Certificate in Accounting and Finance Stage Examinations

School of October 30, 2019

Accountancy 1 hour and 20 minutes – 44 marks
Additional reading time – 10 minutes

Financial Accounting and Reporting 1

Q.1 (a) Uqaab Limited (UL) had the following bank loans outstanding during the whole of 2018:
Rs. m
9% loan repayable 2019 15
11 % loan repayable 2022 24
UL began construction of a qualifying asset on 1 April 2018 and withdrew funds of Rs. 6 million on
that date to fund construction. On 1 August 2018 an additional Rs. 2 million was withdrawn for the
same purpose.
Calculate the borrowing costs which can be capitalised in respect of this project for the year ended 31
December 2018.
(a) Rs.545,600 (b) Rs.472,350
(c) Rs.750,600 (d) Rs.350,350 (02)
(b) Kabootar Limited (KL) has borrowed Rs.24 million to finance the building of a factory. Construction
is expected to take two years.
The loan was drawn down and incurred on 1 January 2019 and work began on 1 March 2019. Rs.10
million of the loan was not utilized until 1 July 2019 so JL was able to invest it until needed. JL is paying
8% on the loan and can invest surplus funds at 6%.
Calculate the borrowing costs to be capitalised for the year ended 31 December 2019 in respect of
(a) Rs.1,400,000 (b) Rs.1,920,000
(c) Rs.1,300,000 (d) Rs.1,620,000 (02)

Q.2 On 1 March 2010, Apple Corporation (AC) started the construction of a new plant to meet the growing
demand for its products. The new plant was completed at a cost of Rs. 100 million on 31 May 2011.
GC financed the cost of the project from the following sources:
(i) On 1 March 2010, a 7-year loan of Rs. 70 million was obtained specifically for the construction of
the plant. The loan earned mark- up @ 13% per annum payable semiannually. An arrangement fee
@ 1% of the loan amount was paid to the bank.
Two installments, each comprising of repayment of principal of Rs. 5 million with interest, were
paid on 31 August 2010 and 28 February 2011.
Surplus funds were invested in savings account @ 8% per annum.
(ii) AC also has a running finance facility of Rs. 100 million carrying mark-up @ 14% per annum.
Any additional amount required for the project was provided through this facility.
(iii) Payments made to the contractor were as follows:
Payment date Rs. in million
01 March 2010 25
31 January 2011 65
30 September 2011 10
(iv) Consultant fee paid on 30 April 2011 to the engineer amounted to Rs. 2 million.
(v) The construction work was suspended from 1 February 2011 to 28 February 2011. The suspension
was caused due to delay in shipment of essential components for the installation of the plant.
(vi) Useful life of plant after it is completed is 20 years. Straight line method of depreciation is used.
Required:
Calculate the amount of borrowing costs that may be capitalized during the years ended 30 June 2010
and 2011 in accordance with the requirements of International Financial Reporting Standards. Also
calculate the carrying amount of plant as on 30 June 2011. (20)
Q.3 Advent is a publicly listed company.
Details of Advent’s non-current assets at 1 October 2003 were:
Land and building Plant and Equipment
Rs. Rs.
Cost/valuation 280,000,000 400,000,000
Accumulated depreciation (40,000,000) (80,000,000)
Net book value 240,000,000 320,000,000
The following information is relevant:
(i) Written down value of land and building were Rs. 65 million and Rs. 205 million respectively on
30 September 1998. These were revalued on 1 October 1998 with Rs. 80 million attributable to
the land and Rs. 200 million to the building. At that date the estimated remaining life of the
building was 25 years. A further revaluation was not needed until 1 October 2003 when the land
and building were valued at Rs. 85 million and Rs. 180 million respectively. The remaining
estimated life of the building at this date was 20 years.
(ii) One of the building is sold on 31 March 2004 for Rs. 16 million, of which Rs. 6 million is to be
received on 31 December 2004 and the remaining amount is to be received on 1 January 2006.
Other relevant information about disposal is as follows:
Written down value (at 30 September 1998) 10,000,000
Revalued Amount (at 1 October 1998) 8,000,000
Revalued Amount (at 1 October 2003) 15,000,000
(iii) Plant is depreciated at 10% per annum on cost. On 1 October 2003 Advent revalued its plant at
Rs. 400 million.
(iv) Revaluation was performed by M/s Premier Valuation Services, an independent firm of valuers.
Required:
Prepare relevant extracts from Advent plc’s statement of financial position as at 30 September
2004, together with any note to the finical statements for the year ended 30 September 2004.
Note: Comparative figures are required only for statement of financial position. (20)
 Assessment # 1 FAR-1 (C-1 & C-2)

Answer 1
MCQs NO Answer
a (a)
b (a)
Answer 2
Carrying Amount of Asset
Construction Cost 100
Borrowing Cost (W-1) (W-2) 9.4
Consultancy Cost 2
Cost of Plant 111.4
Less: Accumulated Depreciation (111.4 /20)x 1/12 (0.46)
WDV 110.94
(W-1) Rs in ‘ Million’
Borrowing cost to capitalized 30 June 10
Loan processing charges (70 x 1%) 0.7
Interest paid on specific loan (70 x 13% x 4/12) (W-3) 3
Less: Investment income (44x8%x 4/12) (1) 2
Interest paid on general loan 0
2.7
(W-2) Rs in ‘Million’
Borrowing cost to capitalized 30 June 11
Loan processing charges 0
Interest paid on specific loan
(70 x 13% x 2/12) + (65 x 13% x (6 - 1)/12) + (60 x 13% x 3/12) (W-4) 7
Less: Investment income (2) 5
(44x8%x 2/12) + (34x8%x 5/12)
Interest paid on general loan
(31 x 14% x (4-1)/12) + (9 x 14% x 3/12) + (2 x 14% x 1/12 ) (W-4) 1.4
6.4
Receipts and Payments Schedule (30 June 2010) (W-3)
Date Description Specific Loan General Loan Balance
1 Mar 10 Loan Received 70
1 Mar 10 Arrangement fee paid (0.7)
1 Mar 10 Construction payment (25) .
44 44
Receipts and Payments Schedule (30 June 2011) (W-4)
Date Description Specific Loan General Loan Balance
1 July 10 Opening balance of Investment 44
31 Aug 10 Loan repayment (5)
31 Aug 10 Interest (70 x 13% x 6/12) (5)
(10) (34)
1 Jan 11 Construction payment (34) (31) 0
28 Feb 11 Loan repayment (5)
28 Feb 11 Interest ( 65 x 13% x 6/12) (4)
30 Apr 11 Consultancy Fee (2)

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 Assessment # 1 FAR-1 (C-1 & C-2)

Commencement of Capitalization of borrowing cost Cessation of Capitalization of Borrowing cost

Loan received 1 March 2010
Work started 1 March 2010 Work completed 31 May 2011
First payment 1 March 2010
Answer 2:
Advent plc’s
Statement of financial position (Extracts)
As on 30 September 2004
Rs. in ‘000’
Non-current asset 2004 2003
Property Plant & Equipment [ note 1] 591,750 560,000
Receivable against disposal 10,000 -
Current Assets
Receivable against disposal (current portion) 6,000 -
Equity
Revaluation surplus 98,550 15,000
Advent plc’s
Notes to the financial statement (Extracts)
For the year ended 30 September 2004
Rs.in ‘000’
Plant &
N-1 Property, plant and equipment Land Building Total
Equipment
Cost/Revalued 400,000 680,000
Opening (1/10/03) 80,000 200,000
Additions -
Transferred from Accumulated Depreciation (40,000) (80,000) (120,000)
Revaluation surplus 5,000 20,000 80,000 105,000
Disposals (15,000) (15,000)
Closing (30/9/04) 85,000 165,000 400,000 650,000
Accumulated depreciation
Opening (1/10/03) - 40,000 80,000 120,000
Transferred to Asset (40,000) (80,000) (120,000)
Depreciation expense [(8,250+375) ; (W-2)] 8,625 50,000 58,625
Disposals (375) (375)
Closing (30/9/04) - (8,250) (50,000) (58,250)
WDV at 30 September 2004 85,000 156,750 350,000 591,750
WDV at 30 September 2003 80,000 160,000 320,000 560,000

Land Building Plant

N-1.1 Measurement Basis Revaluation Revaluation Cost model
Depreciation Method - Model Straight line Model Straight line
Dep. Rate/Useful life - 20 years 10%
N-1.2 The last revaluation was performed on 1st October, 2003 by M/s Premier Valuation
Services; an independent firm of valuers’. Revaluation is performed annually.

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 Assessment # 1 FAR-1 (C-1 & C-2)
N-1.3 Details of property, plant and equipment disposed of during the year
Cost/Revalued Accumulated Carrying Sale Gain/Loss Particulars
amount depreciation amount proceeds of buyers
-------------------Rs. in million-------------------
15,000 375 14,625 16,000 1375 -
N-1.4 had there been no revaluation the plant would have appear in balance sheet at following
book value as on 30 September, 2004.
2004
Cost of Plant 400,000
Less: Accumulated depreciation on 30.09.04 (80,000 + 40,000) (120,000)
280,000
In case of land and building cost is not given, so above calculation is not performed.
N-1.5 Movement in Revaluation Surplus
Land Building Plant &
Machinery
Opening 15,000
Arose/Loss 5,000 16,000 80,000
Transfer (7,450) (10,000)
Closing 20,000 8,550 70,000

(W-1) Calculation of revaluation surplus/loss and depreciation on building

Building Revaluation SOCI
Surplus (P/L)
WDV at 1 October 1998 205,000
Revaluation loss (bal.) (5,000) (5,000)
Revalued amount 1 October 1998 200,000 (5,000)
*Accumulated Depreciation
[(200,000/25 x 5); (5,000/25 x 5)] (40,000) 1,000
WDV at 1 October 2003 160,000 (4,000)
Revaluation surplus (bal.) 20,000 16,000 4,000
Revalued amount at 1 October 2003 180,000 16,000 -
Depreciation of disposal [(15,000/20 x 6/12);
(**7,000/20 x 6/12)] (375) (175)
WDV of Disposal at 31 March
(15,000 - 375): (7,000 - 175) (14,625) (6,825)
Depreciation [ ] (8,25) (450)
W.D.V – 30.09.2004 156,750 8,550
*From 1 October 1998 to 1 October 2003
** Surplus created = 15,000 - 8,000 = 7,000

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 Assessment # 1 FAR-1 (C-1 & C-2)
(W-2) Calculation of revaluation surplus and depreciation on plant & equipment
Plant& Revaluation SOCI
Equipment Surplus (P/L)
WDV at 1 October 2003 (400 - 80) 320,000
Revaluation surplus (bal.) 80,000 80,000
Revalued amount 1 October 2003 400,000 80,000
Depreciation [400,000/8(W-3 ) ; 80,000/8(W- 3)] (50,000) (10,000)
WDV at 30 September 2004 350,000 70,000

(W-3)

Remaining life (at 1 October 2003) = Total life - Life used = 10-2* = 8 years

(W-4) Land details

Revaluation SOCI
Date Description Land
Surplus (P/L)
30/09/98 W.D.V 65,000 - -
01/10/98 Revaluation surplus (bal.) 15,000 15,000 -
01/10/98 Revalued amount 80,000 15,000
01/10/03 Revaluation surplus (bal.) 5,000 5,000
01/10/03 Revalued amount 85,000 20,000

(W-5)
Calculation of revaluation surplus/loss and depreciation on disposal
Revaluation SOCI
Building
Surplus (P/L)
WDV at 1 October 1998 10,000
Revaluation loss (bal.) (2,000) (2,000)
Revalued amount 1 October 1998 8,000 (2,000)
Dep from 1998 to 2003 (1600) (400)
WDV at 30 September 2003 6,400 (1,600)
Revaluation surplus (bal.) 8,600 7,000 1,600
Revalued amount 1 October 2003 15,000 7,000 -
Dep. (15,000/20 x 6/12) ; (7,000/20 x 6/12) (375) (175)
WDV at 31 March 2004 14,625 6,825