Pakistan Institute of Public Finance Accountants

Winter Exam-2017
Corporate Sector
Financial Reporting (06.11.2017)
Marks-100 D u r a t i o n : 3 hrs
Additional time – 15 min for Paper Reading
[Instructions]
 Ensure that the question paper delivered to you is the same, in which you intend to appear.
 Read the instructions given on the title page of Answer Script.
 Start each question from fresh page.
 Book Allowed – International Financial Reporting Standards

Attempt all Questions

Q.1. A lessee has taken an asset on lease along with maintenance services from lessor. The terms and
conditions of the contract are as under: -
 The fair value of the asset is Rs. 5.5 million and maintenance services without leasing
arrangement are being offered by lessor at Rs. 100,000 per year.
 The term of the lease is 5 years and the lessee, initial direct cost paid by lessee is
Rs. 150,000 and lessee follows straight line method for deprecation of its assets under
IAS-16.
 The annual rental in arrear is Rs. 1.25 million including maintenance services. The
economic life of the asset is 5 years.
 The interest rate implicit in the lease is 12.5% per annum.
 The lessee accounts for the lease and non-lease components separately and the lease
under consideration is not low value lease.
Required:
Pass necessary Journal Entries for the first year of lease? 15

Q.2. An entity has the following information for calculation of deferred tax for the year ended June
30, 2017: -
Rs. (000)
Operating profit 5,250
Interest expense (250)
Other income – Dividend 20
– Capital gain 340
Profit before tax 5,360

The other relevant information is as under: -

 The accumulated accounting depreciation was less than accumulated tax depreciation at
the start of current year was Rs. 2.5 million. The current year accounting depreciation
was Rs. 2.0 million but tax depreciation was Rs. 1.5 million.
 The provision for doubtfull debts at the start and end of the year was Rs. 0.25 million
and 0.45 million respectively. Bad debts amounting to Rs. 0.125 million were written off
during the year.
 The unpaid balance of gratuity at the start and end of current year was Rs. 0.65 million
and 0.856 million respectively, gratuity paid during the year was Rs. 0.365 million.
 The un-used tax losses at the start of the year was Rs. 2.3 million and un-used tax credit
Rs. 0.15 million (i.e. minimum tax paid in previous years).
 The applicable tax rate is 30% (2016-31%) for normal income and dividend income is
subject to 12.5%.

Contd. on back
 2

Required:
Prepare extract of tax expense for the year and reconciliation of tax expense with tax on 14
accounting profit?

Q.3. The following is the Statement of Financial Position and Comprehensive Income of a Parent and
its Subsidiary for the year ended June 30th, 2017;

Statement of Financial Position as at June 30, 2017

Parent Co. Subsidiary Co.
Assets Rs. (000) Rs. (000)
Non-current Assets
Property, Plant and Equipment 7,200 4,635
Investment in Subsidiary 6,000 --
Intangible assets – development cost -- 450
13,200 5,085
Current Assets
Inventory 4,035 2,035
Receivables 1,440 3,545
Cash and bank balances 50 25
5,525 5,605
18,725 10,690
Equity and Liabilities
Equity
Ordinary share capital of Rs. 10 each 10,000 4,000
Retained Earnings 4,350 2,525
14,350 6,525
Current Liabilities
Trade payables 3,440 3,100
Taxes payable 935 1,065
4,375 4,165
18,725 10,690

Statement of Comprehensive Income for the year ended June 30, 2017
Parent Co. Subsidiary Co.
Rs. (000) Rs. (000)
Operating Profit 3,688 2,632
Dividend income from Subsidiary Company 240 --
Profit before tax 3,928 2,632
Tax expense (263) (142)
Profit after tax 3,665 2,490
Final dividend of last year paid in current year 400 300
The following further information is relevant: -
 The Parent company acquired 80% holding in Subsidiary on January 01 st, 2013, when
the accumulated loss of subsidiary company were Rs. 0.25 million.
Contd.….
 3

 The carrying values of Subsidiary company were equal to their fair values except some
inventory whose fair value was less than its carrying value by Rs. 1 million. The said
inventory was totally realized before the start of current year.
 The Parent follows FIFO basis of measurement of its inventory while Subsidiary
follows weighted average basis for measuring inventory. There was no difference in
value of inventory under both methods in start of the year however the closing value of
inventory of Subsidiary under FIFO will be Rs. 2.5 million.
 The Parent company sold good worth Rs. 1.5 million to Subsidiary company on which
charged 25% markup. The goods valuing Rs. 0.5 million are still lying with Subsidiary
company.
 The non-controlling interest in Subsidiary was measured at fair value at the date of
acquisition and its fair value was Rs. 0.95 million.
 There have been impairment loss of Rs. 0.55 million on goodwill in the year prior to
current year, however, there is no impairment loss in the current year.
Required:
Prepare Consolidated Statement of Financial Position on June 30 th, 2017 and Comprehensive 27
Income for the year ended June 30th, 2017?

Q.4. An entity has been in the business of sale and maintenance of computers for last many years. The
entity sells the computers without maintenance and also with maintenance services, the
maintenance services are also offered separately.
During the year the company has entered into a sale of computer and maintenance contract with
the following terms and conditions.
 The entity will provide 100 computers for Rs. 1.8 million along with free maintenance
services of two years. The cost per computer is Rs. 15,000 and annual maintenance
expenses are Rs. 500 per computer.
 The standalone selling price of one computer is Rs. 18,000 and maintenance service on
one computer per year is Rs. 2,000.
 The customer will make payment in two equal installments on signing of the contract
and at end of second year.
 The interest rate entity uses on deferred sales is 12% per annum.
Required:
Prepare relevant extract of Statement of Financial Position and Statement of Comprehensive 14
Income for both years of contract along with journal entries of both years?

Q.5. The following transactions need clarification before the finalization of annual accounts of a listed
company.
 The closing stock of the company has been measured under prime cost method and
compared with net realizable value, which resulted in cost being less than the net
realizable value. The cost of inventory if measured by adding overheads as well it will be
higher than net realizable value by Rs. 1.5 million.
 A customer filed a suit against the company after the year end for faulty goods delivered
to him. The good have been sold to customer before the year end. The claim if
successful, the company will be required to pay a compensation of Rs. 1.5 million. The
company’s legal advisor is of the opinion that the claim may be payable but chances are
less than 50% but not remote.

Contd. on back
 4

A fraud has been detected during the current year regarding the embezzlement of cash for last
three years. It has been estimated that the cash balance at the site valuing Rs. 4.5 million have
been missing at the start of current year but no year specific information is available. The tax rate
has been 32% at the start of current year. The cash was not insured and is not allowable expense
under the tax laws.

Required:
Discuss the accounting treatment of above and pass necessary double entries? 15

Q.6. The company has the list of following operating segments along with related information for the
year.

Cement Pharmaceutical Paint Fertilizer Chemical

Rs. (000) Rs. (000) Rs. (000) Rs. (000) Rs. (000)
Revenue – internal 5,255 5,260 4,250 -- 2,250
Revenue – external 10,525 13,256 15,650 20,655 3,655
Assets 17,256 4,685 5,256 4,568 1,258
Liabilities 15,652 2,568 4,659 2,652 5,646
Operating profit/(loss) 2,581 (3,457) 2,820 (6,578) 635

The following further information is also relevant.

 The un-allocated external revenue, operating profit, assets and liabilities of the company
are Rs. 1.52 million, Rs. 1.56 million, Rs. 10.55 million and Rs. 5.35 million respectively.
 Assume that in the previous year all the operating segments met the reportable segment
criteria.
Required:
(a) Identify the Reportable Segment? 07
(b) Prepare relevant disclosure in the Financial Statements for reportable segments under 08
IFRS 08?

*************************