SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 1 of 10

ADVANCED FINANCIAL ACCOUNTING & CORPORATE REPORTING [S1] – STRATEGIC LEVEL-1

Marks
Question No.1
(a) Notes to the statement of profit or loss and OCI and Statement of Financial Position:
Rs. in million
Defined benefit expense recognized in profit or loss:
Current service cost 7.50 0.5
Past service cost – plan amendment (12.00) 0.5
Net interest income (9 -10.4 ) (1.40) 0.5
(Profit) or loss expense/(credit) (5.90) 0.25

Other comprehensive income (items that will not be reclassified to profit or loss):
Re-measurements of defined benefit plans

Actuarial gain/(loss) on defined benefit obligation (9.50) 0.5

Return on plan assets (excluding amounts included in net interest) 5.94 0.5
(3.56) 0.25
Notes to the statement of financial position:

Net defined benefit asset recognized in the statement of financial position

Fair value of plan assets 128.34 0.5

Present value of defined benefit obligation (88.00) 0.5
Net asset 40.34 0.5

Changes in the present value of the defined benefit obligation

Opening defined benefit obligation 90.00 0.5

Interest on obligation (90 x 10%) 9.00 0.5
Current service cost 7.50 0.5
Past service cost (12.00) 0.5
Benefits paid (16.00) 0.5
Loss on re-measurement recognized in OCI (balancing figure) 9.50 0.5
Closing defined benefit obligation – per actuary 88.00 0.5

Changes in the fair value of plan assets

Opening fair value of plan assets 104.00 0.5

Interest on plan assets (104 x 10%) 10.40 0.5
Contributions 24.00 0.5
Benefits paid (16.00) 0.5
Gain on re-measurement recognized in OCI (balancing figure) 5.94 0.5
Closing fair value of plan assets – per actuary 128.34 0.5

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
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suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its Council
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 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 2 of 10
ADVANCED FINANCIAL ACCOUNTING & CORPORATE REPORTING [S1] – STRATEGIC LEVEL-1
Marks
(b) Legally the assets of the FTML pension plan do not belong to FTML once the contributions are 04
made.
This is because to meet the definition of plan assets of a post-employment benefit plan under IAS 19
Employee Benefits they must be held by an entity/fund that is legally separate from the reporting
entity.
This provides the employees with a measure of protection should the entity go bankrupt or should
the directors fraudulently attempt to plunder the assets of the pension plan.
Nevertheless, the substance of the arrangement is that the assets are held exclusively to pay the
company's future defined benefit obligation and it is therefore logical that they should be shown in
the company's statement of financial position reducing that liability.
In the case of plan assets that exceed the value of the associated obligation (as in FTML's case),
a net asset would normally be recognized in the company's statement of financial position on the
grounds that the definition of an asset ('a resource controlled by the entity as a result of past events
and from which future economic benefits are expected to flow to the entity') is met. In this case the
'benefits' are reduced future contributions as the plan is in surplus.

(c) Defined Contribution Plans: 05

With defined contribution plans, the employer pay regular contributions into the plan of a given or
'defined' amount each year. The contributions are invested, and the size of the post-employment
benefits paid to former employees depends on how well or how badly the plan's investments
perform. If the investments perform well, the plan will be able to afford higher benefits than if the
investments performed less well.
Defined Benefit Plans:
With defined benefit plans, the size of the post-employment benefits is determined in advance, i.e.
the benefits are 'defined'. The employer pay contributions into the plan, and the contributions are
invested. The size of the contributions is set at an amount that is expected to earn enough
investment returns to meet the obligation to pay the post-employment benefits. If, however, it
becomes apparent that the assets in the fund are insufficient, the employer will be required to make
additional contributions into the plan to make up the expected shortfall.
On the other hand, if the fund's assets appear to be larger than they need to be, and in excess of
what is required to pay the post-employment benefits, the employer may be allowed to take a
'contribution holiday' (i.e. stop paying in contributions for a while).
Key Difference:
The main difference between the two types of plans lies in who bears the risk: if the employer bears
the risk, even in a small way by guaranteeing or specifying the return, the plan is a defined benefit
plan. A defined contribution scheme must give a benefit formula based solely on the amount of the
contributions.
Under a defined contribution plan, the 'promise' is to pay the agreed amount of contributions. Once
this is done, the entity has no further liability and no exposure to risks related to the performance of
the assets held in the plan.
Under a defined benefit plan, the 'promise' is to pay the amount of benefits agreed under the plan.
The entity is taking on a far more uncertain liability that may change in future as a result of many
variables and has continuing exposure to risks related to the performance of assets held in the plan.
In simple terms, of the plan assets are insufficient to meet the plan liabilities to pay pensions in
future, the entity will have to make up any deficit.

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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
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suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its Council
Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable to attend
or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 3 of 10
ADVANCED FINANCIAL ACCOUNTING & CORPORATE REPORTING [S1] – STRATEGIC LEVEL-1
Marks
Question No.2
(a) Gain on Disposal of Shares in Parent's Separate Financial Statements:
Rs. in million
Fair value of consideration received 320 0.5
Less original cost of shares (510 X (20%/ 85%)) (120) 0.5+0.5
Parent gain 200 0.5
Less tax on parent's gain (30% as given in question) (60) 0.5
140 0.5

(b) Big Limited Group

Consolidated Statement of Financial Position
As at June 30, 2018
Rs. in million
Non-current assets
Property, plant and equipment 1,426 0.5
Goodwill (W2) 160 0.25
1,586 0.25
Current assets
Stock-in-trade (640 + 380) 1,020 0.5
Trade and other receivables (500 + 350) 850 0.5
Cash and bank balances (160 + 178) 338 0.5
2,208 0.25
3,794 0.25
Equity
Share capital Rs. 10 ordinary shares 1,000 0.25
Reserves (W3) 955 0.25
1,955 0.25
Non-controlling interests (NCI) (W4) 315 0.25
2,270 0.25
Current liabilities
Trade and other payables (590 + 342) 932 0.5
Income tax payable (160 + 120 + [Sol(a)] 60) 340 0.5+0.25
Provisions (190 + 62) 252 0.5
1,524 0.25
3,794 0.25

Working 1:
Shareholding in Subsidiary Number of shares in million %
Total number of shares in subsidiary 40 100%
Initially Purchased 34 85%
Subsequently disposed 8 20%
Retained even after part disposal 26 65%

Working 2:
Goodwill: Rs. in million
Consideration transferred 510 0.25
Non-controlling interests (at fair value) 90 0.25
Fair value of identifiable net assets at acquisition:
Share capital 400 0.25
Pre-acquisition reserves 40 (440) 0.25
160 0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has provided
suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its Council
Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable to attend
or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 4 of 10
ADVANCED FINANCIAL ACCOUNTING & CORPORATE REPORTING [S1] – STRATEGIC LEVEL-1
Marks
Working 3:
Rs. in million
Small
Small
Big Limited
Group Reserves at June 30, 2018 Limited
Limited 65%
85%
retained
Balance / estimated at the date of disposal
(340 – (100 x 3/12) 620.00 315.00 340.00 0.25+0.5+0.25
Adjustment to parent's equity on disposal (W5) 145.00 0.25
Tax on parent's gain *[Sol(a)] (60.00) 0.25
Reserves at acquisition /date of disposal
(as above) (W2) (40.00) (315.00) 0.25+0.25
275.00 25.00 0.25+0.25
Group share of post acquisition reserves:
Small Ltd., (275 x 85%) 233.75 0.5
Small Ltd., (25 x 65%) 16.25 0.5
955.00 0.5

*Tax recognized directly in reserves in the consolidated financial statements as the item it relates to is
recognized in reserves (matching concept and IAS 12).

Working 4:
Non-Controlling Interests (SOFP) Rs. in million
NCI at acquisition (W2) 90.00 0.25
NCI share of post-acquisition reserves:
Small Ltd., (275 x 15%) 41.25 0.5
131.25
Small Ltd., (25 x 35%) 8.75 0.5
Increase in NCI (W5) 175.00 0.25
315.00 0.5

Working 5:
Adjustment to parent's equity on disposal of shares in group
financial statements Rs. in million
Fair value of consideration received 320 0.25
Increase in NCI in net assets and goodwill at disposal
((W4) 131.25 x 20%/15%) (175) 0.5
145 0.25

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has provided
suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its Council
Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable to attend
or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 5 of 10
ADVANCED FINANCIAL ACCOUNTING & CORPORATE REPORTING [S1] – STRATEGIC LEVEL-1
Marks
Question No.3
(a) Scenario A:
Rs. ‘000’
Akbar Asghar
Consolidated
Limited Limited
Whole year Six months
Sales Revenue 30,000 9,000 39,000 0.25+0.25
Cost of goods sold (21,000) (7,200) (28,200) 0.25+0.25
Gross profit 9,000 1,800 10,800
Operating Expenses (3,000) (450) (3,450) 0.25+0.25
Profit before tax 6,000 1,350 7,350 0.25+0.25
Income tax (1,500) (240) (1,740) 0.25+0.25
Profit after tax 4,500 1,110 5,610 0.25+0.25
Total comprehensive income attributable to:
Owners of the parent (balancing figure) 5,110.5 0.25+0.25
Non-controlling interests (45% 2,220 x 6/12) 499.5 0.25+0.25
5,610.0

In this situation 'Akbar Ltd.,’ the parent had a previously held equity interest. This gave the parent
no influence. Control was achieved by the second acquisition and consolidation commences from
that point.

(b) Scenario B:
Rs. ‘000’
Akbar Asghar
Consolidated
Limited Limited
Whole year
Sales Revenue 30,000 18,000 48,000 0.25+0.25
Cost of goods sold (21,000) (14,400) (35,400) 0.25+0.25
Gross profit 9,000 3,600 12,600
Operating Expenses (3,000) (900) (3,900) 0.25+0.25
Profit before tax 6,000 2,700 8,700 0.25+0.25
Income tax (1,500) (480) (1,980) 0.25+0.25
Profit after tax 4,500 2,220 6,720 0.25+0.25
Total comprehensive income attributable to:
Owners of the parent (balancing figure) 5,943.0
Non-controlling interests
45% x 6/12 x 2,220 499.5 0.25+0.25
25% x 6/12 x 2,220 277.5 0.25+0.25
777.0
6,720.0
In this situation 'B', the parent has a subsidiary for the whole year. Therefore, the results of that
subsidiary must be consolidated for the whole year. However, the pattern of ownership changes
during the year. The pattern of ownership is reflected in the statement of profit or loss by applying
the appropriate Non-controlling Interest (NCI) to the results for that part of the year in which that NCI
was valid.

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has provided
suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its Council
Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable to attend
or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 6 of 10
ADVANCED FINANCIAL ACCOUNTING & CORPORATE REPORTING [S1] – STRATEGIC LEVEL-1
Marks
(c) Scenario C:
Rs. ‘000’
Akbar Asghar
Consolidated
Limited Limited
Whole year Six months
Sales Revenue 30,000 9,000 39,000 0.25+0.25
Cost of goods sold (21,000) (7,200) (28,200) 0.25+0.25
Gross profit 9,000 1,800 10,800
Operating Expenses (3,000) (450) (3,450) 0.25+0.25
Share of profit of associate
45% x 6/12 x 2,220 499.5 0.25+0.25
Profit before tax 6,000 1,350 7,849.5 0.25+0.25
Income tax (1,500) (240) (1,740) 0.25+0.25
Profit after tax 4,500 1,110 6,109.5 0.25+0.25
Total comprehensive income attributable to:
Owners of the parent (balancing figure) 5,887.5 0.25
Non-controlling interests (20% x 2,220 x 6/12) 222.0 0.25
6,109.5
In this situation 'C', the parent had significant influence in the first six months of the year and then
made an acquisition to achieve control. The results for the year must be split into two parts. The results
for the period in which the parent had significant influence must be equity accounted. The results for
the period in which the parent had control must be consolidated.

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has provided
suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its Council
Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable to attend
or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 7 of 10
ADVANCED FINANCIAL ACCOUNTING & CORPORATE REPORTING [S1] – STRATEGIC LEVEL-1
Marks
Question No.4
Sun Limited Group
Consolidated Statement of Cash Flows
for the year ended December 31, 2018
Rs. ‘000’
Cash Flows from Operating Activities:
Profit before tax 12,690 0.5
Adjustments for:
Depreciation 6300 0.5
Foreign exchange gain (810 - 720) (90) 0.5+0.5
18,900
Increase in Trade and other receivables W3 (7,200) 0.5
Increase in Stock-in-trade W3 (5,400) 0.5
Increase in Trade and other payables W3 4,500 0.5
Cash generated from Operations 10,800
Income tax paid W7 (3,000) 0.5
Net cash from operating activities 7,800 0.5
Cash Flows from Investing Activities:
Acquisition of subsidiary - net of cash acquired (4,200-300) (3,900) 0.5+0.5
Foreign purchase of property, plant and equipment W8 (720) 0.5
Purchase of property, plant and equipment W1 (6,600) 0.5
Net cash used in Investing Activities (11,220) 0.5
Cash Flows from Financing Activities:
Proceeds from issue of share capital W4 2,400 0.5
Dividends paid to owners of the Parent W5 (300) 0.5
Dividends paid to non-controlling interests W6 (120) 0.5
Net cash from Financing activities 1,980 0.5
Net decrease in cash and cash equivalents (1,440) 0.5
Cash and cash equivalents at the beginning of the year 1,500
Cash and cash equivalents at the end of the year 60
Workings:
Rs. ‘000’
1. Property, Plant and Equipment:
Opening balance 69,000 0.25
Revaluation 3,450 0.5
Local Purchases 6600 0.5
Foreign Purchase (3240/4) 810 0.5+0.5
Acquisition of subsidiary 5,700 0.5
85,560
Depreciation - balancing figure -6,300 0.5
Closing balance 79,260 0.25
2. Goodwill:
Opening balance -
Acquisition of subsidiary * 1,980
1,980
Impairment loss - balancing figure -
Closing balance 1,980
* Goodwill on acquisition of subsidiary:
Consideration transferred (4,200+(100 X Rs 48)) 9,000
NCI (7,800 X 10%) 780
Less: Net assets at acquisition (7,800)
1,980
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has provided
suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its Council
Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable to attend
or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 8 of 10
ADVANCED FINANCIAL ACCOUNTING & CORPORATE REPORTING [S1] – STRATEGIC LEVEL-1
Marks
3. Stock-in-trade, Trade and other receivables and Trade and other payable:
Rs. ‘000’
Trade and
Stock-in- Trade and other
other
trade receivables
payable
Opening balance 36,000 33,000 45,600 0.5+0.5+0.5
Acquisition of subsidiary 2,100 900 1,200 0.5+0.5+0.5
38,100 33,900 46,800
Increase - balancing figure 5,400 7,200 4,500 0.5+0.5+0.5
Closing balance 43,500 41,100 51,300

Rs. ‘000’
4. Share Capital and Premium:
Opening balance (30,000 + 15,000) 45,000 0.25
Acquisition of subsidiary (100 x Rs. 48) 4,800 0.5+0.5
49,800
Issue of cash - balancing figure 2,400 0.5
Closing balance (34,500 + 17,700) 52,200 0.25
5. Retained earnings (to find dividends to owners of Parent):
Opening balance 45,900 0.25
P&L and OCI - Profit attributable to owners of parent 7,920 0.5
53,820
Dividends paid to owners of the Parent - balancing figure (300) 0.5
Closing balance 53,520 0.25
6. Non-controlling Interests:
Opening balance -
P&L and OCI - Comprehensive Income 300 0.5
Acquisition of subsidiary (7800 x 10%) 780 0.5+0.5
1,080
Dividends paid - balancing figure (120) 0.5
Closing balance 960
7. Current and Deferred Tax:
Opening balance (1,200+1,800) 3,000 0.25
P&L 4,500 0.5
OCI 1,200 0.5
8,700
Tax paid - balancing figure (3,000) 0.5
Closing balance (2,400 + 3,300) 5,700 0.25
8. Foreign transaction:
Transactions recorded on:
Rs. ‘000’
a) September 30 Property, plant & equipment (3240/4) 810
Payables 810

b) November 30 Payables (to clear) 810

Cash (3,240 / 4.5) 720
P/L (Operating Expense) 90

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has provided
suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its Council
Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable to attend
or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 9 of 10
ADVANCED FINANCIAL ACCOUNTING & CORPORATE REPORTING [S1] – STRATEGIC LEVEL-1
Marks
Question No.5
(a) To: Board of Directors 15
From: Chief Financial Officer
Date: __ Feb, 2019
Subject: Financial and Operating Performance of Ameen Limited
As requested, I have analyzed the financial performance of Ameen Limited with the industry with
a view to evaluate the feasibility of launching a takeover bid. My analyses of each category of
ratios is as follows:
Profitability Ratios:
The gross profit ratio is near to the highest while the operating profit is near to the lowest as
compared to similar companies. It indicates that key issue which is affecting Ameen Limited’s
profitability is its lack of control over operating expenses. The positive aspect of this
situation is that we may be able to improve the profitability just by controlling the operating
expenses without being required to make significant changes in the current operations of Ameen
Limited.
Return on shareholders’ equity is around the average prevailing in the industry. This ratio is
obviously, related to operating profit and as discussed above it can be improved by
exercising greater control over operating expenses, after take over.
Short-term liquidity Ratios:
Ameen Limited’s working capital ratios specially the current ratio indicates that the company’s
liquidity position is in line with the industry average. Hence, it seems that the company’s
working capital is being appropriately managed although there may be some room for
improvement.
The inventory turnover (days) is among the lowest in the industry which shows that sound
inventory management policies are in place.
However, the level of receivables collection period is close to highest in the industry. The
possible causes of the situation may be as follows:
- Poor efforts in making collections
- Lack of proper credit control policies or slackness in their implementation.
- Chances of bad debts which may not have been provided.
- Sales to related parties.
- Fictitious sales.
- More time allowed to the customers to pay
We need to seek appropriate explanations and investigate the matters if possible.
Long-term Solvency Ratios:
The debt equity ratio is on the higher side but can be restructured after acquisition.
However, the interest cover is only 1.25. It is among the lowest in the industry and is indicative
of a high degree of risk as the profits are barely able to cover the interest charges. Even a
slight decline in the profitability of the company may have highly adverse impact on the
company’s bottom line.
Shareholders’ Investment Ratios:
Earnings per share is on the lower side. However, it can be improved by improving profits as
discussed while comparing performance ratios. SL’s dividend payout is the lowest (20%) in terms
of percentage among other similar companies. Historic dividend payouts is not relevant to our bid
decision. However, low dividend may also be on account of liquidity problems and we should
consider this aspect.
Conclusion:
The company’s performance indicates a mixed trend. However, it may be concluded that below
average performance, (wherever applicable) can be improved by revisiting the situation and
bringing about necessary changes in the policies.

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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has provided
suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its Council
Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable to attend
or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 10 of 10
ADVANCED FINANCIAL ACCOUNTING & CORPORATE REPORTING [S1] – STRATEGIC LEVEL-1
Marks
Question No.6
(a) Sustainability can be seen to have three key aspects: 06
(1). Economic Growth: Information provided goes beyond that required by law; it should
demonstrate how a company generates value in a wider sense, e.g. by creating human
capital, by paying higher amount of taxes, by creating jobs.
(2). Environmental / Ecological Balance: This may provide information about the impact of
products on the environment e.g. emissions, waste. How Eco-efficient / Eco-friendly
Company, its products and its processes are e.g. consumption of water, energy and material
as input.
(3). Social Progress: Information may be provided on a range of social issues, including ethnic
and gender diversity, child labour, Job opportunities for deprived classes and disabled
persons, working hours and wages.

(b) Sustainability Reporting is a practice of measuring, disclosing, and being accountable to internal 04
and external stakeholders for organizational performance towards the goal of sustainable
development.
Advantages of Sustainability Reporting:
 Employees’ satisfaction leads to improved customer service.
 Improved stakeholders satisfaction leads to increased financial performance.
 Investors want to see a company adopt practices that are more environmentally
sustainable.
 Abuses of environment / human rights can damage reputations and hence share prices
 Using resources efficiently can save money.
Disadvantages of Sustainability Reporting:
 Focus should be strictly on satisfying shareholders’ desire for financial return.
 Shareholders’ value may be reduced if profits are lost.
 Initially costs are incurred to become ‘green’.
THE END

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