiable assets had a book value of Rs. 350
million and fair value of Rs. 400 million.
It is the policy of the company to measure the non-controlling interest at their

proportionate share of SL’s net identifiable assets.
During the year ended December 31, 2008, SL incurred a net loss of Rs. 150 million. The
impairment testing exercise carried out at the end of the year, by a firm of consultants,
showed that the recoverable amount of SL’s business is Rs. 200 million. However, the
Board of Directors is inclined to take a second opinion as they estimate that the
recoverable amount is Rs. 390 million.
Required:
Based on each of the two valuations, compute the amounts to be reported in the
consolidated statement of financial position as of December 31, 2008 in respect of:
Goodwill;
Net identifiable assets, and
Non-controlling interest. (15)
Q.5 Akmal General Insurance Limited (AGIL) is engaged in general insurance business. The
following information is available for the year ended December 31, 2008:
(i) During the year, AGIL earned direct and facultative premiums of Rs. 5,586,382
thousand against which it incurred reinsurance expense amounting to Rs. 2,076,499
thousand. Details of premium earned and reinsurance expenses are as follows:
Fire & Marine,

Property Aviation Motor Misc.
Damage &Transport
------------------Rupees in thousand------------------
Premiums 1,905,027 883,942 2,495,120 302,293
Reinsurance expense 1,520,962 300,605 4,671 250,261
(ii) The outstanding balance of unearned premium reserve and prepaid reinsurance
premium ceded were as follows:
Fire & Marine,

Property Aviation & Motor Misc.
Damage Transport
----------------Rupees in thousand--------------
Balances as of December 31, 2008
Unearned premium reserve 1,014,552 174,780 1,053,094 152,911
Prepaid reinsurance premium ceded 741,934 93,702 311 122,866
Balances as of December 31, 2007

Unearned premium reserve 844,425 159,844 1,191,933 133,424
Prepaid reinsurance premium ceded 726,800 59,098 - 114,190
(iii) Premium received under the treaty arrangements (proportional) amounted to Rs.
167,108 thousand. The outstanding balance of unearned premiums reserve relating
to treaty arrangement as of December 31, 2008 was Rs. 56,128 thousand (2007: Rs.
61,303 thousand).
Required:
Prepare the statement of premiums for the year ended December 31, 2008. Ignore the
corresponding figures. (10)
(5)
Q.6 The following information relates to Afridi Industries Limited (AIL) for the year ended
December 31, 2008:
(i) The share capital of the company as on January 1, 2008 was Rs. 400 million of
Rs. 10 each.
(ii) On March 1, 2008, AIL entered into a financing arrangement with a local bank.
Under the arrangement, all the current and long-term debts of AIL, other than trade
payables, were paid by the bank. In lieu thereof, AIL issued 4 million Convertible
Term Finance Certificates (TFCs) having a face value of Rs. 100, to the bank. These
TFCs are redeemable in five years and carry mark up at the rate of 8% per annum.
The bank has been allowed the option to convert these TFCs on the date of
redemption, in the ratio of 10 TFCs to 35 ordinary shares.
(iii) On April 1, 2008, AIL issued 30% right shares to its existing shareholders at a price
which did not contain any bonus element.
(iv) During the year, AIL earned profit before tax amounting to Rs. 120 million. This
profit includes a loss before tax from a discontinued operation, amounting to Rs. 20
million.
(v) The applicable tax rate is 35%.
Required:
Prepare extracts from the financial statements of Afridi Industries Limited for the year
ended December 31, 2008 showing all necessary disclosures related to earnings per share
and diluted earnings per share. (15)
(Ignore corresponding figures)
(THE END)
December 2, 2008

(3 hours)
Q.1 Golden Limited (GL) is a listed company and has held shares in two companies, Yellow
Limited (YL) and Black Limited (BL), since July 1, 2006. The details of acquisition of
shares in these companies are as follows:
(A) GL acquired 18 million shares in YL at par, when YL’s reserves were Rs. 24
million. The acquisition was made by issuing four shares in GL for every five shares
in YL. The market price of GL’s shares at July 1, 2006 was Rs. 20 per share. A fair
value exercise was carried out for YL’s assets and liabilities at the time of its
acquisition with the following results:
Book Value Fair Value

Rupees in million
Land 170 192
Machines 25 45
Investments 3 6
The remaining life of machine on acquisition was 5 years. The fair values of the
assets have not been accounted for in YL’s financial statements.
(B) 6 million shares in BL were acquired for Rs. 12 per share in cash. At the date of
acquisition, the reserves of BL stood at Rs. 40 million.
The summarized income statement of the three companies for the year ended June 30,
2008 are as follows:
GL YL BL
Rupees in million
Sales 875 350 200
Cost of sales (567) (206) (244)
Gross profit / (loss) 308 144 (44)
Selling expenses (33) (11) (15)
Administrative expenses (63) (40) (16)
Interest expenses (30) (22) (15)
Other income 65 - -
Profit/(loss) before tax 247 71 (90)
Income tax (73) (15) 8
Profit/(loss) for the period 174 56 (82)
The following relevant information is available:

(i) The share capital and reserves as at July 1, 2007 were as follows:
GL YL BL
Rupees in million
Ordinary share capital of Rs. 10 each 600 200 150
Reserves 652 213 108
(2)
The share capital of all companies have remained unchanged since their
incorporation.
(ii) During the year, GL sold goods amounting to Rs. 40 million to YL. The sales were
made at a mark up of 25% on cost. 30% of these goods were still in the inventories
of YL at June 30, 2008.
(iii) GL manufactures a component used by BL. During the year, GL sold these
components amounting to Rs. 20 million to BL. Transfers are made at cost plus
15%. BL held Rs. 11.5 million of these components in inventories at June 30, 2008.
(iv) All assets are depreciated on straight line method.
(v) Other income includes dividend received from YL on April 15, 2008.
(vi) During the year, YL paid 20% cash dividend to its ordinary shareholders.
(vii) An impairment test was carried out on June 30, 2008 for the goodwill of YL and
investments in BL, appearing in the consolidated financial statements. The test
indicated that:
goodwill of YL was impaired by 20%;
due to recent losses, the fair value of investment in BL has been reduced to
Rs.40 million.
No such impairment was required in previous years.
Required:
Prepare, in a format suitable for inclusion in the annual report, a consolidated income
statement for the year ended June 30, 2008. (22)
Q.2 Silver Construction Limited (SCL) was incorporated on July 1, 2007 with a share capital of
Rs. 500 million. It is involved in the construction of bridges, dams, pipelines, roads etc.
During the year ended June 30, 2008, the company commenced work on six contracts,
details of which are as follows:
CONTRACTS
I II III IV V VI
---------- Rupees in million ----------
Total contract price 300 375 280 400 270 1,200
Billing up to June 30, 2008 200 110 280 235 205 1,200
Contract cost incurred up to June 30, 2008 248 68 186 246 185 1,175
Estimated further cost to complete 67 221 - 164 15 -
(i) As per terms of Contract IV, the company will receive an additional Rs.40 million if
the construction is completed within a period of twelve months from the
commencement of the contract. The management feels that there is a 90% probability
that it will be able to meet the target.
(ii) An amount of Rs. 16 million was incurred on Contract II on account of a change in
design. The company has discussed it with the customer who has informed SCL that
the amount is on the higher side and needs to be revised.
Required:
(a) Make relevant calculations and prepare appropriate extracts to be reflected in the
Balance Sheet and Income Statement for the year ended June 30, 2008.
(b) Justify your accounting treatment in respect of the additional information provided
above. (19)
Q.3 Red Limited has carried out the following transactions during the year ended June 30,
2008.
(a) On July 1, 2007, the company has received a loan of Rs. 100 million from Green
Limited – a related party which is due for repayment after three years and does not
carry any interest. The market interest rate for similar loans is 15% per annum. Red
Limited is subject to taxation at the rate of 35%.
(3)
(b) On August 1, 2007, the company granted 200,000 employees’ stock options at Rs. 5,
when the market price was Rs. 13 per share. 95% of the options were exercised
between March 1, 2008 and April 30, 2008. The remaining options lapsed. The share
capital of the company is divided into shares of Rs. 10 each.
(c) The company holds 500,000 shares of Green Limited (GL), a listed company, which
were purchased many years ago at Rs. 10 per share. The transaction cost on purchase
was Rs. 120,000. The shares were classified as available for sale. On May 31, 2008,
the fair value of GL’s shares was Rs. 20 per share. On the same day, GL was
acquired by Orange Limited (OL), a listed company. As a result, Red Limited
received 200,000 shares of OL which had a market value of Rs. 65 per share, on that
date.
Required:
Prepare journal entries to record the above transactions including the effect of deferred tax
thereon, if any, in the books of Red Limited, for the year ended June 30, 2008. (21)
Q.4 Blue-chip Asset Management Limited is in the process of finalizing the financial
statements of one of its open ended mutual fund. Following information is available from
the Fund’s records;
Rs. in “000”
Net assets - opening balance 350,050
Net income for the year 65,325
765,900 units issued during the year against 85,015
717,480 units redeemed during the year against 77,488
The par value of each unit is Rs. 100.
Required:
Prepare the statement of movement in unit holders’ Fund for the year ended June 30, 2008. (10)
Q.5 Violet Power Limited is running a coal based power project in Pakistan. The Company has
built its plant in an area which contains large reserves of coal. The company has signed a
20 years agreement for sale of power to the Government. The period of the agreement
covers a significant portion of the useful life of the plant. The company is liable to restore
the site by dismantling and removing the plant and associated facilities on the expiry of the
agreement.
Following relevant information is available:
(i) The plant commenced its production on July 1, 2007. It is the policy of the company
to measure the related assets using the cost model;
(ii) Initial cost of plant was Rs. 6,570 million including erection, installation and
borrowing costs but does not include any decommissioning cost;
(iii) Residual value of the plant is estimated at Rs. 320 million;
(iv) Initial estimate of amount required for dismantling of plant, at the time of installation
of plant was Rs. 780 million. However, such estimate was reviewed as of June 30,
2008 and was revised to Rs. 1,021 million;
(v) The Company follows straight line method of depreciation; and
(vi) Real risk-free interest rate prevailing in the market was 8% per annum when initial
estimates of decommissioning costs were made. However, at the end of the year such
rate has dropped to 6% per annum.
Required:
Work out the carrying value of plant and decommissioning liability as of June 30, 2008. (08)
(4)
Q.6 You are working as a Financial Analyst in Brown Venture Capital Limited. Your company
has received an offer for equity investment in a large group of companies. While reviewing
the consolidated financial statements of the group and detailed offer documents, you have
noted the following significant judgments, estimates and assumptions used in preparation
of the consolidated financial statements, which may have an impact on the independent
evaluation of the affairs and operations of the group.
Operating Lease Commitments

The Group has entered into commercial property leases as a Lessee. The Group has
determined, based on an evaluation of the terms and conditions of the arrangements, that it
does not acquire all the significant risks and rewards of ownership of these properties and
so accounts for the contracts as operating leases.
Convertible Preference Shares
The Group has determined, based on an evaluation of the significant terms and conditions
of the issue, that these securities fall under the category of liability rather than equity, and
have been disclosed and accounted for accordingly.
Pension and Other Post Employment Benefits
The cost of defined benefit pension plans and other post employment benefits is
determined using actuarial valuations. The actuarial valuation involves making
assumptions about discount rates, expected rates of return on assets, future salary
increases, mortality rates and future pension increases. Due to the long term nature of these
plans, such estimates are subject to significant uncertainty.
Impairment of Non-Financial Assets

All non-financial assets including goodwill and other intangibles are assessed for
impairment at each reporting date and at any other time when there are indications of
impairment. When value in use calculations are undertaken, management has to estimate
the expected future cash flows from the asset or cash-generating unit and choose a suitable
discount rate in order to calculate the present value of such cash flows.
Useful Lives of Property, Plant And Equipment
The Group has invested significant amounts in acquisition of items of property, plant and
equipment (PPE). Generally, the Group follows a prudent practice and estimates the useful
economic lives of such assets to the enterprise on a minimum side.
Provision for Decommissioning
The activities of the Group normally give rise to obligations for site restoration. In
determining the amount of the provision, assumptions and estimates are required in respect
of discount rates and the expected cost of dismantling and removing the plants from the
site.
Required:
You have assessed that the managements judgments, estimates and assumptions may turn
out to be incorrect. What will be the impact of any error in management’s estimates and
assumptions, on the following:
Liquidity, profitability and gearing ratios of the group;

Business valuation of the group.
Give brief explanations to justify your conclusions. (20)
(THE END)
June 3, 2008
ADVANCED ACCOUNTING & FINANCIAL REPORTING (Marks 100)

(3 hours)
Q.1 Following is the summarised trial balance of Faisal Limited (FL) and its subsidiaries,
Saqib Limited (SL) and Ayaz Industries Limited (AIL) for the year ended December 31,
2007:
FL SL AIL
----------------Rs. in million----------------
Cash and bank balances 4,920 660 2,700
Accounts receivable 6,240 2,460 6,580
Stocks in trade – closing 14,460 4,200 5,680
Investment in subsidiaries – at cost
SL 9,000 - -
AIL 10,500 - -
Other investments 11,100 - -
Property, plant and equipment 22,500 3,480 5,940
Cost of sales 49,200 18,000 21,000
Operating expenses 3,600 2,100 5,400
Accumulated depreciation (5,760) (420) (1,260)
Ordinary share capital (Rs. 10 each) (30,000) (12,000) (6,000)
Retained earnings – opening (33,780) - (4,800)
Sales (57,600) (16,500) (33,800)
Accounts payable (2,760) (1,980) (1,440)
Gain on sale of fixed assets (540) - -
Dividend income (1,080) - -
(i) On January 1, 2007, FL acquired 480 million shares of AIL from its major
shareholder for Rs. 10,500 million.
(ii) SL was incorporated on February 1, 2007. 75% of the shares were acquired by FL
at par value on the same date.
(iii) The following inter company sales were made during the year 2007:
Included in Amount
Gross
Sales buyer’s closing receivable/payable
profit %
stocks in trade at year end
on sales
---------------------Rs. in million---------------------
FL to AIL 2,400 900 - 20
SL to AIL 1,800 600 800 10
AIL to FL 3,600 1,200 - 30
FL and its subsidiaries value stock in trade at the lower of cost or net realisable
value. While valuing FL’s stock in trade, the stock purchased from AIL has been
written down by Rs. 100 million.
(2)
(iv) On July 1, 2007, FL sold certain plants and machineries to SL. Details of the
transaction are as follows:
Rs. in million
Sales value 144
Less: Cost of plant and machineries 150
Accumulated depreciation (60)
Net book value 90
Gain on sale of plant 54
The plants and machineries were purchased on January 1, 2005, and were being
depreciated on straight line method over a period of five years. SL computed
depreciation thereon using the same method based on the remaining useful life.
(v) FL billed Rs. 100 million to each subsidiary for management services provided
during the year 2007 and credited it to operating expenses. The invoices were paid
on December 15, 2007.
(iv) Details of cash dividend are as follows:
Dividend
Date of declaration Date of payment %
FL Nov 25, 2007 Jan 5, 2008 20
AIL Oct 15, 2007 Nov 20, 2007 10
Required:
Prepare consolidated balance sheet and profit and loss account of FL and its subsidiaries
for the year ended December 31, 2007. Ignore tax and corresponding figures. (27)
Q.2 DND Limited is a listed company, having its operations within Pakistan. During the year
ended December 31, 2007, the company contracted to purchase plants and machineries
from a US Company. The terms and conditions thereof , are given below:
(i) Total cost of contract = US$ 100,000.

(ii) Payment to be made in accordance with the following schedule:
Payment Dates Amount Payable

On signing the contract July 01, 2007 US$ 20,000
On shipment* September 30, 2007 US$ 50,000
After installation and test run January 31, 2008 US$ 30,000
*(risk and rewards of ownership are transferred on shipment)
The contract went through in accordance with the schedule and the company made all the
payments on time. The following exchange rates are available:
Dates Exchange Rates

July 1, 2007 US$ 1 = Rs. 60.50
September 30, 2007 US$ 1 = Rs. 61.00
December 31, 2007 US$ 1 = Rs. 61.20
January 31, 2008 US$ 1 = Rs. 61.50
Required:
(a) Under each of the following options, prepare the necessary accounting entries on the
relevant dates including year-end adjustments:
Option 1: All payments were treated as advance payments and accounted for as
financial instrument.
Option 2: All payments were treated as progressive payments.
(b) Which of the above options would you recommend if the transaction is covered
under an irrevocable letter of credit? Give reasons for your recommendation. (16)
(3)
Q.3 CNC Limited, an oil and gas exploration company is operating in Pakistan for last many
years. Presently, the company is managing five joint venture projects. Summary of the
company’s ownership in the joint ventures as at December 31, 2007 is as follows:
Joint Venture Name JV-11 JV-17 JV-18 JV-20 JV-22

CNC’s Ownership 30% 60% 40% 45% 40%
CNC uses proportionate consolidation method of accounting. During the year 2007, it
sold certain assets to joint ventures, details of which are as follows:
(i) Vehicles having carrying value of Rs. 3 million were sold to JV-11 on April 1, 2007
at their fair value of Rs. 2 million.
(ii) On May 1, 2007, certain items of plant and machinery having book value of Rs. 60
million were sold to JV-18 for Rs. 80 million, being the fair value of the assets.
Required:
(a) Prepare necessary journal entries:
(i) in the books of CNC Limited.
(ii) to record adjustments (if any) which will be required for the purpose of
consolidation.
(b) Explain the rationale for the gain or loss recorded by you in Part (a) according to the
relevant International Accounting Standards. (12)
Q.4 The profit after tax earned by AAZ Limited during the year ended December 31, 2007
amounted to Rs. 127.83 million. The weighted average number of shares outstanding
during the year were 85.22 million.
Details of potential ordinary shares as at December 31, 2007 are as follows:
The company had issued debentures which are convertible into 3 million ordinary
shares. The debenture holders can exercise the option on December 31, 2009. If the
debentures are not converted into ordinary shares they shall be redeemed on
December 31, 2009. The interest on debentures for the year 2007 amounted to
Rs. 7.5 million.
Preference shares issued in 2004 are convertible into 4 million ordinary shares at the
option of the preference shareholders. The conversion option is exercisable on
December 31, 2010. The dividend paid on preference shares during the year 2007
amounted to Rs. 2.45 million.
The company has issued options carrying the right to acquire 1.5 million ordinary
shares of the company on or after December 31, 2007 at a strike price of Rs. 9.90 per
share. During the year 2007, the average market price of the shares was Rs. 11 per
share.
The company is subject to income tax at the rate of 30%.
Required:
(a) Compute basic and diluted earnings per share.
(b) Prepare a note for inclusion in the company’s financial statements for the year
ended December 31, 2007 in accordance with the requirements of International
Accounting Standards. (18)
Q.5 SOGO Limited operates an approved funded gratuity scheme for all its employees.
Benefits under the scheme become vested after 5 years of service. No benefit is payable
to an employee if he leaves before 5 years of service. A total of 752 employees were
eligible for the benefits under the fund as of December 31, 2007.
(4)
Following is the trial balance of the Fund as of June 30, 2007:
Debit Credit
Amounts in Rupees
Cash at bank - current account 17,930,120
Receivable from SOGO Limited 1,147,150
Defence Savings Certificate 102,133,664
Term Finance Certificates 11,832,089
Term Deposits 6,414,058
Investment – SUN Limited 17,594,893
Investment – PEACE Company Limited 587,169
Investment - NIT Units 16,911,510
Due to outgoing members 4,301,017
Accrued expenses 3,822
Withholding tax payable 61,251
Members Fund 142,472,122
Profit on investments 23,389,251
Dividend income 2,696,399
Contribution for the year 10,623,106
Transferred / paid to outgoing members 12,432,973
Bank charges 3,342
Audit fee 10,000
Liabilities no more payable 3,450,000
186,996,968 186,996,968
Following are the details of investments and income thereon:
During the year 2007

Balance
Profit / Profit /
as at Principal
Addition interest interest
July 01, 2006 realized
accrued realized
Government Securities
Defence Savings Certificate 87,812,855 - 21,376,809 (1,600,000) (5,456,000)
Unlisted Securities and deposits
Term Finance Certificates 19,943,656 5,000,000 1,655,223 (12,873,068) (1,893,722)
Term Deposits 11,584,631 - 357,219 (5,300,000) (227,792)
Listed Securities
SUN Limited 8,220,957 9,373,936 - - -
PEACE Limited 587,169 - - - -
NIT Units 16,911,510 - - - -
The following gains/(losses) on restatement of investments at their fair values, have not
been accounted for:
Rupees
SUN Limited (784,518)
PEACE Limited 317,728
NIT Units 4,026,551
Required:
Prepare the following in accordance with the requirements of International Accounting
Standards:
(a) Statement of Net Assets Available for Benefits alongwith the note on investments.
(b) Statement of changes in Net Assets Available for Benefits. (15)
(5)
Q.6 During the year 2007, SKY Limited developed two inter-linked websites in house. One
of them is for external users and provides information about the company’s products,
operations and financials. It can also be used for electronic order processing and
accepting payments through credit cards. The second website is for internal use like
intra-net, providing and sharing company’s policies, customer details, employees’
information, etc.
Both the websites were launched on September 30, 2007 and are now fully operational.
The company has received a few online orders which it believes will increase over time.
On the other hand, use of internal website has resulted in minor reduction in costs of
communication and certain other administrative costs. The management is optimistic that
its utility will increase significantly. However, it is not in a position to estimate the
amount of economic inflows that this website can generate.
During the year ended December 31, 2007, the company incurred the following
expenditure in the development of websites:
(i) An amount of Rs. 0.3 million was incurred on undertaking a feasibility study and
defining hardware/software specifications for the websites.
(ii) Rs. 4 million were incurred on the development of internal website while an
expenditure of Rs. 11 million has been made on development of external website.
The expenditure on external website includes an amount of Rs. 6 million paid for
linking it with the credit card clearing facilities and installation of security tools.
(iii) The company acquired two dedicated servers and one backup server costing Rs. 3
million in total. Operating software for the server was acquired for Rs. 2.0 million
whereas software related to data processing and front-end development costed
Rs. 3 million. The management is of the view that these costs would not have been
incurred if the website project had not been initiated.
(iv) With effect from October 1, 2007 the company has signed a one year contract for
website maintenance at a cost of Rs. 2.0 million.
(v) Two IT personnel were trained to operate the websites, at a cost of Rs. 0.2 million.
(vi) Rs. 0.4 million were incurred on the promotion of its external website. The
company believes that this advertising will boost the company’s online sales.
Required:
Comment on the accounting treatment of each of the above mentioned costs in the light
of relevant International Accounting Standards. (12)
(THE END)
December 04, 2007
ADVANCED ACCOUNTING & FINANCIAL REPORTING (MARKS 100)

(3 hours)
Q.1 Ghalib Limited manufactures three products X, Y and Z. The management of the
company considers plants relating to each product as a separate Cash-Generating Unit
(CGU). The company has three Corporate Assets viz. a building, PABX system and a
computer network. On June 30, 2007, the assets were valued as under:
Carrying Recoverable
Amount* Amount
Rupees Rupees
Cash-Generating Units excluding Corporate Assets
Plant 1 – for Product X 2,500,000 1,200,000
Plant 2 – for Product Y 5,000,000 7,000,000
Plant 3 – for Product Z 10,000,000 6,400,000
17,500,000 14,600,000
Corporate Assets
Building 2,800,000
PABX system 1,400,000
Computer network 2,100,000
6,300,000
23,800,000
* Before impairment
Based on a study carried out by the company which involved consideration of various
factors, the management was able to determine that the building and the PABX system
can be allocated to plant 1,2 and 3 in the ratio of 2 : 3 : 5. However, the management
was unable to determine a reasonable and consistent basis for allocating the cost of
computer network.
Required:
Calculate the carrying amount of each CGU and Corporate Asset for reporting on the
balance sheet as at June 30, 2007 in accordance with IAS-36 ‘Impairment of Assets’. (18)
Q.2 Taqi Limited has obtained a fleet of Trucks and Busses under a three years lease contract
from Faraz Leasing Company Limited. Total cost of assets is Rs. 75 million and the
expected economic life is considered to be 15 years. Lease rentals of Rs. 12 million per
annum shall be paid at the end of each year. The market rate of return is 10%.
It has been agreed that Taqi Limited will return the assets at the end of the lease term.
According to the terms of the contract, Taqi Limited is required to deposit cash
equivalent to 20% of the total cost of the fleet before taking delivery of assets. The
deposit does not carry any return and will be refunded in full at the end of the lease term.
Required:
(a) Comment on the accounting treatment of the above arrangement, from the lessee’s
point of view.
(b) Prepare accounting entries in the books of the lessee at the inception of lease and at
the end of each year. (14)
(2)
Q.3 Following is the consolidated balance sheet of Iqbal Limited as at June 30, 2007:
2007 2006
Rupees in million
ASSETS
Non-Current Assets
Tangible fixed assets 2,142 1,927
Goodwill 343 305
2,485 2,232
Current Assets
Cash and bank 808 700
Investments 982 560
Trade receivables 1,128 1,168
Inventory 1,850 1,715
4,768 4,143
TOTAL ASSETS 7,253 6,375

Equity
Ordinary shares of Rs. 10 each 505 450
8% preference shares of Rs. 10 each 600 600
Share premium 55 -
Revaluation reserves 140 -
Accumulated profits 2,670 2,480
3,970 3,530
Minority Interest 238 200
4,208 3,730
Liability against assets subject to finance lease 300 420
Deferred tax 75 55
Current Liabilities
Running finance 940 900
Trade payables 950 720
Income tax payable 600 450
Dividends payable 180 100
2,670 2,170
TOTAL EQUITY AND LIABILITIES 7,253 6,375
Following further information has been extracted from the records:

(i) Iqbal Limited has two subsidiaries i.e. Faiz Limited and Badar Limited.
(ii) The factory buildings of Faiz Limited and Badar Limited were revalued during the
year and the surplus arising on the revaluation was credited to a revaluation reserve
account.
(iii) Certain plant and machineries belonging to Faiz Limited, acquired under finance
lease arrangement, were capitalized at Rs. 50 million.
(iv) On September 30, 2006, equipment costing Rs. 55 million carried in the books of
Iqbal Limited at Rs. 35 million as at June 30, 2006 was completely destroyed by
fire. Insurance proceed of Rs. 40 million was received on November 17, 2006.
There were no other disposal of tangible fixed assets in any of the three companies.
(v) Total depreciation in the consolidated profit and loss account amounted to Rs. 314
million which included depreciation on leased assets amounting to Rs. 38 million.
(3)
(vi) 80% of the paid-up capital of Faiz Limited was acquired during the year for Rs. 110
million. The payment was made by issuing 5.5 million ordinary shares of Rs. 10
each at 100% premium. The net assets of Faiz Limited at the date of acquisition
were as follows:
Rs. in million
Tangible fixed assets 60
Inventories 20
Trade receivables 25
Cash 10
Trade payables (25)
90
(vii) Provision made during the year, for current and deferred tax amounted to Rs. 200
million and Rs. 20 million respectively.
(viii) Profit allocated to minority shareholders amounted to Rs. 35 million.
(ix) The details relating to dividend paid by Iqbal Limited for the year are as follows:
2007 2006
Declared on June 15, 2007 June 15, 2006
Paid on August 31, 2007 August 31, 2006
Amount Rs. 180 million Rs. 100 million
Required:
Prepare the consolidated cash flow statement for the year ended June 30, 2007. Show
necessary workings. (20)
Q.4 Mr. Hali, a stock investor, wants to invest in ordinary and/or preference shares of Ibrahim
Limited, a company listed on all stock exchanges of Pakistan. He has contacted you to
study the following financial information of Ibrahim Limited:
Profit and Loss Account for the Year Ended June 30, 2007
Rs. in million
Profit before tax 2,400
Less: Income tax @ 35% (840)
Profit after tax 1,560
Less: Preference dividend (200)
Retained profits attributable to ordinary shareholders 1,360
Balance Sheet as at June 30, 2007
Rs. in million
ASSETS
Fixed assets 23,000
Current assets 12,400
35,400
1,000,000,000 ordinary shares of Rs. 10 each 10,000
10% preference shares of Rs. 10 each 2,000
12,000
Accumulated profit 3,400
Total equity 15,400
Long term loans – from commercial banks 9,800
Current liabilities 10,200

35,400
(4)
Additional Information:
(i) At the balance sheet date, the market values of the ordinary and preference shares
of Ibrahim Limited were Rs. 15 per share and Rs. 11 per share respectively.
(ii) The board of directors announced 10% cash dividend for the year ended June 30,
2007.
(iii) The pre-tax profits for the next year are forecasted to be 5% higher as compared to
the current year.
(iv) The fair value of fixed assets as at June 30, 2007 is estimated at Rs. 26,000 million.
Required:
(a) Analyze the significant financial features which should be considered before any
decision is taken by Mr. Hali to invest in Ibrahim Limited’s ordinary and / or
preference shares.
(b) List any four types of information which may help you in a better analysis. (15)
Q.5 Momin Life Insurance Company Ltd. is engaged in individual life insurance business.
The company has established a statutory fund i.e. Investment Linked Business Fund, to
meet the requirement of the Insurance Ordinance, 2000. The following information is
available for the year ended October 31, 2007:
(i) The outstanding Balance of Investment Linked Business Fund as on November 1,

2006 amounted to Rs. 286,780 thousand which represents the following:
Rs. in ‘000’
Retained earning on other than participating business 78,719
Policyholders' liabilities 208,061
(ii) The company received dividend amounting to Rs. 52,700 thousand and interest on
government securities amounting to Rs. 65,000 thousand.
(iii) Rs. 183,450 thousand was received as premium against which an amount of Rs.
11,500 thousand was paid to re-insurance companies.
(iv) Claims amounting to Rs. 173,500 thousand were paid during the year. The
company was able to recover Rs. 17,900 thousand from its re-insurance
arrangements.
(v) During the year, the company paid Rs. 54,200 thousand on account of
management expenses.
(vi) The company has not incorporated the following adjustments in its record:
Rs. in 000’
Claims admitted but not paid by the company 9,300
Management expenses due 2,000
Accrued interest 19,300
Premium outstanding 12,000
(vii) The liabilities of policyholders as at October 31, 2007 were Rs. 249,673 thousand.
(viii) The Board of Directors has approved the transfer of Rs. 10,450 thousand to
Shareholders’ Fund.
Required:
Prepare the revenue account for the year ended October 31, 2007. Ignore the comparative
figures. (15)
Q.6 Describe how users of financial statements benefit from information relating to
discontinuing operations; and briefly explain the main disclosures in respect of
discontinuing operations. (05)
(5)
Q.7 Mohani Fertilizer Company Limited, a listed company, operates a funded gratuity
scheme for its employees. Following relevant information has been extracted from the
actuarial reports:
June 30, 2007 June 30, 2006

Present value of defined benefit obligations 900 600
Fair value of plan assets 750 570
Current service cost for the year 25 22
Contributions paid during the year 15 14
Benefits paid during the year 17 15
Net cumulative unrecognized gains 90
Expected return on plan assets 8% 8%
Discount rate for plan liabilities 10% 10%
The expected remaining working lives of the employees as at June 30, 2007 were 20
years.
Required:
(a) Compute the amounts which need to be reported in the Balance Sheet and the
Profit and Loss Account of Mohani Fertilizer Company Limited for the year ended
June 30, 2007.
(b) Prepare the movement schedule of net cumulative unrecognized gains / (losses) for
the year ended June 30, 2007. (13)
(THE END)
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June 5, 2007

(3 hours)
Q.1 Murree Food Limited, a public company, was sued by an employee claiming damages for
Rs 4,000,000 on account of an injury caused to him as a result of alleged negligence on
the part of the company while he was working on the machine on December 18, 2006.
Before filing the suit on January 18, 2007, he contacted the management of the company
on December 28, 2006 and asked for compensation of Rs 2,500,000 which was denied.
The legal advisor of the company fears that the company may lose the suit and the court
may award compensation which may range from Rs 400,000 to Rs 2,000,000. However,
in his view the most probable amount is estimated at Rs 800,000.
Required:
(a) Describe the accounting treatment in respect of the above in the financial
statements of Murree Food Limited for the year ended December 31, 2006. Explain
your viewpoint with reasons based on relevant International Accounting Standards.
(b) Draft a suitable note for presenting the information in the financial statements. (10)
Q.2 Gilgit Company Limited holds 800,000 shares of a listed company namely Hunza Foods
Limited, which were purchased for Rs 84,400,000 as a long-term investment. On
January 15, 2007, Hunza Foods Limited announced the issuance of one right share for
every 5 shares held by the shareholders of the company. Face value of the shares is
Rs 100 per share. On the date of book closure, market value of the share (cum right) was
Rs 106 per share. The initial quoted price of the right was Rs 4 per right.
Required:
Suggest the necessary journal entries in the books of Gilgit Company Limited in case of
each of the following options:
Option # 1 If the rights are not exercised but are sold at Rs 6 per right.
Option # 2 If the rights are not exercised and are allowed to expire.
Option # 3 If the following transaction take place:

− 200,000 shares are sold at cum right price for Rs 23,000,000;
− The right to purchase 120,000 additional shares at Rs 100 per share is
exercised. Immediately after the book closure, the shares were quoted
at Rs 103 per share (ex-right); and
− 100,000 shares originally held are sold at Rs 107 per share, after the
exercise of the rights. (16)
Q.3 Skardu Limited is preparing its consolidated financial statements for the year ended
December 31, 2006. During the year 2006, it acquired shares in three companies. The
details are given hereunder:
(2)
(a) Balakot Limited

43% shares were acquired on May 1, 2006. Balakot Limited is a major supplier of
Skardu Limited. Skardu Limited also has a written agreement with Mr. Saleem who
owns 30% of the share capital of Balakot Limited. According to the agreement,
Mr. Saleem will always vote in the same way as Skardu Limited. Skardu Limited
has also made a substantial loan to Balakot Limited after acquisition of its shares,
which is repayable on demand. Balakot Limited is currently not in a position to
repay the loan.
(b) Mangora Textile (Pvt.) Limited

The whole of the share capital was acquired on April 1, 2006. The directors of
Skardu Limited have displayed their clear intentions to sell the subsidiary within a
year. At the date of acquisition, the estimated fair value of assets was Rs 54 million
and the fair value of the liabilities was Rs 16 million. At year-end, the estimated fair
value of assets is Rs 52 million and the fair value of the liabilities is Rs 15 million.
(c) Mansehra Limited

47% of the voting shares of Mansehra Limited were acquired on June 1, 2006. Rest
of the shares are owned by two financial institutions i.e. A (20%) and B (33%).
Each financial institution has nominated three directors on the board whereas four
directors are nominated by Skardu Limited. The effective power to set Mansehra’s
operating policies lies with the four directors appointed by Skardu Limited.
However, according to the articles of association of Mansehra Limited, any change
in the capital structure requires that all the ten directors must vote in favor of the
proposal.
Required:
Discuss how these investments should be treated in the consolidated financial statements
of Skardu Limited for year ended December 31, 2006. (08)
Q.4 One of your clients has contacted you to calculate earnings per share in accordance with
the requirements of International Accounting Standards and has provided you the
following information:
(i) At the beginning of the year 2006 the company’s share capital was Rs 50 million
consisting of 5,000,000 ordinary shares of Rs 10 each. Ten percent bonus shares
were issued on April 1, 2006. Market price of ordinary shares at the beginning of
the year was Rs 33 per share. On June 30, 2006 the price was Rs 38 per share and
at the end of the year, the price was Rs 36 per share.
(ii) Profit attributable to ordinary shareholders of the company for the year 2006 is
Rs 20 million.
(iii) The company had issued convertible Term Finance Certificates (TFCs) of
Rs 120 million carrying markup at the rate of 13 percent per annum. The certificate
holders have the option to convert TFCs into ordinary shares in the ratio of
25 ordinary shares for each TFC of Rs 1,000.
(iv) The company is subject to income tax at the rate of 35%.
Required:
Calculate the basic and diluted earnings per share for the year 2006 in each of the
following situations:
(a) if none of the TFC holders opt to convert TFCs into ordinary shares;
(b) if a TFC holders who owns 40% of the total TFCs exercises his right of conversion
on the first day of July 1, 2006. (15)
(3)
Q.5 Swat Limited is in the business of manufacturing and selling of biscuits. It sells biscuits
through its authorized partners appointed in all major cities of Pakistan.
The company accounts for taxation and deferred taxation in accordance with the
provisions of IAS 12. The relevant information relating to accounting year ended
December 31, 2006 is summarized hereunder:
Rupees
in “000”
Accounting income before tax 797,000
Accounting WDV of fixed assets as at December 31, 2006 565,500
Tax WDV of fixed assets as at December 31, 2006 243,000
Dividend income (subject to final tax at 5%) 35,000
Capital gain (exempt from tax) 135,000
Turnover for the year 3,165,500
Total turnover tax paid during the last three years 65,000
Liabilities older than 3 years, disallowed in previous years. 65,000
Provision for gratuity as at December 31, 2006 138,500
Provision for Gratuity for the year (net of payments) 33,000
Donations to unapproved institutions 5,000
Effect of prior year’s assessments finalized during the current year 6,400
Accounting depreciation for the year 103,000
Tax depreciation for the year 85,000
Fixed assets additions during the year 123,000
All the liabilities are less than three years old except for those disclosed in the above
table. No payment was made in respect of liabilities disallowed earlier.
Only one fixed asset (a vehicle) was disposed off during the year 2006 against
Rs 1,000,000. Its accounting WDV was Rs 700,000 while tax WDV was Rs 465,000. No
disposal of fixed assets took place in the year 2005.
All expenses (except donations and timing differences) are considered to be allowable for
tax purpose. Applicable tax rate is 35%.
During last three years, the company was in a loss and was paying turnover tax which is
adjustable in future under the provisions of the Income Tax Ordinance, 2001, within a
period of five years. The company had always believed that such tax credit will be
utilized in the near future.
Required:
(a) Compute the amount of deferred tax required to be reported in the balance sheets
for the years 2006 and 2005.
(b) Prepare a note to the Profit and Loss Account for the year 2006, giving appropriate
disclosures related to tax expenses. (18)
Q.6 Ayubia Limited is a public company engaged in the supply of locally assembled
machinery used in the textile industry. The management of the company feels that the
company’s sales performance will be much improved if it provides in-house after sales
services to its customers as well as prompt delivery of spare parts. For this purpose, on
May 1, 2007 the management of the company decided to acquire 100% holding in the
following companies:
− Kalam (Pvt.) Limited, an importer of spare parts used in textile machinery; and
− Ziarat (Pvt.) Limited, which provides repair and maintenance services related to
textile machinery.
(4)
It has been agreed that the consideration for the acquisition will be ascertained by
applying the agreed price earning ratios on the estimated profits for the year ending
June 30, 2007. The price earning ratio for Kalam (Pvt.) Limited and Ziarat (Pvt.)
Limited has been agreed at 15 and 10 respectively. The shares in Ayubia Limited will be
issued to shareholders of both the companies on October 01, 2007 at a premium of
Rs 3 per share.
The following relevant information is available:
Rupees in million
Kalam Ziarat
Ayubia (Pvt.) (Pvt.)
Limited Limited Limited
Issued Share Capital: Ordinary Shares of
Rs 10 each *1,600 150 60
Estimated profits before taxation
- for the year ending June 30, 2007 *690 30 12
- for the year ending June 30, 2008 *780 35 18
Estimated net assets as on June 30, 2008 *4,890 250 70
*excluding the effect of acquisition transactions
Ayubia Limited anticipates that on May 01, 2008, it will provide a loan amounting to
Rs 30 million to Kalam (Pvt.) Limited and Rs 15 million to Ziarat (Pvt.) Limited for
restructuring and renovation of operations and working facilities. The loans will be
repaid in March 2010 and will carry a simple mark up at the rate of 13% per annum
which will be payable on quarterly basis. It also estimates that this acquisition will result
in increase in its administration expenses by Rs 2,500,000 per annum.
It is also expected that following interim dividends will be paid on June 30, 2008:
Ayubia Limited 15.0%
Kalam (Pvt.) Limited 12.5%
Ziarat (Pvt.) Limited 8.0%
Tax rate applicable to business income of all the companies is 35% whereas dividends
are taxed at 10%.
Required:
Prepare projected balance sheet and projected profit and loss account of Ayubia Limited
relating to the year ending June 30, 2008. (18)
Q.7 Naran Bank Limited is a listed banking company which has 107 branches all over
Pakistan and 2 overseas branches. Total advances by the bank at the end of the year 2006
amounted to Rs 75,350 million (2005: Rs 65,440 million). These include
Rs 3,655 million (2005: Rs 2,373 million) placed under non performing status in
accordance with the Prudential Regulations issued by State Bank of Pakistan. Details of
classified advances and the provisions thereagainst are as follows:
Rupees in million
Classified Provision
Category of Classification Advances Required / Made
2006 2005 2006 2005
Other Assets Especially Mentioned 3 2 - -
Substandard 107 70 22 46
Doubtful 103 67 47 53
Loss 3,442 2,234 2,607 1,312
An additional provision of Rs 64 million was made during the year pursuant to the State
Bank of Pakistan’s advice. The ‘Loss’ category includes advances of Rs 25 million
(2005: Rs 23 million) relating to overseas operations of the bank. The required provision
of Rs 8 million (2005: Rs 7 million) has been made against such advances.
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(5)
The movement in the provisions was as follows:
Rupees in million
2006 2005
Opening balance 1,411 944
Charge for the year (net of reversal) 1,331 467
Amounts written off during the year (2) -
2,740 1,411
In addition to the above, the bank has made the following provisions:
(i) During the year a general provision of Rs 121 million (2005: Rs 107 million) was
made against consumer financing in accordance with the requirements of the
Prudential Regulations (1.5% of secured financing and 5% of unsecured financing).
However, no amount had been written off. The opening balance of provision
against consumer financing as on January 1, 2006 amounted to Rs 242 million.
(ii) It is the bank’s policy to make a general provision in addition to the amount
determined under Prudential Regulations. Such provision is based on the judgment
of the bank. The general provision as on January 1, 2006 was Rs 765 million.
However, there was a net reversal of provision for the year 2006 amounting to
Rs 47 million. In 2005, a net provision of Rs 65 million was made.
Required:
Prepare appropriate notes to the financial statements for the years 2005 and 2006 giving
disclosures related to provisions made by the bank in accordance with the guidelines
issued by State Bank of Pakistan. (15)
(THE END)
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December 5, 2006
ADVANCED ACCOUNTING & FINANCIAL REPORTING

(MARKS 100)
Module E (3 hours)
Q.1 GIF Holdings Limited (GIF) held 75% shares of JPG Limited (JPG) and 30% shares of
BMP Limited (BMP). Their summarized balance sheets as at June 30, 2005 are as
follows:
GIF JPG BMP
-------Rupees in million -------
Investments at cost in:
JPG Limited 450 - -
BMP Limited 250 - -
Other Net assets 1,690 1,000 800
2,390 1,000 800
Share capital (Rs.10 per share) 100 100 50

Accumulated profits 2,290 900 750
2,390 1,000 800
(a) GIF acquired the shares of JPG many years ago when the reserves of JPG were Rs.
500 million. The reserves of BMP were Rs. 650 million when GIF bought its 30%
holding on July 01, 2004.
(b) The following transactions have taken place from July 01, 2005 to June 30, 2006:
− On January 01, 2006, GIF acquired a further 2,500,000 shares in BMP for
Rs. 705 million.
− On April 01, 2006 GIF sold its entire interest in JPG for Rs. 1.1 billion in
cash. Tax arising on this transaction was Rs. 83 million.
− The draft results of the individual companies in the period since July 01, 2005
are as follows:
GIF JPG BMP

For the year ended For the six months ended
June 30, 2006 Dec. 31, 2005 June 30, 2006
Turnover 4,000 5,400 2,500 3,000
Profit before tax 400 320 300 340
Tax (140) (112) (105) (119)
Profit after tax 260 208 195 221
(c) While preparing the results for the year ended June 30, 2006, GIF have not given
effect to the disposal of its holding in JPG.
(d) Directors of GIF have indicated that costs of Rs. 70 million incurred and charged by
BMP in its draft results for the six-months ended June 30, 2006 had been incurred
prior to its acquisition by GIF, whereas they were recorded after January 1, 2006.
(2)
(e) BMP has now decided to write off a debtor balance of Rs. 40 million of which
Rs. 30 million had been outstanding since December 31, 2005. For the purpose of
consolidation, Rs. 30 million will be considered to have been written off prior to
January 1, 2006.
(f) GIF is a regular supplier to BMP, and makes a pre-tax profit of 20% on sales. Sales
by GIF to BMP in the six-months ended June 30, 2006 were Rs. 800 million.
Goods invoiced at Rs. 450 million were still in BMP’s stock as at June 30, 2006.
(g) Goods invoiced by GIF to BMP in June 2006 at Rs.150 million were not reflected
in BMP’s accounts as at June 30, 2006 as they had not been delivered to BMP till
then.
(h) The management of GIF tested the goodwill amount by comparing it with its
recoverable amount and decided to reduce its value by 2.5% at June 30, 2006.
(i) Applicable tax rate is 35%. Ignore deferred tax.
Required:
Prepare the consolidated profit and loss account of GIF Holdings Limited for the year
ended June 30, 2006 and the consolidated balance sheet as at June 30, 2006. (22)
Q.2 PDF Steel Manufacturing Company Ltd. purchased a building for its proposed research
and development laboratory at a cost of Rs. 75.8 million. The building was placed in
service on July 10, 2005. The estimated useful life of the building for depreciation
purpose is 20 years. The company uses straight-line method for calculating depreciation
and there is no estimated net salvage value.
The laboratory has been designed to carry out research on various projects and will also
help the company in the production of a highly technical tool which has a wide use in
the manufacturing of ammunition. A summary of the number of projects and the cost
incurred on research and development for the year ended June 30, 2006 are as follows:
Salaries and *Other directly

No. of Training of
employee attributable
projects staff
benefits expenses
Completed projects with long
term benefits 15 5,400,000 3,000,000 1,000,000
Abandoned projects or
projects that benefit the
current period only 10 3,900,000 900,000 300,000
Projects in process – results
indeterminate 5 2,400,000 720,000 320,000
Total 30 11,700,000 4,620,000 1,620,000
* excluding depreciation
In view of the importance of some of the projects, the Government of Pakistan (GoP)
provided the company a team of experts to support the research and development
activities of the company. This team of experts worked on five projects which were
successfully completed and have long term benefits to the company. It was worked out
that had the company hired such team of experts, it would have cost them Rs. 7.5
million.
On the recommendation of the research and development team, the company acquired a
patent for manufacturing rights at a cost of Rs. 5.89 million. The patent was acquired on
October 01, 2005, and has an economic life of 10 years.
Required:
How the above items relating to research and development activities would be reported
on the company’s financial statements. Show all necessary disclosures including the
accounting policy. Assume that long term benefits mean 10 years on the average. (12)
(3)
Q.3 RTF Sugar Mills Ltd. has been incurring losses since last many years. The statutory
audit of the company since 2004 has not yet been finalized. You have recently been
appointed as Chief Accountant of the company and have been assigned the
responsibility of finalizing the accounts for the years 2004, 2005 and 2006. As a first
step, you have reviewed the draft accounts for the year 2004 which were prepared on
August 1, 2004. You have also ascertained the following information about certain
subsequent events that may have an impact on the financial statements for the year
ended June 30, 2004:
(a) The Board of directors approved sale of a loss making segment of the company in
December 2004, which was sold in April 2005 at a profit of Rs. 123 million. The
profit has been computed on the basis of book value of assets as of April 2005;
(b) Benefits to employees under the gratuity scheme were reduced by the
management on March 30, 2005 with retrospective effect which has resulted in 50
percent decrease in the liability for gratuity (projected benefit obligation). The
original liability as of June 30, 2004 was estimated at Rs. 73 million;
(c) The government has increased the income tax rate by 5 percent in July 2006,
which if taken into account, will result in an increase in deferred tax liability by
Rs. 135 million;
(d) The company has issued a guarantee of Rs. 350 million against debts of one of its
associates on September 15, 2004;
(e) A long-term financing arrangement was rescheduled on March 31, 2005. The
current maturity of the said arrangement was Rs. 180 million as of June 30, 2004
out of which Rs. 30 million were paid before such rescheduling. After
rescheduling the first payment becomes due in 2011;
(f) Certain inventories of a specific service line could not be sold till February 2006
when these were disposed off at a loss of Rs. 83 million. No other evidence is
available regarding their net realizable value.
Required:
Consider each of the above event separately and explain briefly whether it:
− needs to be accounted for;

− needs to be disclosed; or
− does not effect the financial statements for the year 2004. (14)
Q.4 XLS Limited is a listed company and engaged in the assembling of electrical
appliances. During the year, the company changed its accounting policies in respect of
the following:
1. It has started to capitalize the borrowing costs directly attributable to the

qualifying assets. Upto June 30, 2005, the company recognized the borrowing
costs as an expense in the year in which they were incurred.
2. Provision for bad debts shall be provided at 3% instead of 2%.
The management feels that change of above policies will reflect a fair view of the
company’s financial position to the shareholders.
(4)
Extracts from the financial statements of the company before incorporation of above
changes are given below:
2006 2005
Rs. in million
Gross profit 486 410
General and administration expenses (231) (225)
Selling and distribution expense (110) (98)
Financial charges (32) (31)
Profit before tax 113 56
Income taxes (30) (14)
Profit after tax 83 42
Retained earnings – opening 452 410
Retained earnings – closing 535 452

1. Details of borrowing costs expensed out in current and prior periods which are
directly attributable to the qualifying assets are as follows:
Amount
Year
Rs. in million
June 30, 2006 16
June 30, 2005 12
June 30, 2004 and before 8
2. The change in the rate of provision for bad debts has been made on the
recommendation of Recovery Department. The company has not yet made the
provision as of June 30, 2006. The details of accounts receivables are as follows:
Accounts receivable as at June 30, 2005 Rs. 100 million
Accounts receivable as at June 30, 2006 Rs. 123 million
Provision as at June 30, 2004 was Rs. 1.6 million.
3. Income tax rate was 25% for both years.
Required:
(a) Present the above changes in the Profit and Loss Account and Statement of
Changes in Equity in accordance with the requirements of IAS-8 “Accounting
Policies, Changes in Accounting Estimates and Errors”.
(b) Draft an accounting policy about the borrowing costs for disclosure in the
financial statements. (17)
Q.5 DOC Industries is engaged in manufacturing and export of cotton and linen bed sheets
to USA and Middle East. The company operates an approved funded gratuity scheme
for all eligible employees. The last actuarial valuation of the scheme was carried out
using the Projected Unit Credit Method. Following are the extracts of relevant
information from the actuarial report for valuation carried out in line with IAS – 19, as
of June 30, 2006:
Rupees
Present value of projected benefit obligations – June 30, 2005 1,930,650
Current service cost for the year 350,200
Interest cost for the year 135,650
Gratuity paid by the fund to the retiring employees 165,200
Actuarial loss on obligations, during the year 650,300
Expected return on plan assets 275,350
Contribution paid by the company to the fund during the year 425,000
Fair value of plan assets – June 30, 2005 1,420,350
Actuarial gain on plan assets during the year 135,000
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(5)
Following information is also available:

1. Additional gratuity amounting to Rs. 55,500 was paid to a retiring employee as
ex-gratia by the company which is included in both, the payments made by the
company to the fund, as well as, the payments made by the fund to the retiring
employees;
2. During the year, the management introduced a change in the plan, which has
resulted in increase in benefits. Past service cost, amounting to Rs. 273,000 against
such plan changes has not been separately disclosed in the actuarial report. When
the actuary was consulted again in this respect, he responded that such effect is
included in the actuarial loss for the year. He further informed that 70% of such
benefit is vested. It is expected that non-vested benefit will become vested over a
period of 4 years.
3. Average remaining service life of the employees was 23 years, as of June 30, 2005.
4. Discount rate of 10%, rate of return on plan assets of 10% and expected rate of
increase of salaries of 12% have been used for valuation purposes.
5. Net unrecognized actuarial loss, as at June 30, 2005 was Rs. 350,450.
6. 40% of cost of gratuity is chargeable to administrative expenses and 60% to cost of
goods sold.
7. The company follows the corridor approach for accounting of net actuarial gains
and losses.
Required:
Prepare all necessary disclosures to be incorporated in the financial statements including
accounting policy, in respect of the defined benefit gratuity scheme. Show all necessary
workings. (20)
Q.6 TMP Trust Fund is an open ended mutual fund, listed on Lahore Stock Exchange. Units
are offered for public subscription on a continuous basis and can be redeemed by
surrendering them to the fund.
Following financial information is available for the year ended June 30, 2006:
1. During the year, the fund received amounts of Rs. 210,290,408 (2005: Rs.
152,870,421) against issuance of 1,546,253 units (2005: 1,377,211 units). The
issued units include bonus units issued to unit holders.
2. 1,434,644 units (2005: 1,213,560 units) were redeemed during the year against
which an amount of Rs. 194,394,262 (2005: Rs. 133,491,600) was paid / payable
by the fund.
3. Undistributed income brought forward from previous year is Rs. 5,638,924.
4. It is the policy of the fund to recognize the distribution of cash dividend and
bonus in the year in which it is declared. The fund has announced at the year end,
bonus units of 15% (2005: 10%) and 10% cash dividend (2005: Nil).
5. No cash dividend or bonus has been distributed prior to June 30, 2005.
6. Net income of the fund is Rs. 15,532,600 (2005: Rs. 8,511,744).
7. The element of income and capital gains included in prices of units sold less those
in units redeemed representing accrued income and realized capital gains,
amounted to Rs. 1,536,360 (2005: Rs. 965,458). This amount was transferred to
profit and loss account.
8. The value of net assets at the beginning of the year was Rs. 39,674,912.
9. 550,215 units of Rs. 100 each are outstanding as at June 30, 2006.
Required:
Prepare the following statements of TMP Trust Fund for the year ended June 30, 2006
and 2005:
(i) Distribution Statement
(ii) Statement of movement in unit holders’ funds. (15)
(THE END)
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June 06, 2006

(3 hours)
Q.1 Millennium Enterprises Limited (MEL) has 80% shareholding in Century Petroleum
Limited (CPL) which it had acquired on April 1, 2003. On April 1, 2005, it acquired
whole of A Limited’s equal (50%) share in the joint venture A Limited had with B
Limited in a pipeline project. The operations of the project are jointly controlled.
The purchase was made at book value.
The balance sheets of the above entities as at March 31, 2006 are given hereunder:
Joint
MEL CPL
Venture
Rupees in thousand
Non-current assets
Property, plant and equipment 416,250 153,600 63,000
Investment 160,000 12,800 ---
576,250 166,400 63,000
Current assets
Inventory 41,440 20,480 21,000
Accounts receivable 35,150 12,160 11,200
Bank 6,660 -- 9,800
83,250 32,640 42,000
Total assets 659,500 199,040 105,000

Capital and reserves
Ordinary shares of Rs.10 each 185,000 64,000 35,000
Reserves
Accumulated profits 405,680 76,800 52,500
590,680 140,800 87,500
Current liabilities
Accounts payable 48,100 43,200 14,000
Taxation 20,720 11,200 3,500
Overdraft -- 3,840 --
68,820 58,240 17,500
Total equity and liabilities 659,500 199,040 105,000
The following information is relevant:
(i) CPL was acquired at a cost of Rs.120 million. Its accumulated profits at that
date were Rs. 28 million.
At the date of acquisition, i.e. April 1, 2003, CPL owned an item of plant that
had a fair value of Rs.20.0 million in excess of its book value. The plant had a
remaining useful life of five years. All plant and equipment is depreciated on
the straight-line basis.
(2)
The fair value of CPL’s remaining net assets and all of the Joint Venture’s net
assets were equal to their book values at the relevant dates of acquisition.
(ii) On October 1, 2005 MEL purchased some equipment from the Joint Venture
for a consideration of Rs.7.0 million. It was sold at a mark up of 25% on cost.
The equipment is in use by MEL and is included in property plant and
equipment and being depreciated over a four-year life.
(iii) During the year ended March 31, 2006, the books of account of the Joint
Venture showed a profit of Rs.15.0 million.
(iv) The share of profit for the year in CPL and the Joint Venture has not yet been
recorded in the books of MEL.
(v) All inter company current account balances were settled prior to the year-end.
Required:
Prepare the consolidated balance sheet of MEL as at March 31, 2006. (20)
Q.2 Mughals Limited, a firm of civil contractors, specialize in construction of highways.

They entered into a contract with the National Highway Authority (NHA) in the
year 2003 for construction of National Highway covering 1500 kilometers and
having 6 lanes. However, it was agreed that work shall commence on February 1,
2004. The agreed price was Rs.3.6 billion. The company closes its accounts on May
31.
On February 1, 2005 the NHA requested the company for extending the highway by
adding two further lanes. NHA was of the view that the price of this extension shall
be in the same proportion i.e. Rs. 1.2 billion, as there has been no significant
increase in costs since the signing of the contract in 2003. However Mughals
Limited refused to accept this price. Their board of directors was of the view that
their company was in a position to sign another contract if they forego the offer by
NHA. After extensive negotiations, the price of the extended work was agreed at Rs.
1.6 billion. It was also agreed that the work on additional lanes will be carried out
simultaneously and will be completed on November 30, 2006.
The following data is available in respect of the above contract:

As at May 31
2004 2005 2006
Original Contract Rupees in million
Progressive billing to date 800 2,500 3,400
Amount received to date 600 2,400 3,240
Mobilization advance (included in the above) 180 180 180
Actual cost to date 600 2,000 2,680
Value of work certified by NHA 300 2,000 3,300
Profit (latest estimate) 600 900 720
Additional Work
Progressive billing to date -- 200 1,100
Amount received to date -- 80 800
Mobilization advance (included in the above) -- 80 80
Actual cost to date -- 100 580
Value of work certified by NHA -- -- 1,000
Profit (latest estimate) -- 700 600
(3)
There is a clause in the agreement that NHA will pay an early completion bonus of
Rs.5.0 million per week. However in case of delay it will levy a penalty of Rs.10.0
million for each week the completion is delayed. In case of the original agreement
the company has always been confident that the contract will be completed two
weeks ahead of time and was actually completed accordingly. In case of additional
work the chances of delay at year-end were considered as:
2005 2006
Delay of two weeks Possible Probable
Delay of three weeks Remote Possible
Delay of four weeks -- Remote
Required:
(a) Discuss whether the contract for additional work shall be treated as a
separate contract or a part of the original contract, according to IAS-11
(Construction Contracts) (04)
(b) Prepare extracts of the Income Statement and Balance Sheet of Mughals
Limited for the years to May 31, 2005 and 2006 in respect of the above
contract along with necessary disclosures regarding treatment of bonus and
penalty as discussed above. (16)
Q.3 Following are some of the balances which have been extracted from the trial
balance of EZ General Insurance Company Limited for the year ended December
31, 2005:
Rs. in ‘000’
Dr. Cr.
Premium receivable 17,000
Accrued income 300
Prepayments 2,400
Premium received in advance 3,523
Amounts due to other insurers/re-insurers 3,891
Accrued expenses 765
Other creditors and accruals 7,631
Retained earnings 4,630
Other revenue reserves 8,300
Premiums written during the year 74,471
Unearned premium reserve – opening 27,700
Reinsurance expense (after adjusting prepayments) 27,058
Claims paid 43,706
Outstanding claims – opening 4,354
Reinsurance recoveries against claims (after all adjustments) 14,751
Commissions paid 7,549
Unpaid commissions – opening 4,360
Commissions from re-insurers 11,919
Management expenses 6,986
General and administration expenses 6,678
Investment income 6,521
Rental income 124
Other income 2,891
(4)
Further breakdown of some of the above figures is as follows:
Rs. in ‘000’
Fire Marine Motor Misc.
Premiums written during the year 27,386 15,645 21,568 9,872
Unearned premium reserve – opening 11,200 1,200 10,500 4,800
Reinsurance expense (after adjusting prepayments) 11,567 6,781 4,587 4,123
Claims paid 18,567 4,567 16,897 3,675
Outstanding claims – opening 1,254 875 1,567 658
Reinsurance recoveries against claims
(after all adjustments) 7,894 1,852 3,423 1,582
Commissions paid 2,854 1,857 1,785 1,053
Unpaid commissions – opening 1,750 510 1,700 400
Commissions from re-insurers 5,405 2,975 1,587 1,952

(i) The unearned premium reserve as at December 31, 2005 calculated in
accordance with the rules shall be as under:
Rs. in ‘000’
Fire 12,300
Marine 890
Motor 11,300
Miscellaneous 4,650
(ii) Provision for unpaid claims and claims incurred but not reported at the date
of balance sheet are estimated as under:
Rs. in ‘000’
Fire 1,680
Marine 610
Motor 1,800
Miscellaneous 450
(iii) Commission due to agents, as on December 31, 2005 was as follows:

Rs. in ‘000’
Fire 1,560
Marine 820
Motor 1,850
Miscellaneous 580
(iv) Management expenses represent those expenses which are attributable to

underwriting business. These are to be allocated to various classes of
business on the basis of premium earned during the year.
(v) Expenses not allocable to underwriting business are charged as general and
administrative expense.
(vi) For the purpose of tax provision, rate of tax is to be assumed at 35%.
Required:
Draw up the Profit and Loss Account of EZ General Insurance Company Limited
for the year 2005. Notes to the accounts are not required, however appropriate
workings should be prepared. (14)
(5)
Q.4 Durable Electronics Limited is a manufacturing concern specializing in the

manufacturing and marketing of home appliances. The trading results for the year
ended December 31, 2005 are as follows:
Rupees in million
Profit before taxation 60
Income Tax 12
Profit after taxation 48
The details of movement in the share capital of the company during the year are as
follows:
- As on January 1, 2005, 10 million ordinary shares of Rs. 10 each were

outstanding having a market value of Rs. 350 million.
- The board of directors of the company announced an issue of right share in the
proportion of 1 for 5 at Rs. 40 per share. The entitlement date of right shares was
April 30, 2005. The market price of the shares immediately before the
entitlement date was Rs. 40 per share.
- The company announced 20% bonus shares for its shareholders on June 1, 2005.
The shareholders were informed that the share transfer books of the company
will remain closed from July 1 to July 10, both days inclusive. Transfers
received up to June 30, 2005 will be considered in time for entitlement of bonus
shares. However, right shares issued in the month of April 2005 will not be
entitled for the bonus shares. The ex-bonus market value per share was Rs. 32.
- A further right issue was made in the proportion of 1 for 4 on October 31, 2005
at a premium of Rs. 15 per share. The market value of the shares before the right
entitlement, was Rs. 33 per share.
Required:
Calculate the basic and diluted earnings per share for the year ended December 31,
2005 in accordance with IAS 33 (Earnings per share). (14)
Q.5 You are the Chief Accountant of Rubab Enterprises Limited which is engaged in
manufacturing iron and steel products. The company was set up in August 1998 and
started commercial production in November 1998. The accounting year-end of the
company is June 30.
While analyzing the company’s books of accounts for the year ended June 30, 2005,
you came across the following balances:
Rs.
Provision for taxation (Gross) 2,410,000
Deferred tax liability 4,700,000
The assessments of the past four years although completed by the taxation officer
but are still open due to appeals. The provision for taxation consists of the
following:
(6)
Accounting Accounting Assessed Provision for

Tax Rate
year Income Income Taxation
2002 1,000,000 1,800,000 45% 810,000
2003 1,400,000 1,900,000 40% 760,000
2004 1,700,000 2,100,000 40% 840,000
2005 2,200,000 - 35% -
2,410,000
The deferred taxation is on account of the following:
Dr / (Cr)
Depreciation (4,000,000)
Leasing (2,000,000)
Penalties and fines paid by the company 100,000
Provisions for gratuity 1,000 ,000
Provisions for bad debt 200,000
( 4,700,000)
(a) The accounting depreciation for the year ended June 30, 2005 amounted to
Rs.20.50 million whereas tax depreciation as calculated by one of your sub-
ordinates amounted to Rs. 15.50 million.
(b) The company operates an unfunded gratuity scheme. Gratuity of Rs.100,000

each was paid to two of the employees who had resigned during the year. The
total provision required at year-end amounted to Rs. 3.5 million.
(c) Leased assets consisted of two machines only. In the accounting records of
the company; one of the lease has been treated as operating lease. The
machine under financial lease arrangement was sold during the year at a
profit of Rs.400,000. The lease was cancelled with the consent of the leasing
company.
(d) The company paid Rs. 1,000,000 on account of certain expenses. Your tax
advisor has informed you that only 60% of this will be allowed for tax
purposes and that too, over a period of five years (including the current year).
(e) Receivables of Rs.40,000 which were written off in the year 2002 were
recovered during the year. The same had not been allowed by the tax
authorities in the year in which they were written off.
During the year, the following decisions were made by various tax appellate
authorities:
(a) While assessing the income for the year ended June 30, 2002 the value of
closing stock had been increased by the taxation authorities by Rs. 4.0 million.
Consequential effect on opening stock of next year had however been allowed.
During the current year, add-back was declared invalid by the appellate
authority.
(7)
(b) An expense incurred in the year 2003, amounting to Rs.0.5 million, which was
disallowed then, was declared as allowable over a period of four years.
Although the company had filed an appeal, it was of the view that the same
would not be allowed, hence it has ignored it for the purpose of calculating
deferred tax till last year.
Required:
(a) Among the transactions discussed above, identify those which give rise to
permanent timing differences. (02)
(b) Calculate the following:
i). Provision for taxation – current

ii). Provision for taxation – prior years
iii). Deferred tax – current
iv). Deferred tax – prior years
v). Deferred tax liability (18)
Q.6 XYZ Limited is a subsidiary of MAG International Limited. It has been listed on the
Karachi Stock Exchange for the past forty years.
Required:
Draft a Statement of Compliance for inclusion in the financial statements of XYZ

Limited. (06)
Q.7 Explain the concept of ‘Embedded Derivative’ as discussed in International

Accounting Standards 39 (Financial Instrument: Recognition and Measurement). (06)
(THE END)

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Winter 2015 - Topic Marks Winter 2014 - Topic Marks Winter 2013- Topic Marks Winter 2012- Topic

Advanced Accounting and Financial Reporting

RYL DTL GNL

Ordinary share capital (Rs./G$ 10 each) 1,800 350 5

(vi) The exchange rates per G$ were as follows:

(i) Value of intangible assets as at 30 June 2013:

The break-up of development expenditure was as follows:

Products Rs. in million

(i) 2015 2014

(i) Deferred tax assets

(ii) Convertible preference shares

(iii) Unrealised gains and losses

The spot and forward rates per USD were as follows:

Forward rates (for delivery

ASL’s financial year ends on 30 June.

Advanced Accounting and Financial Reporting

Consolidated statement of financial position as on 31 December 2014

Non-current liabilities Current assets

Profit attributable to:

Total comprehensive income attributable to:

(iii) Property, plant and equipment:

The following information is also available:

Advanced Accounting and Financial Reporting

The following information is also available:

(i) No. of At the acquisition date

Relating to goodwill Rs. 148.50 million

SLL’s financing cost is 12% per annum.

Work certified and billed 80% 45%

(a) Statement of net assets available for benefits; and (05)

At the acquisition date

Information pertaining to profit and dividend of the investee companies is as follows:

(i) Statement of financial position:

Share capital (Rs. 100 each) 9,000 7,000 3,000

The following information is also available:

Other relevant information is as under:

Following information is also available:

(v) Dividend details are as under:

(vi) Applicable tax rate for business income is 35%.

AIL BPL DPL

Non-current investments – BPL*1 (Cost Rs. 18 million) 20 - -

On 1 April 2013, AIL acquired a further 55% equity in BPL when:

Other relevant details are as follows:

(i) Assets and liabilities as of 30 June 2013:

Goodwill of MPL as per the consolidated statement of financial position of GAL as at 30

Statement of comprehensive income for the year ended 30 September 2013

Statement of financial position as at 30 September 2013

Following further information is available:

1-Jun-2013 30-Sep-2013 1-Nov-2013 1-Dec-2013

Advanced Accounting and Financial Reporting

Manto Limited (ML)

Hali Limited (HL)

The draft summarised statements of financial position of the three companies on

The following additional information is available:

On 15 March 2013, a product of HCL was found to be contaminated. On receiving the

(i) Total comprehensive income for the year:

(ii) Share capital as on 1 January 2012:

(ii) Information extracted from profit and loss account:

(iii) Information extracted from statement of financial position:

Other relevant information is as under:

31-Dec-2011 31-Dec-2012 Average for 2012

(i) Property, plant and equipment (PPE)

Details of the revaluation are as under:

(ii) Provision for retirement benefits and doubtful debts

60% employees exercised the option by June 30, 2010.