Higher National Diploma in Accountancy

HNDA 3rd Year, Second Semester Examination - 2016

3201- Advanced Financial Reporting
Instructions for Candidates: No. of questions 06
Answer 5 Questions including No.1 and No.02 No. of pages 06
Calculator is allowed to be used Time 03 hours

Question No 01 (Total Marks 35)

King PLC, Queen PLC and Bishop PLC are operating in same industry. Statement of financial
position and Statements of comprehensive incomes of these three companies are given as
follows.
Statement of comprehensive income for the year ended on 31 March 2016.

KingPLC Queen PLC Bishop PLC

Rs. '000' Rs. '000' Rs. '000'
Revenue 460,000.00 320,500.00 340,000.00
Cost of sales 225,000.00 198,500.00 205,000.00
Gross Profit 235,000.00 122,000.00 135,000.00
Other income 21,000.00 IS,OOO.OO 15,000.00
Administrative expenses 52,000.00 54,000.00 44,000.00
Distribution cost 128,000.00 65,000.00 84,000.00
Finance cost 6,000.00 4,000.00 8,000.00
Profit before interest and tax 70,000.00 17,000.00 14,000.00
Tax expenses 24,000.00 4,000.00 6,000.00
Profit after tax 46,000.00 13,000.00 8,000.00

Other comprehensive income

Gain on translation of foreign operation 10,000.00 15,000.00 7,000.00
Total Comprehensive income 56,000.00 28,000.00 15,000.00
Statement of financial position as at 31 March 2016.

KingPLC Queen PLC ~ishop PLC

Rs. '000' Rs. '000' Rs. '000'

Non-current assets ,- ...... ,.,. .,"

PPE 250,000.00 80,000.00 90,000.00

Investment in Queen 99,965.00
Investment in Bishop 5,000.00 50,000.00
Current assets
Inventory 36,000.00 25,000.00 12,000.00
Trade receivable 24,000.00 10,000.00 15,000.00
Current account 8,500.00
Dividend Receivable 2,000.00 1,600.00 800.00
Cash and cash equivalent 5,000.00 10,900.00 16,200.00
430,465.00 177,500.00 134,000.00

Eq uity and liabilities

Stated capital 219,965.00 40,000.00 40,000.00 _. -
Retained Earnings 145,000.00 55,000.00 24,000.00
Other reserves 15,000.00 25,000.00 7,000.00

Noncurrent liabilities
Bank loan 25,000.00 25,000.00 32,000.00
Leasing creditors 12,500.00 16,000.00 20,000.00

Current Liabilities
Trade payable 12,000.00 10,000.00 10,000.00
Current account 5,000.00
Dividend payable 1,000.00 1,500.00 1,000.00
430,465.00 177,500.00 134,000.00

Additional information

1. On 1 April 2013, King PLC acquired 60 million ordinary shares out of the 80 million
ordinary shares of Queen PLC for a cash consideration of Rs. 80 million paid at the
date of acquisition itself and the balance ofRs.19.965 million to be paid on 31st March
2016. King PLC's cost of capital is 10%. Queen PLC's retained earnings stood at Rs.
20 million at the date of acquisition. There were not any changes to the stated capital

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 of Queen PLC since the date of acquisition and other reserves belong to post
acquisition.
2. The group policy is to measure the non-controlling interest (NCI) at full fair value. Fair
value of the NCI of Queen PLC was estimated to Rs. 40 million at the date of
acquisition.
3. The fair value of the identifiable net assets of Queen PLC as at I April 2013 was Rs.
90 million. Queen PLC has an internally-developed brand name which was valued at
Rs. 10 million at the date of acquisition and deemed to have useful life of 5 years. This
has been included in the fair value of the identifiable net assets. The remaining excess
in fair value is attributable to a property plant and equipment.
4. Queen PLC acquired 160 million out ofthe 200 million ordinary shares of Bishop PLC
on 3 pI March 2015 and on the same date, King PLC acquired 20 million shares of
Bishop PLC. The fair value of net identifiable assets of Bishop PLC as same as book
value of net identifiable assets at the date of acquisition. Other reserves of Bishop PLC
belong to post acquisition period.
5. King PLC has sold goods to both Queen PLC and Bishop PLC at invoice price
respectively amounting to Rs.8 and Rs.l 0 million. Goods are priced by King PLC at
cost plus 25%. Queen PLC was not able to sell 25% of goods purchased from King
PLC and Bishop PLC was not able to sell 40% of goods purchased from King PLC at
the close of current financial year.
6. King has paid a leasing installment of Rs. 3.5 million on behalf of Queen PLC. The
instalment has consisted of the interest component of Rs. 1 million. This transaction
was recorded only in the book of King PLC.
7. King PLC sold machinery on 1'1 April 2015 for Rs. 5 million to Bishop PLC. This had
a carrying amount ofRs. 4 million in King PLC's books as at that date. The remaining
useful life ofthe assets at the date of disposal was 4 years.
8. An impairment test was carried out on 31st March 2016 which concluded that an
impairment loss of Rs. 5 million is to be recognized in the investment of Queen PLC
and 2 million is to be recognized in Bishop PLC.
You are required to

i. Calculate goodwill on acquisition

ii. Prepare consolidated statement of comprehensive income for the year ended on 31 st
March 2016.
iii. Prepare consolidated statement of financial position as at 3l st March 2016.

Question No. 02 (20 Marks)

Synergy (Pvt) Ltd is operating in the cosmetic industry. The management of the company
decided to recruit new Marketing and Production managers with effect from 1st April 2015 to
face severe competition in the industry. The production manager has introduced a few high
quality new products to their product mix with the help of research and development
department of the company. Meanwhile Marketing manager has launched an aggressive

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marketing campaign throughout the country during the current year. Following financial
information is extracted from the financial statement of 20 15/16 financial year.

Revenue 125,000.00
Cost of sales 81,250.00
Gross profit 43,750.00
Profit for the year 15,000.00
Tax expenses 500.00
financial expenses 100.00
Total Assets 100,000.00
Current Liability 20,000.00
Current portion of long term loan 5,000.00
Current Assets 30,000.00
Equity 60,000.00
On JSI Apr 2015 2,500.00
Inventory
On 3 pI Mar 2016 6,000.00
On l" Apr2015 8,000.00
Trade Receivable
On 31st Mar 2016 4,500.00
On jSt Apr 2015 3,000.00
Trade Payable
On 31 SI Mar 2016 1,000.00
Credit Sales 62,500.00
Credit Purchase 40,000.00
No of shares 3,000.00
Market price per share on 31 st March 2016 Rs. 30.00·

Moreover previous year selected ratios and current year industry also provided to you as
follow

Ratios 2014/2015 Ind ustry Average

Gross Profit Margin 28% 40%
Net Profit margin 8% 18%
Return on capital employed (ROCE) 16% 22%
Return on shareholders fund 21% 28%
Current Ratio 2.5:1 2:1
Quick Ratio 1.5:1 1:1
Inventory Turnover times 12 Times 13 Times
Debtor Turnover Times 22 Times 20 Times
Creditor Turnover Times 15 Times 13 Times
Earnings per share (EPS) Rs 4.70 Rs.8
Price earnings ratio 3 Times 7 Times

You are required to

I. Calculate ratios available in above table for 2015/16 FY.

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 II. Write report to board of director having analysed financial performance and financial
position of the firm.

Question No. 03 (15 Marks)

1. Define the following terms as per LKAS 20 government grant and disclosure of
government assistants.
a. Government
b. Grant related to assets
c. Forgivable Loan (6 Marks)
II. What are the criteria needed to be satisfied for recognizing government grants in
Financial Statements as per LKAS 20. (2 Marks)
Ill. Explain accounting treatment for grant related to assets as per LKAS 20. (3 Marks)
IV. An organization receives a government grant of Rs 8 million on l " April 2016 to
contribute environment costs over a period of four years. Environment costs of Rs. 20
million will be incurred by the organization as follows.
Year 2015/16 2016/17 2017/18 2018/19
Cost in million 10 5 3 2

How can the organization recognize this grant in income statement for above financial
years? (4 Marks).

Question No. 04 (15 Marks)

1. Distinguish between Operating segment and Reportable operating segment as per
SLFRS 08 Operating segment. (4 Marks)
II. What are the quantitative thresholds for reportable operating segment? (4 Marks)
III. What are the main functions of chief operating decision maker? (2 Marks)
IV. Under which conditions two or more operating segment can be combined as single
operating entity. (3 Marks)
V. How to determine minimum number of reportable operating segment (2 Marks)

Question No. 05 (15 Marks)

1. Define followings as per LKAS 41 Agriculture
a. Biological assets
b. A group of biological assets
c. Agriculture produce (6 Marks)
II. What criteria should be satisfied by biological assets to recognize them in financial
statement? (3 Marks)
III. A dairy farm has one year old 300 cattle on l " April 2015. At the date, the fair value
less cost to sell was Rs. 20000 per cattle. These cattle were valued again on 31 st March
2016. It revealed that fair value less cost to sell of these cattle was Rs. 100000 per cattle.
The fair value less cost to sell of a one year old cattle of same kind was Rs. 30000 on
31 st March 2016.

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 Calculate the fair value changes under the category of price change and physical change
for the year ended on 3 l " March 2016. (6 Marks)

Question No. 06 (15 Marks)

1. Define following terms as per LKAS 19 Employee Benefits.
a. Employee benefits
b. Short term employee benefit
c. Post employee benefit (6 Marks)
II. Distinguish between defined contribution plan and defined benefit plan with
examples.
(3 Marks)
III. Define following as per LKAS 34 Interim financial report.
a. Interim period
b. Interim financial report (3 Marks)
IV. What are minimum components of a set of interim financial report? (3 Marks)