THE INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF BANGLADESH

CMA DECEMBER-2018 EXAMINATION

SUBJECT: 201- ADVANCED FINANCIAL ACCOUNTING –I

MODEL SOLUTION

Solution to the question No. 1

Populer Life Assurance Co.

Revenue Account
For the year ended Dec 31, 2017
Dr. Cr.
Expenditures Taka Taka Income Taka Taka
Claim paid Life assurance fund at the
197,000 beginning of the year 2,900,300

Add: Outstanding 10,000 Premium Received 233,500

207,000 Add: Outstanding 10,000

Less: Claims covered under
reinsurance 2,300 204,700 243,500
Add: Bonus utilized
in reduction of
Surrenders 7,000 premium 6,000 249,500
Interest & dividend
Bonus to policy holders 30,500 received 112,700
Add: Bonus utilized in reduction
of premium 6,000 36,500 Add: Outstanding 21,300 134,000

Commission paid 9,300

Management Expenses 32,300

Add: Due 1,200 33,500

Dividend paid 16,000

Life assurance fund at the end
of the year 2,976,800

3,283,800 3,283,800

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 Populer Life Assurance Co.
Balance Sheet
As at 31 December 2017
Capital and Liabilities Taka Property and Assets Taka
Authorized Capital ? Mortgage in 492,200
Bangladesh
Issued and subscribed capital Loans on companey's
10,000 shares of Tk.15 each 150,000 policies 178,600
Called up and paid up capital 10,000
shares of Tk.10 each 100,000 Investments 2,300,000
Life assurance fund 2,976,800 Freehold premises 40,000
Claimed admitted but not paid 10,000 Agent's Balance 9,300
Amount receivable
Management Expenses due 1,200 under Re-insurance 2,300
Outstanding Premium 10,000
Accrued Interest 21,300
Cash Deposit 27,000
Cash in hand 7,300
3,088,000 3,088,000

Solution to the question No. 2 (b)

Calculation of Deferred Tax Million Tk.

Profit for the year 2017 90.00
Add: Accounting Depreciation 60.00
Add: Non admissible item 2.50
152.50
Less: Capital allowances 100.00
Adjusted Taxable profit 52.50
Tax at current rate of 35% 18.375

Current Taxation
Tax on current year Profit @35% 18.375
Under provission in 2016 0.50
18.875

Deferred Taxation account

Opining Balance 20.00
Transfer for current year timing difference 14.00
Balance carried forward 34.00

Current year timing difference

Accounting Depreciation 60.00
Capital allowances 100.00
Difference 40.00
Deferred tax @ 35% 14.00

Total tax charge for the year is Tk.32.875 million, out of which Tk.14 million has been
deferred and Tk.18.875 million has been currently charged.

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Solution to the question No. 3 (a)

(i)

Inventory 14,000
Cumulative Effect of Change in Accounting Principle- 14,000
Inventory
(19,000+23,000+25,000)-(15,000+18,000+20,000)

(II)
2005 2004
Income before cumulative effect of change in accounting principle 32,000 20,000
Cumulative effect of change in principle 14,000
Net income 46,000 20,000

Pro-forma: Net Income 32,000 27,000

(III)
Inventory 24,000
Retained Earnings 24,000
(19,000+23,000+25,000)-(12,000+14,000+17,000)

Solution to the question No. 3 (b)

(a) Accumulated depreciation…………………….. 660,000 (a)

Deferred tax liability………………….. 198,000 (b)
Cumulative effect of charge in accounting
Principle –
Depreciation 462,000 (c)

year Double- Straight- line (a) (b) (c)

declining depreciation difference Tax effect Effect on
balance 30% income
depreciation (net of tax)
Pre 2004 950,000 400,000 550,000 165,000 385,000
2004 260,000 150,000 110,000 33,000 77,000
1,210,000 550,000 660,000 198,000 462,000

Income before cumulative effect of a change in acc. Principle 1,400,000

Cumulative effect on prior years of retroactive application
Of new depreciation method, net tax of 198,000 462,000
Net income 1,862,000

Pre- share amount

EPS (200,000 Shares):
Income before cumulative effect of a change in acc. Principle 7.00
Cumulative effect on prior years of retroactive application of

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 New depreciation method 2.31
Net income $9.31

Pro forma (as if ) amounts, assuming retroactive application of new depreciation method:

2005 2004
Net income 1,400,000 1,277,000
EPS 7.00 6.39

The pro-forma net income is computed as follows:

Net income (2004) not restated 1,200,000

Excess of double-declining depreciation over straight-line
depreciation (2004), net of tax of 33,000
77,000
Pro-forma net income(restated) 1,277,000

Depreciation expense to be reported in 2005 is 140,000.

Solution to the question No. 4 (b)

a) This is a finance lease to lessee and lessor since lease term covers major part of the economic life of the
asset (IAS-17.10.c). As well as the lease payments is reasonably predictable, there are no important
uncertainties surrounding the costs yet to be incurred by the lessor (IAS-17.8).
(b) Calculation of annual rental payment:
Tk.560,000- (Tk.80,000x.51316*)/5.35526**= Tk.96,904.
*Present value of Tk.1 at 10% for 7 periods.
** Present value of an annuity due at 10% for 7 periods.

(c) Computation of present value of minimum lease payments:

PV of annual payments: Tk.96,904x5.23054*= Tk.506,860
PV of guaranteed residual value: Tk. 80,000x.48166**= 38,533
Tk.545,393
*Present value of an annuity due at 11% for 7 years.
** Present value of Tk.1 at 11% for 7 years.

(d) 1/1/2010 Leased Machinery Account …. Tk.545,393

Lease Liability Account ………………… Tk.545,393

Lease Liability Account…………. Tk.96,904

Cash Account…………………………… Tk.96,904

31/12/2010 Depreciation Expense………… Tk.66,485

Accumulated Depreciation Tk.66,485
(Tk.545,393-Tk.80,000)/7

Interest Expense ……………….. Tk.49,334

Interest Payable………………………. Tk.49,334

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 1/1/2011 Lease Liability Account …………………. Tk.47,570
Interest Payable……………………………. 49,334
Cash………………………………………………………… 96,904
31/12/2011 Depreciation Expense………………………… Tk.66485
Accumulated Depreciation…………………………… .TK.66,485

Interest Expense…………………………… Tk.44,101

Interest Payable…………………………………………. Tk.44,101
[(Tk.545,393-Tk.96,904-Tk.47,570)x.11]

Solution to the question No. 5 (a)

The project fall within the definition of a joint venture in IAS 31.3 and is a jointly controlled operation in
terms of IAS 31.13. As such, each venture is responsible for its own assets, expenses and liabilities, with
revenues and common expenses being shared according to contractual agreement.

The profit attributable to OMX is Tk.2,160,000 (60% of contract revenues) less own expenses of
Tk.300,000 and common expenses of Tk.650,000 (half of the common expenses of Tk.1,300,000), so
Tk.1,210,000.

OMX has received cash of Tk.2,600,000 and incurred expenses Tk.1,100,000, giving a net surplus of
Tk.1,500,000, of which it is only entitled to Tk.1,210,000. Therefore it should pay Tk. 290,000 to MXY.

Solution to the question No. 5 (b)

IFRS 4.13 disapplies the provisions of IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors in relation to selection of accounting policies where there is no IFRS. Entities are therefore only
required to change existing policies in the circumstances listed in IFRS 4.14. Accounting policy (1) is not
caught by this paragraph, so its continued use is permitted.

The application of Accounting policy (2) involves the use of excessive prudence. The continued use of
excessive prudence is permitted by IFRS 4.26.

So, The entity is permitted to continue with both policies.

= THE END =

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