You have just joined as the head of financial reporting of the company and have come across below

matters
that are yet to be addressed-
i. Of the total revenue, BDT 6,000,000 represents revenue earned from sale of own software and BDT
4,000,000 from maintenance service. Rest is from sale of off-the-shelf third party software.
ii. From July 2018, the company has started offering three year free maintenance and free implementation
for its own software. The company usually charges 10% of software cost as annual maintenance charge.
60% of the revenue recognized from sale of own software is against a sale executed on 1 July 2018
and the rest against a deal finalized on 30 June 2019. The product team had an expectation that the full
revenue from the second contract would be recognized during current year and to support that they had
already issued license to the customer, even though the implementation could be started from 1 July
2019. The software implementation is likely to require significant customization. ABC product team
is not in a position to estimate expected implementation cost.
iii. Revenue from software maintenance represents signing money paid by the customer for a third party
off-the shelf software (the company collects 40% of total service charge upfront). The contract was
signed at the beginning of current year for 2 years. The company had to pay BDT 1,000,000 to an agent
for acquiring the customer. The agent had deducted his share upfront, and hence revenue has been
recognized only to be net amount realized.
iv. Only third party software is recognized under the Board approved accounting policy. Software
inventory represents below items-
Cost Cost Market price
XYZ Antivirus Tk. 1,000,000 Tk. 300,000
ABC Application Tk. 500,000 Tk. 700,000
1,500,000 1,000,000

Since software price generally declines over time, the company has established a policy of valuing
inventory at market price. The company expects incur 10% commission costs on third party software sale.

v. The company was conducting a research for last three years. This year it had a breakthrough innovation
in health care app development. The first prototype gave a successful result in by December 2018. The
prototype was demonstrated in a software fair. A foreign buyer had offered USD1,000,000 for the
prototype. Two developers had to work for long two years, and were paid BDT2,000,000 in total as
salary. After successful demo, their annual pay-out was just doubled. The two developers had
completed necessary customization during last six month of the year. All salaries are recorded and
reported under single head- Salary and other employee benefits. After completion of the project, two
foreign investors had shown interest in purchasing the software at a price of USD 10,000,000.
USD1=BDT80 as of 30 June 2019.
vi. Office premises include two new sales centers established in an off-shore market. Total cost for the
sales center was BDT 1,000,000. The company has no experience in off-shore market. The centers
were inaugurated on 30 June 2019.
vii. This year the company had significant investment in market penetration related activities like
advertisement and promotion. Even though the promotion did not generate immediate growth in
revenue, management believes that such expenditure will drive business growth in coming two years
as well. The company hence changed its accounting policy to defer business development costs
proportionately. However, the policy has been applied only prospectively, i.e. from 1 July 2018. Last
year, the company had spent BDT 1000,000 for similar purpose.

The company is considering applying for further loan for off-shore operations and it’s important for the
company to present a healthy financial performance to convince the potential lenders.

Required:

You are asked to prepare an adjusted trial balance, showing required adjustments in separate columns along
with justification in light of IFRSs. Also calculate profit before tax for the year ended 30 June 2019. 25

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