Financial Accounting and Reporting-I

Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

A.1 Wednesday Limited

Statement of changes in equity
For the year ended 30 June 2019
Share Share Retained Revaluation
capital premium earnings surplus
--------------- Rs. in million ---------------
Balance as at 1 July 2018 (As given) 200 85 124 65
Final cash dividend @ 18% for 2018
(200×18%) (36)
Right issue @ 30% 60 72
(200×30%) (0.6×120)
Interim bonus dividend @ 10% for 2019
(260×10%) 26 (26)
Total comprehensive income for the year:
Profit for the year 95
Other comprehensive income 35
Transfer of incremental depreciation 9 (9)
Balance as at 30 June 2019 286 157 166 91

A.2 (i) The grant has been provided for the purpose of giving immediate financial support to
the entity with no further conditions, so this grant should be immediately recognised
in profit or loss in full in the period in which the entity qualifies to receive it (when it is
receivable) with disclosure to ensure that its effect is clearly understood.

(ii) Since there is reasonable assurance that conditions attaching to the grant will be met,
the grant is recognised in statement of profit or loss over the four year period in which
the entity incurs the costs of employing 100 people. Amount taken to statement of
profit or loss may be either be presented as other income or shown as deduction from
the related expense. The remaining amount of grant will be presented as deferred
income under liabilities in the balance sheet.

(iii) Free technical advice is government assistance that cannot reasonably have a value
placed upon it and therefore should not be recognised. However, an indication of such
assistance should be disclosed in financial statements.

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 Financial Accounting and Reporting-I
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

A.3 Tuesday Manufacturers Limited

Cost of goods sold
For the month of June 2019
Rs. in ‘000
Opening finished goods (1,350×1,640) 2,214
Cost of goods manufactured (W-1) 9,048
Closing finished goods [1,500×(9,048,000÷5,200)] (2,610)
Cost of goods sold 8,652

W-1: Cost of goods manufactured Rs. in ‘000

Raw Material:
Opening raw material 1,490
Raw material purchases 3,845
Closing raw material (970)
Raw material consumed 4,365
Direct labour 2,075
Prime cost 6,440
Overheads:
Depreciation on plant and machinery 380
Factory manager’s salary 247
Indirect labour 848
Indirect material consumed 345
Other production overheads 580
2,400
Total manufacturing cost 8,840
Opening work in progress 208
Closing work in progress -
Cost of goods manufactured 9,048

A.4 (i) (c) Rs. 348,000

(ii) (a) Rs. 2,448,000
(iii) (c) Assets that are ready for their intended use when acquired
(iv) (b) Profit or loss Other comprehensive income
Rs. 0.4 million Rs. 3 million
(v) (b) & (d) [A building owned by an entity and leased out under an operating lease]
& [Land held for long term appreciation]
(vi) (b) the recoverable amount is the value in use
(vii) (a) & (d) [An unusually significant fall in the market value of one or more assets]
& [An increase in market interest rates used to calculate value in use of
the assets]
(viii) (b) Income tax payments
(ix) (c) pays an existing trade payable
(x) (c) average debtors are collected in 2 months

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 Financial Accounting and Reporting-I
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

A.5 Sunday Traders Limited

Statement of Cash Flows
For the year ended 30 June 2019
Cash flows from operating activities Rs. in million
Cash receipts from customers (Cash sales: 8,316 ; Credit sales: 21,394) (W-1) 29,710
Cash receipts from tenants 184
Cash paid to suppliers (W-2) (18,018)
Cash paid to other vendors (W-3) (7,459)
Cash generated from operations 4,417
Interest paid 110+1,210–135 (1,185)
Income taxes paid 230+1,150–440 (940)
Net cash inflow from operating activities 2,292

Cash flows from investing activities

Purchase of property, plant and equipment (8,555–7,240)+24+152+750 (2,241)
Proceeds from disposal of property, plant and equipment 152–40 112
Purchase of investment property (1,800–1,120)–220 (460)
Net cash outflow from investing activities (2,589)

Cash flows from financing activities

Proceeds from issue of shares (4,650–3,450)+(1,600–1,240) 1,560
Dividend paid 1,652+655–3,507 (1,200)
Repayment of loans 1,984–1,185 (799)
New loans acquired (6,024–6,523)+799+(850–700) 450
Net cash inflow from financing activities 11
Net decrease in cash and cash equivalents (286)
Cash and cash equivalent at the beginning of the year 480
Cash and cash equivalent at the end of the year 194

Workings:
W-1: Cash receipts from customers – sales Rs. in million
Sales for the year 29,700
Increase in trade receivables balances 3,600–3,800 (200)
Increase in contract liability balances 250–40 210
Cash received from customers 29,710

W-2: Cash paid to suppliers Rs. in million

Cost of sales 15,750
Increase in stock balances 4,800–4,500 300
Decrease in trade payable balances 5,390–3,422 1,968
Cash paid to suppliers 18,018

W-3: Cash paid to other vendors Rs. in million

Distribution cost 6,185
Administrative cost 2,302
Depreciation (750)
Loss on disposal (40)
Impairment (24)
Increase in accrued liabilities balances 180–310 (130)
Decrease in prepayment balances 184–268 (84)
7,459

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 Financial Accounting and Reporting-I
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

A.6 Monday Limited

Notes to the financial statement
For the year ended 31 December 2018
Property, plant and equipment:
Office building Equipment Plant
------------------ Rs. in million ------------------
Gross carrying amount – opening 240.00 190.00 -
Accumulated depreciation (36.00) (60.00) -
Opening carrying amount 204.00 130.00 -

Additions 96.00 699.25

(70+21+5) (W-3)
Depreciation for the year (12.00) (30.48) (7.77)
(W-2) (9699.25÷15×2÷
(240÷20) 12)
Disposal (24.96)
(W-1)
Revaluation
- Surplus (8.00)
8.5(8.5÷17)
- P&L (6.00)
Closing carrying amount 178.00 170.56 691.48

Gross carrying amount – closing 178.00 246.00 699.25

Accumulated depreciation - (75.44) (7.77)
Closing carrying amount 178.00 170.56 691.48

Office building Equipment Plant

Measurement base Revaluation model Cost model Cost model
Useful life (years)/depreciation rate
20 years 20% 15 years
%
Depreciation method Straight line Reducing balance Straight line
The last revaluation was performed on 31 December 2018 by Precise Valuers, an independent firm of
valuers.
Carrying value of building, had the cost model been used instead (178+6) 184
W-1: Disposal Rs. in million
2016 40×20%×6÷12 4.00
2017 36×20% 7.20
2018 28.8×20%×8÷12 3.84
Accumulated depreciation 15.04

Book value (4015.04) 24.96

W-2: Depreciation for the year – equipment Rs. in million

Disposal 28.8×20%×8÷12 3.84
Others (13028.8)×20% 20.24
Addition 96×20%×4÷12 6.40
30.48

W-3: Cost of plant Rs. in million

Payments 660.00
Borrowing cost:
Interest cost 500×18%×7.5÷12 56.25

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 Financial Accounting and Reporting-I
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

Investment income (17.00)

699.25

A.7 Friday Traders

(a) Statement of profit or loss for the year ended 31 December 2018
Juicers Blenders
-------- Rs. in '000 --------
Sales
Credit sales - Blenders 4,475×156÷100(W-1) 6,981
Cash sales - Juicers Opening stock: 1,235×120÷65(W-1) 2,280
Rem.: 2,093(3,328-1,235)×120÷91(W-1) 2,760
5,040 6,981
Cost of goods sold:
Opening stock 1,235 2,470
Purchases 7,670(W-3) in 40:60 3,068 4,602
Closing stock (975) (2,597)
(3,328) (4,475)
Gross profit 1,712 2,506
Total gross profit 4,218

Operating expenses:
Insurance 204×11÷12 187
Rent (70×8)+(91×4) 924
Repair 186
Bad debts written off 138
Salary (124+685)+(134–98) 845
Depreciation - equipment (2,490÷0.6×8%)+(550×8%) 376
(2,656)
Net profit 1,562
W-1: POLICIES
Blenders Juicers
Updated Updated with
Previous Updated Previous
with sales sales & cost
(130×1.2) (100×1.2)1
Sales
130 156 100 20 120
Cost 100 100 65 65 (65×1.4) 91
Profit 30 56 35 55 29

W-2: Trade debtors – gross Rs. in '000

Opening balance 1,410 Receipts 6,570
Sales 6,981 Write off 138
Closing (balancing) 1,683
8,391 8,391

W-3: Trade payables (Sigma Electronics) Rs. in '000

Bank 8,850 Opening 3,600
Closing 2,420 Purchases (Bal) 7,670
11,270 11,270

Friday Traders

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 Financial Accounting and Reporting-I
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

(b)
Statement of financial position as on 31 December 2018
Rs. in '000
Assets
Non-current assets
Equipment 2,490+550–376 2,664
Current assets:
Stock 975+2,597 3,572
Trade debtors (W-2) 1,683
Prepaid rent 280+826–924 182
Prepaid insurance 204–187 17
5,454
8,118
Equity and liabilities:
Opening capital 2,490+3,705+280+1,410–3,600–98–740 3,447
Net profit 1,562
Drawings (477)
4,532
Current liabilities
Trade payables (W-3) 2,420
Bank overdraft (W-4) 1,032
Salary payable 134
3,586
8,118

W-4 Bank Rs. in '000

Receipts from trade Opening balance
debtors 6,570 740
Amount banked 4,253 Trade payables 8,850
5,040-186-124-477 Insurance 204
Rent 826
Equipment 550
Closing balance 1,032 Salaries & wages 685
11,855 11,855

A.8 Thursday Enterprise

(a) General Journal

Debit Credit
Date Description
---------- Rupees ----------
28-08-18 Contract asset – Alpha (3,000×250) 750,000
Revenues 750,000

05-09-18 Receivable - Alpha 750,000

Contract asset - Alpha 750,000

12-09-18 Cash/Bank 750,000

Receivable - Alpha 750,000

25-12-18 Revenue (3,000×35) 105,000

Contract liability / Refund liability – Alpha 105,000

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 Financial Accounting and Reporting-I
Suggested Answers
Certificate in Accounting and Finance – Autumn 2019

25-12-18 Receivable (4,000×215)–105,000 755,000

Contract liability / Refund liability – Alpha 755,000

10-01-19 Cash/Bank 755,000

Receivable - Alpha 755,000

15-01-19 Contract liability / Refund liability – Alpha 860,000

Revenue (755,000+105,000) 860,000

(b) General Journal

Debit Credit
Date Description
---------- Rupees ----------
28-02-19 Receivable – Beta (10,000×250) 2,500,000
Revenue (10,000×215) 2,150,000
Contract liability / Refund liability – Beta 350,000

20-03-19 Cash/Bank 2,500,000

Receivable – Beta 2,500,000

15-07-19 Receivable – Beta 1,370,000

Contract liability / Refund liability – Beta 350,000
Revenue 1,720,000

18-07-19 Cash/Bank 1,370,000

Receivable – Beta 1,370,000

(THE END)

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