FINANCIAL ACCOUNTING & REPORTING

Time allowed – 3:30 hours

Total marks – 100
[N.B – The figures in the margin include full marks. Questions must be answered in English. Examiner will take account of the
quality of language and the manner in which the answers are presented. Different parts, if any, of the same question must be
answered in one place in order of sequence.]
Marks
1. (a) “For an item or transaction to be recognised in an entity's financial statements it needs to be measured as
a monetary amount. IFRSs use several different measurement bases but the Conceptual Framework
refers to just four.” Explain the four measurement bases referred to in Conceptual Framework. 4
(b) “This Conceptual Framework is not an IFRS and hence does not define standards for any particular
measurement or disclosure issue. Nothing in this Conceptual Framework overrides any specific IFRS.”
i) Discuss general guideline in the Conceptual Framework in case of conflict between conceptual
framework and IFRSs. 3
ii) What would be your suggestion in case you encounter circumstances where compliance with a
requirement in an IFRS would be so misleading that it would conflict with the objective of financial
statements set out in the Framework? 3

2. (a) You are the Chief Financial Officer of RSPB Holdings Ltd. and receive instructions from the Group
parent company to apply IAS 37. At the time of preparation of financial statements for the year ended
on 31 December 2018, you are confronted with the following independent situations.
i. The company introduced a new car model two months before the reporting date. This model, as for all
cars sold by the company, is guaranteed for a period of 12 months. By the reporting date and the date
when the financial statements are prepared, no claims have been received concerning this model.
ii. A famous actress who bought a specially designed version of the R170 model from the company
last year had an accident within five days after reporting date. The car was completely destroyed
and the actress was badly hurt. A few days ago the company received notification that the actress
has filed a lawsuit against the company alleging that the brakes, which were guaranteed to last for
two years, had failed and caused her accident. She claims Tk. 10 million for the replacement of the
car and another Tk. 4 million for medical and hospital bills and compensation for revenue lost during
the week she spent in the hospital. The company reviewed the situation with its legal advisor who
recommended that the company contest the case and believes that it is unlikely that the company
will be required to pay anything.
iii. Before the balance sheet date, 31 December 2018, the board of directors announced the details of
proposed dividend payments, subject to approval at the annual shareholders’ meeting. The annual
shareholders’ meeting was held in March 2019 and the dividend payments were approved.
iv. A fire occurred at the premises of the company on 15 December 2018. Total damage was assessed
at Tk. 700,000. It is a term of the company’s insurance policy that fire alarms be fitted to all
premises. No fire alarms were fitted to the premises affected by the fire. It is hoped that the
company’s insurers will cover this loss under the terms of the insurance policy. However, the
assessor has not yet provided his report or recommendations.
v. Legislation was passed on 30 September 2018 requiring the fitting of emissions filters to the
factories of the company immediately. This law has not been complied with by the year end. The
expected cost of fitting the filters is Tk. 750,000.

Required:

Explain how you account for each situation in accordance with IAS 37. Determine whether you should
recognise a provision and, if so, how you would estimate the amount. Give the reasoning behind your
answer. Where only disclosure is required, indicate what information the notes to the financial statements
should include. 15

Page 1 of 5