Past Paper FAR1

For more CA Stuff, Visit Now: www.mhkorai.blogspot.
com
Certificate in Accounting and Finance Stage Examination
The Institute of 4 September 2019
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Financial Accounting and Reporting-I

Section A
Q.1 The following information pertains to Wednesday Limited (WL) for the year ended
30 June 2019:
(i) Shareholders' equity as at 1 July 2018:
Rs. in million
Share capital (Rs. 100 each) Share premium
200
Retained earnings Revaluation surplus85
124
65
(ii) On 30 November 2018, WL issued 30% right shares at a premium of
Rs. 120 per share.
(iii) Cash dividend and bonus shares for the last two years:
Final dividend *Interim dividend

For the year ended
Cash Bonus Cash Bonus
30 June 2018
18% - 20% -
30 June 2019
- 25% - 10%
*Declared with half yearly accounts
(iv) Profit for the year amounted to Rs. 95 million.
(v) Revaluation surplus arising during the year amounted to Rs. 35 million whereas
transfer of incremental depreciation for the year was Rs. 9 million.
Required:
Prepare WL’s Statement of Changes in Equity for the year ended 30 June 2019. (07)
(Column for total and comparative figures are not required)
Q.2 Discuss how the following should be dealt with in the financial statements of relevant
entities according to IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance:
(a) The government makes a grant to an entity which is planning to develop teaching
software for children with learning difficulties. The purpose of the grant is to help the
entity to meet its general financing requirement in the initial phase. There are no
further conditions attached to the grant. (01)
(b) A manufacturing entity sets up a plant in an area of high unemployment. A

government grant of Rs. 4 million is received with a condition that the grant is
repayable in full if the number of its employees fell below 100 at any time during
the next four years. It is highly probable that the entity will comply with the
condition
attached to the grant. (03)
(c) Free technical advice has been provided by the government’s export promotion
department to help an exporter to market his new technology in North America. (01)
For more CA Stuff, Visit Now:
Financial Accounting and Page 2
Q.3 Tuesday Manufacturers Limited produces a single product. The following costs were
incurred in the month of June 2019:
Rs. in '000
Direct labour 2,075
Depreciation on plant and machinery 380
Distribution costs 589
Factory manager’s salary 247
Indirect labour 848
Indirect material consumed 345
Raw material purchases 3,845
Selling costs 1,248
Other production overheads 580
Other administration overheads 388
Following other information is available:

(i) On 1 June 2019, stock of finished goods consisted of 1,350 units valued at
Rs. 1,640 per unit while stock of raw materials was valued at Rs. 1,490,000.
(ii) 5,200 units of finished goods were produced during June 2019.
(iii) There was no work-in-progress at the end of the month whereas work in progress
at 1 June 2019 was valued at Rs. 208,000.
(iv) Stock of raw materials on 30 June 2019 was valued at Rs. 970,000.
(v) 1,500 units of finished goods were available in stock as on 30 June 2019.
(vi) Cost of finished goods is determined using FIFO method.
Required:
Compute cost of goods sold for the month of June 2019. (07)
Q.4 Select the most appropriate answer(s) from the options available for each of the following
Multiple Choice Questions (MCQs).
(i) An entity made a profit of Rs. 480,000 for the year 2018 based on historical cost
accounting principles. It had opening capital of Rs. 1,100,000. During 2018, specific
price indices increased by 15% while general price indices increased by 12%. How
much profit should be recorded for 2018 under real financial capital maintenance
concept?
(a) Rs. 480,000 (b) Rs. 315,000
(c) Rs. 348,000 (d) Rs. 645,000 (01)
(ii) Morning Football Club has a monthly subscription fee of Rs. 800 per member.
The club has 240 members on 31 December 2018. No fresh members were
admitted during 2018 but 30 members left the club on 1 July 2018. As at 31
December 2018, the club has received subscription in advance amounting to Rs.
60,000. The club’s subscription income for 2018 would be:
(a) Rs. 2,448,000 (b) Rs. 2,388,000
(c) Rs. 2,160,000 (d) Rs. 2,100,000 (02)
(iii) Which of the following can NOT be a ‘qualifying asset’ under IAS 23 Borrowing
Costs?
(a) Inventories
(b) Manufacturing plants
(c) Assets that are ready for their intended use when acquired
(d) Investment property (01)

(iv) Afternoon Limited (AL) uses cost model for its property, plant and equipment and
fair value model for its investment property. AL has an office building which was
being used for administrative purposes. At 1 July 2018, the building had a
carrying amount of Rs. 20 million. On that date, the building was let out to a third
party and therefore reclassified as an investment property. The building had a fair
value of Rs. 23 million on 1 July 2018 and Rs. 23.4 million on 30 June 2019.
What would be the increase in the profit or loss and other comprehensive income for
the year ended 30 June 2019?
Profit or loss Other comprehensive income

(a) Nil Rs. 3.4 million
(b) Rs. 0.4 million Rs. 3 million
(c) Rs. 3.4 million Nil
(d) Rs. 3 million Rs. 0.4 million (02)
(v) Which TWO of the following fall under the definition of investment
property?
(a) Property occupied by an employee
(b) A building owned by an entity and leased out under an operating lease
(c) Property being constructed on behalf of third party
(d) Land held for long term appreciation (01)
(vi) Under IAS 36 Impairment of Assets, if the fair value less costs to sell of an asset
cannot be determined then:
(a) the asset is not impaired
(b) the recoverable amount is the value in use
(c) the net realizable value is used
(d) the carrying value of the asset remains the same (01)
(vii) Which TWO of the following would be external indicators that one or more of an
entity's assets may be impaired?
(a) An unusually significant fall in the market value of one or more assets
(b) Evidence of obsolescence of one or more assets
(c) A decline in the economic performance of one or more assets
(d) An increase in market interest rates used to calculate value in use of the assets (01)
(viii) Which of the following future cash flows should NOT be included in the
calculation of value in use of an asset?
(a) Cash flows from disposal
(b) Income tax payments
(c) Cash flows from the sale of inventory produced by the asset
(d) Cash outflows on the maintenance of the asset (01)
(ix) Night Limited has a current ratio of 1.8. This ratio will increase if Night Limited:
(a) receives cash in respect of a short term loan
(b) receives cash from an existing receivable
(c) pays an existing trade payable
(d) purchases inventory on credit (01)
(x) A debtor turnover of 6 times means that:

(a) one-sixth of the debtors are collected in one month
(b) average debtors are collected in 6 months
(c) average debtors are collected in 2 months

(d) average debtors are collected 2 times in a year (01)

Section B
Q.5 Following are the extracts from the financial statements of Sunday Traders Limited
(STL) for the year ended 30 June 2019:
Statement of financial position as on 30 June 2019

2019 2018 2019 2018
Assets Equity & liabilities
Rs. in million Rs. in million
Property, plant and equipment Investment property Share capital (Rs. 100 each) Share premium
8,5557,240 4,6503,450
Stock in trade Prepayments Trade receivables Cash
1,8001,120 Retained earnings Long term loans
1,600Trade1,240payables Contract li
4,8004,500 Current maturity of long term 1,652
loans (655)
184268 6,024 6,523
3,8003,600 3,422 5,390
194480 250 40
310 180
135 110
850 700
Provision for taxation 440230
19,333 17,20819,333 17,208
Statement of profit or loss for the year ended 30 June 2019

Rs. in million
Sales 29,700
Cost of sales (15,750)
Gross profit 13,950
Distribution cost (6,185)
Administrative cost (2,302)
Other income 404
Profit before interest and tax 5,867
Interest expense (1,210)
Profit before tax 4,657
Tax expense (1,150)
Profit after tax 3,507
Additional information:
(i) 72% of sales were made on credit.
(ii) Depreciation expense for the year amounted to Rs. 750 million which was charged to
distribution and administrative cost in the ratio of 3:1.
(iii) Distribution cost includes:
 Rs. 40 million in respect of loss on disposal of equipment. The written down
value at the time of disposal was Rs. 152 million.
 impairment loss on vehicles amounting to Rs. 24 million.
(iv) Loan instalments (including interest) of Rs. 1,984 million were paid during the year.
(v) Other income comprises of:
 increase in fair value of investment property amounting to Rs. 220 million.
 rent received from investment property amounting to Rs. 184 million.
(vi) During the year, STL issued right shares at premium.
Required:
Prepare STL’s statement of cash flows for the year ended 30 June 2019 using direct method. (19)

Q.6 The following information pertains to Monday Limited (ML):
(i) The balances of property, plant and equipment as on 1 January 2018:

Cost/Revalued Accumulated
Assets amount depreciation
----------- Rs. in million -----------
Office building 240 36
Equipment 190 60
Revaluation surplus related to the office building as at 1 January 2018 amounted

to Rs. 8.5 million.
(ii) On 1 September 2018, a new equipment was acquired by making payment of

Rs. 70 million to the supplier. An old equipment was also given in exchange to the
supplier. The fair values of the old and new equipment were assessed at
Rs. 21 million and Rs. 93 million respectively. The old equipment had been acquired
at a cost of Rs. 40 million on 1 July 2016. Cost incurred on installing the new
equipment amounted to Rs. 5 million.
(iii) On 1 January 2018, ML commenced construction of a manufacturing plant. The

whole process of assembling and installation was completed on 31 October 2018.
However, the work was stopped from 16 to 31 August 2018 due to unexpected rains.
The total cost of Rs. 660 million incurred on the plant was paid as under:
Description Payment date Rs. in million
1st payment 1 February 2018 140
2nd payment 1 April 2018 214
3rd payment 1 September 2018 146
4th payment 1 December 2018 160
The plant was financed through a bank loan of Rs. 500 million obtained on
1 March 2018. The loan carries a mark-up of 18% payable annually. The surplus
funds available from the loan were invested in a saving account and earned
Rs. 17 million during capitalization period.
(iv) On 31 December 2018, the revalued amount of office building was assessed at
Rs. 178 million by Precise Valuers, an independent valuation firm. Value in use of
the office building as at 31 December 2018 was estimated at Rs. 186 million.
(v) Other relevant details are as follows:

AssetsDepreciation Subsequent
Life/rate
method
measurement Revaluation Cost
20 years*
Office buildingStraight line Cost
20%
EquipmentReducing balance Manufacturing plantStraight line
15 years
* Remaining life at the date of last revaluation
ML accounts for revaluation on net replacement value method and transfers the
maximum possible amount from revaluation surplus to retained earnings on an
annual basis.
Required:
In accordance with IFRSs, prepare a note on ‘Property plant and equipment’ for inclusion
in ML’s financial statements for the year ended 31 December 2018.
(Comparatives figures and column for total are not required) (17)

Financial Accounting and Page 7 of
Q.7 Friday Traders (FT) is engaged in the business of supplying Blenders and Juicers. FT
purchases its products from Sigma Electronics. FT is presently negotiating with a bank for a
long term loan and has been asked to provide the latest financial statements. Since FT does
not maintain proper accounting records, you are requested to prepare the financial
statements from the following information:
(i) Assets and liabilities as on 1 January 2018:

Rs. in '000
Equipment (40% depreciated) 2,490
Stock (stock value of Blenders was double of the Juicers) 3,705
Prepaid rent up to 30 April 2018 280
Trade debtors (only for Blenders) 1,410
Payable to Sigma Electronics 3,600
Salaries payable 98
Bank overdraft 740
(ii) Sales of Blenders are made on credit while Juicers are sold on cash basis.
(iii) Upto last year, FT was earning a gross profit of 30% on cost of Blenders and 35%
on sale value of Juicers. With effect from 1 January 2018:
 FT increased sales prices of both the products by 20%; and
 Sigma Electronics increased the prices of Juicers only by 40%.
(iv) 60% of the amount of purchases made during the year represents blenders.
(v) Summary of bank transactions during the year:
Rs. in '000
Receipts from credit customers 6,570
Payments:
Sigma Electronics 8,850
Insurance for one year starting 1 February 2018 204
Rent 826
Equipment 550
Salaries and wages 685
(vi) Debtors amounting to Rs. 138,000 are considered as irrecoverable.

(vii) Rent of the premises was increased by 30% with effect from 1 September 2018.
(viii) Following payments were made from cash sales and remaining amounts were
deposited into the bank:
Rs. in '000
Repairs and maintenance Salaries and
186 wages Drawings
124
477
787
(ix) Equipment is depreciated at 8% on cost.
(x) Some balances ascertained as at 31 December 2018:
Rs. in '000
Stock* – Juicers 975
– Blenders 2,597
Payable to Sigma Electronics Salaries payable
2,420
134
*Comprises of stock purchased in 2018
Required:
(a)
Prepare statement of profit or loss account for the year ended 31 December 2018. (10)
(b)
Prepare statement of financial position as at 31 December 2018. (08)

Q.8 Thursday Enterprise (TE) is a supplier of product Zee and has provided you the
following information:
(a) On 1 August 2018, TE entered into a six months contract with customer Alpha for
sale of Zee for Rs. 250 per unit, under the following terms and conditions:
 if Alpha purchases more than 5,000 units during the contract period, the price
per unit would be retrospectively reduced to Rs. 215 per unit.
 TE’s unconditional right to receive consideration would be established upon:
 completion of quality control procedures by Alpha for the first order. The
procedure would take a week after receiving the goods.
 placement of order by Alpha for subsequent orders.
At the inception of the contract, TE concludes that Alpha’s purchases will not exceed
the 5,000 units threshold for the discount.
Alpha placed the following orders:
Delivery date
Order date Units (Transfer of control) Payment date
10 August 2018 3,000 28 August 2018 12 September 2018
25 December 2018 4,000 15 January 2019 10 January 2019 (10)
(b) On 1 February 2019, TE entered into a six months contract with another customer
Beta for sale of Zee for Rs. 250 per unit, under the following terms and conditions:
 if the Beta purchases more than 15,000 units during the contract period, the price
per unit would be retrospectively reduced to Rs. 215 per unit.
 TE’s unconditional right to receive consideration would be established upon
delivery of goods to Beta.
At the inception of the contract, TE concludes that Beta will meet 15,000 units
threshold for the discount.
Beta placed the following orders:
Delivery date
Order date Units Payment date
(Transfer of control)
14 February 2019 10,000 28 February 2019 20 March 2019
1 June 2019 8,000 15 July 2019 18 July 2019 (05)
Required:
In respect of the above contracts, prepare journal entries to be recorded in the books of TE
for the years ended 31 December 2018 and 2019.
(Entries without date will not be awarded any marks)
(THE END)

Suggested Solution of September 2019 is
still not Published By ICAP. It will be
uploaded here, As soon as it is Published by
ICAP.
Keep visiting to www.mhkorai.blogspot.com
for updated CA Stuff

The Institute of 6 March 2019

Q.1 X, Y and Z were partners sharing profits and losses in the ratio of 4:3:3 respectively. The
balance sheet as on 31 December 2018 is given below:
Rs. in '000 Rs. in '000

Creditors 660 Cash and bank balances 250
Accrued expenses 150 Stock-in-trade 460
General reserve 250 Trade debtors 800
Capital: Provision for doubtful debts (80)
X 502 Machines 400
Y 358 Vehicles 310
Z 400 Equipment 180
2,320 2,320
On 31 December 2018, Z retired from the partnership. The following has been agreed in this
respect:
(i) Goodwill of the firm has been determined at Rs. 380,000. It has been estimated
that the value of goodwill after Z’s retirement would be Rs. 300,000. Goodwill is to
be written off from the books.
(ii) Machines would be adjusted to 85% of the book value whereas equipment would
be appreciated by 20%.
(iii) Trade debtors amounting to Rs. 100,000 would be written off. Existing percentage of
provision for doubtful debts would be maintained.
(iv) An accrual for repairs and maintenance amounting to Rs. 41,000 would be
recorded in the books.
(v) Z’s balance would be settled as follows:
 Immediate cash payment of Rs. 150,000.
 A vehicle would be given at an agreed value of Rs. 120,000 (book value
Rs. 70,000).
 Fully depreciated items of furniture would be given at an agreed value of
Rs. 35,000.
 Remaining balance would be paid after 6 months along with interest at 10%.
(vi) To determine new profit sharing ratio, Z’s share would be divided equally between
X and Y.
(vii) Y’s capital would be adjusted in new profit sharing ratio on the basis of X’s capital.
Any excess or deficiency would be adjusted through cash.
Required:
Prepare partners’ capital and revaluation accounts on the retirement of Z. (12)

Q.2 (a) Compare ‘Regression analysis’ with ‘High-low analysis’ for cost estimation. (03)
(b) Describe the behaviour of each of the following costs graphically by denoting
‘Per unit cost’ on vertical axis and ‘Level of activity’ on horizontal axis:
(i) Factory building rent – Fixed amount per month.
(ii) Direct labour cost – Increases proportionately with production.
(iii) Supervision cost – One supervisor is required for every 20 direct workers.
(iv) Direct material cost – Bulk discount is available on all purchases once the total
purchases exceed a certain level. (05)
Q.3 Following are the summarised financial statements of Keyboard Limited (KL):
Statement of financial position

20182017 2016
----------- Rs. in '000 -----------
Fixed assets 12,500 10,800 11,800
Current assets:
Inventory 4,000 4,500 3,000
Debtors 4,200 3,200 1,800
Cash - 800 2,100
8,200 8,500 6,900
20,700 19,300 18,700
Equity and reserves 10,400 9,000 8,600

Long term loan 4,400 5,000 5,600
Current liabilities:
Creditors 3,500 4,400 4,200
Bank overdraft 1,500 - -
Accrued expense 900 900 300
5,900 5,300 4,500
20,700 19,300 18,700
Statement of profit or loss

20182017 2016
----------- Rs. in '000 -----------
Sales 27,000 24,400 21,000
Cost of goods sold (21,300) (19,400) (17,200)
Gross profit 5,700 5,000 3,800
Operating expenses (3,400) (3,000) (2,400)
Finance cost (300) (350) (400)
Net profit 2,000 1,650 1,000
Required:
(a)
Compute working capital cycle in days and liquidity ratios for 2018 and 2017. (11)
(b)
Suggest three possible measures that can be taken by KL to improve working capital
cycle days. (03)

Q.4 (a) List the criteria that must be met to account for a contract with customer under
IFRS 15 ‘Revenue from Contracts with Customers’. (04)
(b) Guitar World (GW) normally sells Machine A13 for Rs. 1.7 million. Maintenance
services for such type of machines are provided separately at Rs. 25,000 per month.
Details of two contracts for sale of Machine A13 are as follows:
(i) On 1 July 2018, GW signed a contract with Energene Limited to sell Machine
A13 with one year free maintenance services at a lumpsum payment of
Rs. 1.8 million. The amount was received upon delivery of machine on
1 August 2018.
(ii) On 1 October 2018, GW sold Machine A13 to Vitalene Limited for
Rs. 1.95 million. As per the contract, payment would be made after 2 years.
Maintenance services would also be provided for Rs. 25,000 per month for
two years which would be paid at the end of each month.
Required:
With reference to IFRS-15 ‘Revenue from Contracts with Customers’, explain how
the above contracts should be recorded in GW’s books for year ended
31 December 2018. (Show supporting calculations but entries are not required) (11)
Q.5 The following information pertains to Piano Limited (PL):
Plant Equipment
Acquisition
Date of acquisition 1 January 20151 July 2015
Cost Rs. 500 millionRs. 360 million
Estimated useful life 10 years12 years
Residual value Rs. 60 millionNil
Depreciation method Straight line methodStraight line method
Revaluation on 31 December 2016

Fair value Rs. 526 million Rs. 280 million
Residual value Rs. 78 million Nil
Revaluation on 31 December 2018

Fair value Rs. 310 million Rs. 275 million
Residual value Rs. 64 million Nil
(i) PL uses revaluation model for subsequent measurement and accounts for revaluation
on net replacement value method.
(ii) There is no change in useful life of plant. The remaining useful life of equipment
was estimated as 15 years and 10 years in 2016 and 2018 respectively.
(iii) PL transfers maximum possible amount from the revaluation surplus to retained
earnings on an annual basis.
(iv) PL’s financial year ends on 31 December.
Required:
(a)
Calculate depreciation on each asset for 2015 to 2018. (08)
(b)
Prepare entries to record revaluation in 2018. (Entries to record depreciation expense,
incremental depreciation and elimination of accumulated depreciation are not required.
Further, entries prior to 2018 are also not required.) (08)

Q.6 Violin Family Club was formed in 2016. Following are the details of assets and liabilities
of the club as on 31 December 2017:
Assets Rs. in '000 Liabilities Rs. in '000

Subscription in arrears: Bank overdraft 181
2016 15 Subscription in advance for 2018 45
2017 90 Accrued electricity 23
Advance rent 24 Canteen wages 11
Canteen stock 215 Canteen creditors 118
Snooker tables 960
Furniture & equipment 720
2,024 378
(i) Some of the balances as on 31 December 2018 are as follows:
Assets Rs. in '000 Liabilities Rs. in '000

Subscription in arrears for 2018 Canteen stock30Accrued electricity 35
247Canteen creditors 142
(ii) Break-up of the subscription received during 2018 is as follows:
Related to year Rs. in '000
2017 60
2018 920
2019 75
The club’s management has decided to write-off the remaining subscription in arrears
relating to the year 2016 and 2017.
(iii) A scheme was introduced in 2016 under which a person is awarded life time
membership upon payment of Rs. 120,000. Life memberships received in the years
2016, 2017 and 2018 were 5, 8 and 6 respectively. Life memberships are credited to
‘Life Membership Fund’ upon receipt and are transferred to income equally over
10 years, starting from the year of admission.
(iv) The club operates a canteen. Till last year, the canteen earned a gross profit of 20%
of sales. Effective 1 January 2018, selling prices were increased by 10%.
(v) Details of some payments during 2018 are as follows:
Rs. in '000
Canteen creditors 512
Salaries 285
Equipment 66
Electricity 263
(vi) Equipment acquired during the year is only 30% paid and the remaining amount is
payable in February 2019.
(vii) Wages of canteen staff are paid on 5th of each month.
(viii) The club operates from a rented place. The rent is paid quarterly in advance on
1 March, 1 June, 1 September and 1 December. As per agreement, annual rent was
increased by Rs. 6,000 with effect from 1 September 2018.
(ix) Balance of snooker tables as at 31 December 2017 represents the book value of
5 similar tables purchased in 2016. One of the tables was sold to a member for cash
during the year for Rs. 212,000.
(x) Snooker tables are depreciated at 12.5% on straight line method while furniture &
equipment are depreciated at 20% using reducing balance method. Full year
depreciation is charged in the year of addition whereas no depreciation is charged
in the year of disposal.

Required:
(a)
Prepare income and expenditure account for the year ended 31 December 2018. (12)
(b)
Prepare statement of financial position as on 31 December 2018. (09)
Q.7 Junior Accountant of Drum Limited has prepared the following statement of cash flows
for the year ended 31 December 2018:
Statement of cash flows

Rs. in '000
Cash flows from operating activities
1,360 Increase in net trade receivable
Increase in retained earnings Increase in dividend payable
200
(100)
50
1,510
Cash flows from investing activities
Increase in land and building(2,600)
Increase in equipment(1,550)
Decrease in inventory400
Decrease in tax payable(60)
(3,810)
Cash flows from financing activities
Increase in share capital and premium2,350 Decrease in long term loan(1,000) Increase i
Decrease in cash balance during the year(350)

Opening cash balance 450
Closing cash balance 100
Junior Accountant informed you that he has taken the difference of opening and closing
balances of each balance sheet item and classified each difference as either operating,
investing or financing cash flows. He further informed that the statement is tied up with the
cash balances appearing in the balance sheet. He has ignored the following information:
(i) Depreciation on building and equipment amounted to Rs. 480,000 and Rs. 810,000
respectively.
(ii) During the year, an equipment costing Rs. 560,000 and having a book value of
Rs. 310,000 was sold for Rs. 440,000.
(iii) Provision for doubtful debts was increased by Rs. 140,000.
(iv) Dividend amounting to Rs. 700,000 was paid during the year.
(v) Interest and tax expenses for the year amounted to Rs. 378,000 and Rs. 650,000
respectively.
(vi) Trade and other payables as at 31 December 2018 included Rs. 950,000 for purchase
of land and building.
Required:
Prepare statement of cash flows for the year ended 31 December 2018, in accordance with
IAS 7 ‘Statement of Cash Flows’ using indirect method. (14)
(THE END)

Suggested Answers
Certificate in Accounting and Finance – Spring
Ans.1 Partners' capital

X Y Z X Y Z
---- Rs. in '000 ---- ---- Rs. in '000 ----
Revaluation loss 28 21 21 Balance 502 358 400
Goodwill written off (380 in 11:9) 209 171 Goodwill (380 in 4:3:3) 152 114 114
General reserve (250 in
Settlement with Z: 4:3:3) 100 75 75
Cash 150 Investment by Y (balancing) 68
Vehicle 120
Furniture 35
Loan (balancing) 263
Closing balance X 517
Closing balance Y (517×9÷11) 423
754 615 589 754 615 589
Revaluation
Rs. in '000 Rs. in '000
Machine (400×0.15) 60 Equipment (180×20%) 36
Provision for doubtful debts 10
Trade debtors 100 (100×10%)
Accruals 41 Vehicle (120–70) 50
Furniture 35
Revaluation loss of 70
X 28
Y 21
Z 21
201 201
W-1: Ratios X Y Z
Old profit share 4/10 3/10 3/10
Share of Z divided equally between X and Y 3/20 3/20 –3/10
New profit share 11/20 9/20 -
Ans.2 (a) Regression analysis and high-low analysis compared

Following are the important differences between linear regression analysis and the high-
low method.
Regression analysis High low method

Regression analysis uses as many sets of data High-low analysis uses just two sets of
for x and y as are available. data for x and y, the highest and the
lowest values for x and the
corresponding
values of y.
Regression analysis can be used to assess the High low method cannot be used to
extent to which values of y depend on values assess the extent to which values of y
of x. depend on values of x.
Regression analysis uses complex arithmetic High low method uses simple
and a calculator or small spreadsheet model mathematics.
is normally needed.
Effect of extreme values is minimal on High low method is highly affected by
regression analysis. extreme values in the data.

Suggested Answers
(b)
Ans.3 (a) Working capital cycle 2018 2017

------------- Number of days -------------
Average days to collect debtors W-1 50.0 37.4
Average inventory holding period W-2 72.8 70.5
Less: Average time to pay creditors W-3 (69.3) (75.1)
53.5 32.8
Liquidity ratios: 2018 2017
Current assets 8,200 8,500

Current Ratio = 5,900 5,300
Current liabilities
𝟏. 𝟑𝟗 ∶ 𝟏 𝟏. 𝟔𝟎 ∶ 𝟏
Current assets − inventor 8,200 − 4,000 8,500 − 4,500

Quick Ratio = 5,900 5,300
Current liabilities
𝟎. 𝟕𝟏 ∶ 𝟏 𝟎. 𝟕𝟓 ∶ 𝟏
[(4,200 + 3,200) ÷ 2] [(3,200 + 1,800) ÷ 2]

W-1: Debtors collection period Average debtors × 365 × 365
= × 365 27,000 24,400
(in days) Credit sales
50 days 37.4 days
Average inventory [(4,000 + 4,500) ÷ 2] [(4,500 + 3,000) ÷ 2]

W-2: Inventory holding period × 365 × 365
= × 365 21,300 19,400
(in days) Cost of sales
72.8 days 70.5 days
[(3,500 + 4,400) ÷ 2] [(4,400 + 4,200) ÷ 2]

W-3: Creditors payment period = Average Creditors × 365 × 36 × 36
(in days) Credit purchases [21,300 + 4,000 − 4,500] [19,400 + 4,500 − 3,000]
69.3 days 75.1 days

Suggested Answers
(b) Measures to improve working capital cycle days:

 Give incentives to customers to pay on time
 Do not transact with customers who have a history of defaulting/late payments
 Automate the monitoring of accounts receivables
Ans.4 (a) The general IFRS 15 model applies only when all of the following conditions are met:
 the parties to the contract have approved the contract.

 the entity can identify each party’s rights.
 the entity can identify the payment terms for the goods and services to be
transferred.
 the contract has commercial substance.
 it is probable that the entity will collect the consideration.
(b) (i) The contract contains two distinct performance obligations i.e. selling the machine
and providing the maintenance services as:
 the customer can separately benefit from the machine without the
maintenance services from GW (or GW sells maintenance services separately)
and
 the machine and maintenance services are separately identifiable in the
contract.
Thus GW will allocate the transaction price between the two performance
obligations as follows:
Standalone price Proportion Transaction price

Machine 1,700,000 85 1,530,000
Maintenance 300,000 15 270,000
(Rs. 25,000×12) (Rs. 22,500×12)
2,000,000 100 1,800,000
Revenue related to sale of machine would be recognized at a point in time i.e. upon
delivery on 1 August 2018.
While revenue related to maintenance service would be recognized over time i.e.
as the services are rendered.
Till 31 December 2018, revenue would be recognized in respect of:
 Sale of machine Rs. 1,530,000

 Maintenance service Rs. 112,500 i.e Rs. 22,500 for 5 months
Remaining amount of Rs. 157,500 would appear in liabilities as deferred revenue.
(ii) The contract contains two distinct performance obligations i.e. selling the machine
and providing the maintenance services.
The contract includes a significant financing component in respect of sale of

machine which is evident from the difference between the amount of promised
consideration of Rs. 1.95 million and the cash selling price of Rs. 1.7 million.
Revenue related to machine would be recognized upon delivery on 1 October 2018.

Suggested Answers
Revenue related to maintenance service would be recognized as the services are

rendered each month.
The difference between promised consideration and cash selling price of Rs.
250,000 would be recognized as interest revenue over two years using the implicit
rate of 7.1% [(1.95÷1.7)1/2–1].
Till 31 December 2018, revenue would be recognized in respect of:
 Sale of machine Rs. 1,700,000

 Maintenance service Rs. 75,000 i.e Rs. 25,000 for 3 months
 Interest revenue Rs. 30,175 (Rs. 1.7 million × 7.1% × 3/12)
Ans.5 (a) Plant Equipment

----- Rs. in million -----
Cost 500 360
[(500–60)/10],
Depreciation 2015 [(360/12)×(6/12)] (44) (15)
456 345
Depreciation 2016 [(456–78)/9], [345/15] (42) (23)
414 322
Revaluation–surplus/(loss) 2016 (balancing) 112 (42)
Fair value 526 280
Depreciation 2017 [(526–78)/8], [280/14] (56) (20)
470 260
Depreciation 2018 [(470–64)/7], [260/10] (58) (26)
412 234
(b) Piano Limited

Accounting entries for revaluation
Debit Credit
Date Description ------ Rs. in million ------
31-Dec-2018 Revaluation loss (P&L account) 18.00
Revaluation surplus 84.00
Plant 102.00
31-Dec-2018 Equipment 41.00

Revaluation gain (P&L account) 35.10
W-1: Revaluation surplus/(impairment): Plant Equipment

----- Rs. in million -----
Fair value 310 275
Book value [From part(a)] (412) (234)
Increase / (Decrease) in asset (102) 41
Adjustment for previous:
Revaluation surplus 112–(112÷8)– (112÷8) 84
Revaluation loss 42–(42÷14)–(39÷10) (35.1)
Revaluation surplus/(Revaluation loss) (18) 5.9

Suggested Answers
Ans.6 Violin Family Club

(a) Income and expenditure account for the year ended 31 December 2018
Rs. in '000
Income
Subscription (W-1) 995
Gain on disposal of table 212–960÷5 20
Profit from canteen 57
Life membership (W-2) 228
1,300
Expenditures
Rent [36(24×3÷2)+36+37.5+37.5]+[24–25(37.5×2÷3)] 146
Salaries 285
Electricity 263+(35–23) 275
Depreciation – snooker tables (960–192)×(12.5÷75) 128
Depreciation – furniture & equipment (720+220)×20% 188
Subscription written off 45
(1,067)
Excess of income over expenditure 233
Canteen trading account for the year ended 31 December 2018

Rs. in '000
Sales 504×110÷80 693
Cost of goods sold
Opening stock 215
Purchases 512+142–118 536
Closing stock (247)
504
Gross profit 189
Expenses
Wages 11×12 (132)
Profit from canteen 57
W-1: Subscription Rs. in '000

Opening arrears: Opening advance 2018 45
2016 15 Receipts (60+920+75) 1,055
2017 90 Write off (15+30) 45
Income balance 995 Closing arrears 30
Closing advance 75
1,175 1,175
W-2: Life membership Rs. in '000

Income
[(5+8+6)×120÷10] 228 Opening balance
(5×120×8÷10)+(
Closing balance 1,836 8×120×9÷10) 1,344
Receipt (6×120) 720
2,064 2,064
(b) Violin Family Club
Statement of financial position as on 31 December 2018 Rs. in '000
Assets
Non-current assets
Snooker table (960–192–128) 640
Furniture & equipment (720+220–188) 752
1,392

Suggested Answers
Current assets:
Canteen stock 247
Prepaid rent 25
Subscriptions in arrears 30
Bank (W-3) 1,094
1,396
2,788
General funds
Opening balance (2,024–378)–1,344(W-2) 302
Excess of income over expenditure 233
535
Life membership fund (W-2) 1,836
Liabilities
Accrued electricity 35
Subscription in advance (W-1) 75
Creditors for equipment (220–66) 154
Canteen wages payable 11
417
2,788
W-3: Bank/cash Rs. in '000

Subscriptions 1,055 Opening balance 181
Life membership (W-2) 720 Rent 147
Sale proceeds from table 212 Salaries 285
Canteen receipts 693 Electricity 263
Canteen salaries 132
Equipment 66
Closing balance 1,094
2,680 2,680
Ans.7 Drum Limited

Statement of cash flows for the year ended 31 December 2018
Rs. in ‘000
Cash flows from operating activities
Profit before tax 1,360+700+200+650 2,910
Adjustment for:
Depreciation 480+810 1,290
Gain on disposal (130)
Increase in provision of doubtful debts 140
Interest expense 378
4,588
Working capital change
Decrease in inventory 400
Increase in trade receivables –100–140 (240)
Decrease in trade payable 600–950 (350)
(190)
Cash generated from operations 4,398
Interest paid –378+50 (328)
Tax paid –650–60 (710)
3,360

Suggested Answers

Purchase of land and building –2,600–480+950 (2,130)
Purchase of equipment –1,550–810–310 (2,670)
Disposal of equipment 440
(4,360)
Issuance of shares 2,350
Loan repaid (1,000)
Dividend paid (700)
650
Decrease in cash during the year (350)
Opening cash 450
Closing cash 100
(THE END)


Q.1 On 1 July 2017, Nezam took over a running business namely FC Traders (FCT). Proper
books of account are not maintained for FCT. Following information has been gathered
for preparation of statement of profit or loss for the year ended 30 June 2018:
(i) Balances of certain assets and liabilities:
30-Jun-20181-Jul-2017
Assets and liabilities
------ Rs. in '000 ------
Equipment 4,000 4,000
Furniture and fixtures 2,500 2,500
Trade debtors 1,600 -
Inventory 2,400 2,800
Unused miscellaneous supplies 400 300
Unpaid suppliers’ bills 2,800 1,850
Shop rent payable 400 200
(ii) Summary of bank payments for the year ended 30 June 2018:
Rs. in '000
Suppliers 13,600
Repair and maintenance Shop rent Miscellaneous supplies
950 Utilities
2,000
800
1,200
(iii) Payments made out of cash sales before being deposited into the bank:
Rs. in '000
Salaries and wages Purchase of inventory 1,800
Part payment of sales commission to riders 3,000
90
(iv) Unpaid suppliers’ bills as at 30 June 2018 include a bill of Rs. 320,000 which was
mistakenly taken at Rs. 230,000.
(v) During the year, goods costing Rs. 540,000 were withdrawn by Nezam for personal
use.
(vi) Inventory as at 30 June 2018 includes goods costing Rs. 250,000 which were badly
damaged in an accident and have no sales value.
(vii) Mark-up on goods sold are as follows:
Mark-up on cost
50% of goods – sold on cash counter 35%
20% of goods – sold for cash through riders 30% of goods
40% – sold for credit
45%
(viii) The riders are entitled to 3% commission.
(ix) Fixed asset at 30 June 2018 are to be depreciated at 10% per annum.
(x) Salaries and wages for June 2018 amounting to Rs. 165,000 were paid on 5 July 2018.
Required:
Prepare a statement of profit or loss for the year ended 30 June 2018. (13)

Q.2 Digital World (DW) closes its accounts on 30 June each year. This year physical stock
taking was delayed and carried out on 10 July 2018. The cost of physical stock on that
date was determined at Rs. 1,126,000. Following further information is available:
(i) Purchase invoices received from suppliers during 1 July to 10 July 2018 amounted
to Rs. 366,000. These include invoices amounting to:
 Rs. 28,000 for goods dispatched by a supplier but not received by DW till
10 July 2018.
 Rs. 20,000 for goods received on 28 June 2018.
(ii) Goods costing Rs. 44,000 were received on 8 July 2018 but the corresponding invoice
was not received till 10 July 2018.
(iii) Details of credit notes from suppliers are as follows:
Credit notes date Goods returned date Rupees

4 July 2018 27 June 2018 23,000
9 July 2018 7 July 2018 9,000
13 July 2018 9 July 2018 14,000
(iv) Selling price of goods dispatched to customers from 1 July 2018 to 10 July 2018
amounted to Rs. 375,000. This included:
 Rs. 62,500 relating to goods invoiced but not received by customers till
10 July 2018.
 Rs. 34,000 relating to goods not invoiced till 10 July 2018.
(v) DW’s stocks-in-transit from suppliers as on 30 June 2018 were amounted to

Rs. 36,000. Of these, goods costing Rs. 13,100 were received on 9 July 2018 and
remaining goods have not yet been received.
(vi) Goods costing Rs. 150,000 were found to be damaged and are expected to realize
Rs. 110,000 after repairing at a cost of Rs. 26,000. It was ascertained that 40% of
the goods were damaged in July 2018.
(vii) It was discovered that goods included in the stock valuation at Rs. 16,600 were
mistakenly valued at their selling price.
(viii) DW sells goods at a mark-up of 25% on cost.
Required:
Compute the value of stock as at 30 June 2018. (10)
Q.3 (a) List the five steps involved in recognizing revenue under IFRS 15 ‘Revenue from
Contracts with Customers’. (03)
(b) On 1 June 2018 Ravi Limited (RL) delivered 500 units of one of its products to
Bravo Limited (BL) at Rs. 200 per unit. BL immediately paid the amount and
obtained control upon delivery. BL is allowed to return unused units within 30 days
and receive a full refund. RL’s cost of the product is Rs. 150 per unit and it uses
perpetual system for recording inventory transactions.
On 30 June 2018, BL returned 20 units.
Required:
Prepare necessary journal entries in the books of RL on 1 June 2018 and 30 June 2018
under each of the following independent situations:
(i) Based upon historical data, RL estimates that 5% units will be returned on
expiry of 30 days. (05)
(ii) The product is new and RL has no relevant historical evidence of product
returns or other available market evidence. (04)

Q.4 Royal Fashions (RF) and Imperial Garments (IG) are two partnership businesses. Partners
of both firms were sharing profits in their capital ratios. It has now been decided to
merge the two businesses with effect from 1 July 2018 under the name of Quality
Apparels (QA). The respective statements of financial position as at 30 June 2018 were
as under:
RF IG RF IG
Capital and liabilities Assets
Capital accounts: Land 14 18

A 24 - Buildings 8 13
Z 16 - Machines 17 20
B - 27 Inventory 9 12
G - 33 Trade debtors - net of 2%
Trade payables 18 14 provision 12 15
Accruals and other payables 5 6 Cash 3 2
63 80 63 80
Following terms and conditions have been agreed for the merger:
(i) Total capital of QA will be Rs. 100 million. Capital as well as profits will be shared
equally by all the partners in the new firm. Any excess or deficiency in partners’
capital accounts will be adjusted through cash.
(ii) Agreed values of some of the assets will be as under:
RF IG
--- Rs. in million ---
Land 16.0 17.0
Machines 15.0 15.0
Inventory 10.0 12.6
(iii) Provision for doubtful debts will be increased from 2% to 5%.

(iv) Accruals and other payables of IG will be increased by Rs. 2 million.
(v) Remaining assets (including cash) and liabilities will be taken over by QA at their
book values.
(vi) Goodwill will be determined at 20% and 25% of the agreed values of the net assets
(excluding cash) of RF and IG respectively. No goodwill will be maintained in the
books of QA.
Required:
Prepare capital accounts in the old and new firms. (12)
Q.5 The following information is available in respect of machines of Akmal Brothers:
(i) The balances of cost and accumulated depreciation of machines as on 1 January

2017 were Rs. 800,000 and Rs. 333,000 respectively.
(ii) A machine acquired on 1 January 2014 having net book value of Rs. 31,935 on
1 January 2017 was sold for Rs. 34,000 on 30 April 2017. Cost of disposal incurred
was Rs. 5,000.
(iii) On 1 July 2017, a machine having fair value of Rs. 40,000 on that date was exchanged
for a new machine. The balance of the purchase price was paid through a cheque of
Rs. 80,000. The list price of the new machine was Rs. 130,000. The old machine
had been acquired at a cost of Rs. 65,000 on 1 October 2015.
(iv) Machines are depreciated at 15% per annum using the reducing balance method.
Required:
Prepare the following ledger accounts pertaining to the machines for the year ended
31 December 2017:
(a)
Cost (03)
(b)
Accumulated depreciation (05)

(c)
Gain/loss on disposal (04)

Q.6 Following is a summarised trial balance of Omega Limited (OL) for the year ended
30 June 2018:
Rs. in million
Particulars Debit Particulars Credit
Land at revalued amount 30 Share capital 40
Buildings at revalued amount 60 Retained earnings 18
Equipment and other assets - at cost 47 Revaluation surplus 43
Trade receivables 21 Trade payables 29
Opening stock-in-trade 16 Accruals and other payables 9
Advances and other receivables 6 Accumulated depreciation:
Cash and bank balances 3 - Buildings 9
Purchases 180 - Equipment and other assets 18
Freight-in 4 Provision for doubtful receivables 4
Selling & administrative expenses Sales 235
(including depreciation expense) 39 Suspense account 1
406 406
(i) Cost of closing stock-in-trade was Rs. 19 million. However, following matters were
noted during physical inventory count:
 Stock held under ‘Bill-and-hold arrangement’ was accepted and paid by the
customer on 25 June 2018. Proceeds amounting to Rs. 2.7 million were credited to
other payables. These goods were included in OL’s stock. Such stock items are
sold at cost plus 35%.
 Stock items costing Rs. 3 million were damaged badly and could not be sold. A
claim was lodged with the insurance company which accepted the claim on
30 June 2018 to the extent of 80%.
 Stock items costing Rs. 4.5 million lying with a third party were not included in
stock-in-trade.
(ii) OL’s policy for provision for doubtful trade receivables is as under:
 Full provision is made for balances due for more than one year.
 Provision at 5% is made on all other balances.
As on 30 June 2018, balances due for more than one year aggregated Rs. 3.4
million. This includes a balance of Rs. 2 million which is no more recoverable and
is required to be written-off.
Suspense account represents an amount recovered from a customer whose balance
was written-off in 2016.
(iii) On 30 June 2018, a portion of land and building was sold for Rs. 30 million which had
been revalued once only on 30 June 2015. Relevant details are as follows:
As on 30 June 2015
Written down
Fair value Remaining
value
useful life
------ Rs. in million ------
Land 3 10 Indefinite
Building 13 18 20 years
Proceeds from the disposal are due to be received in September 2018. The disposal has
not yet been accounted for.
OL transfers maximum possible amount from revaluation surplus to retained earnings
on an annual basis.
(iv) Unrecorded freight-in invoices amounting to Rs. 0.5 million are pending with cashier
for payment.
(v) A cheque for Rs. 1.8 million received as advance from a customer has not been
recorded.
(vi) Income tax liability is estimated at 30% of profit before tax.

Required:
Prepare a statement of financial position as on 30 June 2018 and a statement of profit or loss
for the year ended 30 June 2018 in accordance with IFRSs. (21)
Q.7 SK Limited (SKL) deals in a single product. Following are the summarized financial
statements of SKL for the year ended 31 December 2017:
Statement of financial position Statement of profit or loss

20172016 2017 2016
Rs. in million Units sold in million39 30
Fixed assets 410 240
Current assets 90 200 Rs. in million
500 440 Sales 371 300
Cost of goods sold (273) (210)
Capital 280 260 Gross profit 98 90
Long-term loan 170 100 Selling and administrative (55) (60)
Current liabilities 50 80 Finance cost (13) (8)
500 440 Net profit 30 22
(i) With effect from 1 January 2017, selling price was decreased by 5% to boost sales
volume.
(ii) During the year 2017, suppliers demanded price increase of 4%. SKL resisted the price
increase. However, both parties agreed to reduce the credit period.
(iii) SKL had been running its business in a rented building whose annual rent was
Rs. 15 million. During the year, SKL purchased this building for Rs. 200 million.
Funds were arranged partially through a long-term loan. Useful life of the building
is estimated at 40 years.
(iv) 75% of the selling and administration cost incurred in 2016 was fixed cost.
Required:
(a) Compute the following ratios for 2016 and 2017:
 Gross profit margin  Net profit margin
 Return on assets  Return on capital employed
 Debt equity ratio  Current ratio (08)
(b) Keeping in view the above information, comment on profitability and liquidity
position of SKL for 2017. (04)
Q.8 (a) Describe any four differences between financial accounting system and cost
accounting system. (04)
(b) Describe behaviour of each of the following costs graphically by denoting total cost on
vertical axis and level of activity on horizontal axis:
(i) Factory building rent - Fixed amount per month
(ii) Direct labour cost - Fixed per unit
(iii) Supervision cost - One supervisor is required for every 20 direct workers
(iv) Machine rental cost - Fixed monthly rent and an additional cost of
Rs. 100 per unit for the production exceeding certain limit (04)
(THE END)

Suggested Answers
Certificate in Accounting and Finance – Autumn
Note:
The suggested answers are provided for the guidance of the students. However, there are alternative
solution(s) to the questions which are also considered by the Examination Department while marking
the answer scripts.
Ans.1 FC Traders
Statement of profit or loss account for the year ended 30 June 2018
Rs. in '000
Sales:
50% cash sales at counter A×0.5×1.35 11,813
30% credit sales A×0.3×1.45 7,612
20% cash sales through riders A×0.2×1.40 4,900
24,325
Cost of sales:
Opening inventory 2,800
Purchases (14,640(W-1)+3,000) 17,640
Damaged stock (250)
Goods withdrawn (540)
Closing inventory 2,400–250 (2,150)
(A) (17,500)
Gross profit 6,825
Expenses:
Repair and maintenance 950
Shop rent 2,000+(400–200) 2,200
Misc. supplies used 800+(300–400) 700
Utilities 1,200
Staff salaries 1,800+165 1,965
Riders commission 4,900×3% 147
Depreciation – Equipment 4,000×10% 400
– Furniture & fixtures 2,500×10% 250
Damaged stock 250
(8,062)
Net loss (1,237)
W-1: Creditors Rs. in '000

Payment 13,600 Opening balance 1,850
Closing balance
[2,800+(320-230)] 2,890 Credit purchases (balancing) 14,640
16,490 16,490

Suggested Answers
Ans.2 Digital World

Stock as on 30 June 2018
Rs.
Physical inventory as on 10 July 2018 1,126,000
(i) Purchase invoices received during 1 July - 10 July 2018 (366,000)

Goods invoiced but not received 28,000
Goods received prior to year-end 20,000
(318,000)
(ii) Goods received on 8 July 2018 but invoice was not yet received (44,000)
(iii) Credit notes received after year-end for the goods returned on:
7-Jul-2018 9,000
9-Jul-2018 14,000
23,000
(iv) Cost of goods dispatched during 1 July - 10 July 2018 (375,000/1.25) 300,000
(v) Goods in transit as on 30-6-2018 received on 9 July 2018 (13,100)
(vi) NRV adjustment of goods damaged: Cost 150,000

NRV (110,000-26,000) (84,000)
Total loss 66,000
Loss pertains to 60% of the goods damaged prior to year-end (66,000×60%) (39,600)
(vii) Closing inventory items mistakenly valued at selling price (16,600×25/125) (3,320)
Physical inventory as on 30 June 2018 1,030,980

Stock-in-transit as on 30 June 2018 36,000
1,066,980

Suggested Answers
Ans. 3 (a) Five steps involved in recognising revenue under IFRS 15:
(i) Identify the contract(s) with a customer
(ii) Identify the separate performance obligations
(iii) Determine the transaction price
(iv) Allocate the transaction price
(v) Recognize revenue when or as an entity satisfies performance obligations
(b) Ravi Limited

(i) General Journal
Debit Credit
Date Description
---- Rs. in million ----
1 Jun 18 Cash/Bank (500×200) 100,000
Refund liability [25(500×5%)×200] 5,000
Sales (475×200) 95,000
Cost of goods sold (475×150) 71,250

Right to recover product (25×150) 3,750
Inventory (500×150) 75,000
30 Jun 18 Refund liability 5,000

Sales (5×200) 1,000
Cash/Bank (20×200) 4,000
Cost of goods sold (5×150) 750

Inventory (20×150) 3,000
(ii) General Journal

Debit Credit
Date Description ---- Rs. in million ----
1 Jun 18 Cash/Bank (500×200) 100,000
Contract liability (500×200) 100,000

Inventory (500×150) 75,000
30 Jun 18 Contract liability (500×200) 100,000

Sales (480×200) 96,000
Cash/Bank (20×200) 4,000
Cost of goods sold (480×150) 72,000

Inventory (20×150) 3,000

Suggested Answers
Ans.4 Capital accounts - Royal Fashions

A Z A Z
Quality Apparels (balancing) 28.90 19.26 Balance b/f 24.00 16.00
Realisation in 60:40 W.1 0.38 0.25
Goodwill in 60:40 W.2 4.52 3.01
28.90 19.26 28.90 19.26
Capital accounts - Imperial Garments

B G B G
Realisation loss in 45:55 W.1 3.54 4.32 Balance b/f 27.00 33.00
Quality Apparels (balancing) 29.10 35.58 Goodwill in 45:55 W.2 5.64 6.90
32.64 39.90 32.64 39.90
Capital accounts - Quality Apparels

A Z B G A Z B G
Goodwill
(4.52+3.01+5.64+6.9)/4 5.02 5.02 5.02 5.02 Transferred 28.90 19.26 29.10 35.58
Cash and Bank - 5.56 Cash & Bank 1.12 10.76 0.92 -
Balance c/f 25.00 25.00 25.00 25.00
30.02 30.02 30.02 35.58 30.02 30.02 30.02 35.58
W-1: Gain/(loss) on valuation of assets and liabilities on merger of the firms

RF IG
Land (16–14); (17–18) 2.00 (1.00)
Machines (15–17); (15–20) (2.00) (5.00)
Inventory (10–9)(12.6–12) 1.00 0.60
Provision for doubtful debts (12/0.98×0.03) (0.37) -
Provision for doubtful debts (15/0.98×0.03) - (0.46)
Accruals and other payables (6–8) - (2.00)
0.63 (7.86)
W-2: Goodwill of the old firms RF IG

Net assets prior to merger (24+16); (27+33) 40.00 60.00
Net increase/(decrease) in assets & liabilities on revaluation (W-1) 0.63 (7.86)
40.63 52.14
Cash and bank balances (3.00) (2.00)
Net assets (excluding cash) 37.63 50.14
Goodwill at 20% and 25% C 7.53 12.54

Suggested Answers
Ans.5 Cost - Machines

Date Description Rs. Date Description Rs.
1 Jan 17 Opening balance 800,000 30 Apr 17 Gain/loss on disposal 52,000
[31,935÷(0.85)3]
1 Jul 17 Gain/loss on disposal 40,000 1 Jul 17 Gain/loss on disposal 65,000
1 Jul 17 Bank 80,000 31 Dec 17 Closing balance 803,000
920,000 920,000
Accumulated depreciation - Machines

30 Apr 17 Gain/loss on disposal(W-1) 21,662 1 Jan 17 Opening balance 333,000
1 Jul 17 Gain/loss on disposal(W-2) 15,810 Depreciation exp. (W-3) 71,868
31 Dec 17 Closing balance 367,396
404,868 404,868
Gain/Loss on disposals
30 Apr 17 Cost 52,000 30 Apr 17 Accumulated dep. (W-1) 21,662
30 Apr 17 Bank (Cost of disposal) 5,000 30 Apr 17 Bank (Sale proceeds) 34,000
1 Jul 17 Cost 65,000 1 Jul 17 Accumulated dep. (W-2) 15,810
1 Jul 17 Cost (Trade in at fair value) 40,000
31 Dec 17 Loss on disposal (P&L) 10,528
122,000 122,000
W-1: Accumulated depreciation - machine sold Rs.

Till 31-12-2016 (52,000–31,935) 20,065
For 1-1-2017 to 30-4-2017 (52,000–20,065)×15%×4÷12 1,597
21,662
W-2: Accumulated depreciation - machine exchanged Rs.

For 1-10-2015 to 31-12-2015 (65,000 – 0)×15%×3÷12 2,438
For the year ended 31-12-2016 (65,000 – 2,438)×15% 9,384
11,822
For 1-1-2017 to 30-6-2017 [65,000 – 11,822]×15%×6÷12 3,988
15,810
W-3: Depreciation for the year Rs.

On opening balance of:
- Machine sold (52,000 – (W-1)20,065) × 15%×4÷12 1,597
- Machine exchanged (65,000 – (W-2)11,822) × 15%×6÷12 3,988
- Other assets (Balancing) (683,000 – 301,113) × 15% 57,283
Balance 1-1-2017 800,000 333,000
On additions during the year (40,000+80,000)×15%×6÷12 9,000
71,868

Suggested Answers
Ans.6 Omega Limited

Statement of profit or loss for the year ended 30 June 2018
Rs. in million
Sales revenue 235+2.7 237.70
Cost of sales (W-1) (179.00)
Gross profit 58.70
Selling and administrative expenses (W-2) (38.88)
Operating profit 19.82
Gain on disposal of office block 30–10– 15.3(18×17÷20) 4.70
Profit before tax 24.52
Taxation 24.52×30% (7.36)
Profit after tax 17.16
W-1: Cost of sales Rs. in million

Opening stock 16.00
Purchases 180.00
Freight-in 4+0.5 4.50
Damaged inventory (3.00)
Closing stock 19–(2.7÷1.35) –3+4.5 (18.50)
179.00
W-2: Selling and administrative expenses Rs. in million

Selling and administrative expenses 39.00
Inventory claim short received 3–(3×80%) 0.60
Bad debt - Balance written-off during the year 2.00
- Excess provision written back (2.28(BS)-4) (1.72)
- Recovery of balance written-off in 2016 (1.00)
38.88
Omega Limited
Statement of financial position as on 30 June 2018
Rs. in million
Non-current assets:
Property, plant and equipment (W-3) 84.70
Current assets
Stock-in-trade PL 18.50
Trade receivables (W-4) 16.72
Advances and other receivables 6+30+(3×0.8) 38.40
Cash and bank balances 3+1.8 4.80
78.42
Total assets 163.12
Equity
Share capital 40.00
Retained earnings 18+7+4.25+17.16(PL) 46.41
Revaluation surplus 43– 7(10–3)–4.25[(18–13)×(17÷20)] 31.75
118.16
Current liabilities
Trade and other payables 29+9+0.5+1.8–2.7 37.60
Tax liability PL 7.36
44.96
Total equity and liabilities 163.12

W-3: Property, plant and equipment Rs. in million
Land 30–10 20.00
Buildings 60–9–15.30(PL)[18–2.7(18×3÷20)] 35.70
Equipment and other assets 47–18 29.00
84.70

Suggested Answers
W-4: Trade receivables Rs. in million

Trade receivables 21-2 19.00
Provision for doubtful receivables (3.4–2)+[(19–1.4)×0.05] (2.28)
16.72
Ans.7 (a) SK Traders

Computation of ratios
2017 2016
(i) Gross profit margin 26.42% 30.00%
(98÷371)×100 (90÷300)×100
(ii) Net profit margin 8.09% 7.33%

(30÷371)×100 (22÷300)×100
(iii) Return on assets 8.60% 6.82%

(30+13)÷500×100 (22+8)÷440×100
(iv) Return on capital employed 9.56% 8.33%

(30+13)/(280+170)×100 (22+8)÷(260+100)×100
(v) Debt equity ratio 0.38 0.28

170÷(280+170) 100÷(260+100)
(vi) Current ratio 1.80 2.50

90÷50 200÷80
(b) (i) Profitability:

In 2017, gross profit margin of SKL has reduce from 30% to 26.42%. however,
gross and net profits amounts have been increased by Rs. 8 million mainly due to:
 Increase in sales volume as a result of 5% decrease in selling price. This
resulted in increase in gross profit by 8.89%[(98-90)÷90×100].
 Acquisition of building has resulted in savings in expenses as rent saved
(Rs. 15 million) is higher than the depreciation (Rs. 5 million) and increased in
finance cost (Rs. 5 million).
 Since 75% of selling and administrative cost was fixed, expenses did not
increase due to increase in sales volume (economies of scale).
(ii) Liquidity:
The decrease in current ratio from 2.5 to 1.8 is net effect of the following:
 Cash payment for purchase of building which significantly decreased current
assets.
 Prompt payment to suppliers which decreased the current liabilities.

Suggested Answers
Ans.8 (a) Financial accounting system Cost accounting system

(i) Requirement
Prepared to meet a legal or regulatory Prepared to meet the needs of management.
requirement.
(ii) Utilisation
Used to prepare financial statements for Used to prepare information for management
shareholders and other external users. (Might (internal use only).
also provide some information for
management but this is not their primary
purpose).
(iii) Time frame

Prepared within a time frame specified by a Prepared within a time frame specified by
legal or regulatory framework. management.
(iv) Activities
Records revenues, expenditure, assets and Records costs of activities and used to
liabilities. provide detailed information about costs,
revenues and profits for specific products,
operations and activities.
(v) Convention
Used mainly to provide a historical record Provides historical information, but also used
of performance and financial position. extensively for forecasting (forward-looking).
(b) Describing cost behaviour graphically:
(i) Factory building rent - Fixed amount (ii) Direct labour cost - Fixed per unit
per month
(iii) Supervision cost - One supervisor is (iv) Machine rental cost - Fixed monthly
required for every 20 direct workers rent and an additional cost of Rs. 100
per unit for the production exceeding
certain limit.
(THE END)


Q.1 Kidz Party & Co. (KPC) manufactures and sells toys. Following information is available
regarding four of its inventory items as on 31 December 2017:
Cost per unitNormal (Rs.)selling price

Items Units
per unit (Rs.)
Toy cars 10,000 1,250 1,200
Doll houses 5,000 1,800 2,700
Stuffed toys 1,850 1,200 1,900
Minion costumes 870 1,500 2,500
Following information is also available:

(i) A sales order for 3,000 toy cars @ Rs. 1,100 per unit is in hand. The remaining
units can be sold at normal selling price after incurring selling cost of Rs. 150 per
unit.
(ii) Doll houses include 1,000 defective units with no scrap value. 20% of the
remaining doll houses are damaged and can be sold at 50% of cost.
(iii) Stuffed toys costing Rs. 420,000 were accidentally damaged and are beyond repair.
KPC plans to sell these toys as scrap. Proceeds from such sale are estimated at
Rs. 175,000 and the sale would require transportation cost of Rs. 6,300.
(iv) All minion costumes have manufacturing faults and can be sold in present condition at
Rs. 1,350 per unit. However, 60% of the units can be rectified at a cost of
Rs. 200 per unit after which they can be sold at Rs. 1,600 per unit.
Required:
Calculate the amount at which above inventory items should be carried as on
31 December 2017 in accordance with IAS 2 ‘Inventories’. (08)
Q.2 (a) Define ‘performance obligation’. List any six examples of promised goods and
services as per IFRS 15 ‘Revenue from Contracts with Customers’. (05)
(b) On 1 October 2017, Galaxy Telecommunications (GT) entered into a contract with a
bank for supplying 20 smart phones to the bank staff with unlimited use of mobile
network for one year. The contract price per smart phone is Rs. 34,650 and the price is
payable in full within 10 days from the date of contract. At the end of the contract, the
phones will not be returned to GT.
The entire amount received as per contract was credited by GT to advance from
customers account. The smart phones were delivered on 1 November 2017.
If sold separately, GT charges Rs. 18,000 for a smart phone and a monthly fee of
Rs. 1,800 for unlimited use of mobile network.
Required:
Prepare adjusting entry for the year ended 31 December 2017 in accordance with
IFRS 15 ‘Revenue from Contracts with Customers’. (04)

Q.3 Following information pertains to Nadir Limited:
Extract from statement of profit or loss for the year ended 31 December 2017
Rs. in ‘000
Profit before taxation Taxation 8,955
Profit after taxation (2,945)
6,010
Extract from statement of financial position as on 31 December 2017

2017 2016 2017 2016
Equity and liabilities Assets
---- Rs. in ‘000 ---- ---- Rs. in ‘000 ----
Share capital Property plant &
12,40010,000
Share premium 1,400 - equipment – net 21,400 15,800
Retained earnings 13,450 12,440 Current assets:
Surplus on revaluation 4,000 - Stock-in-trade 5,600 5,750
Non-current liabilities: Trade receivables – net 6,840 4,446
Long-term loans 4,100 5,000 Other receivables 2,385 800
Current liabilities: Cash & bank 2,355 3,204
Trade payables 1,900 1,400
Accruals & other payables 680 660
Tax liability 650500
38,58030,000 38,58030,000
Other information:
(i) Shares issued during the year were as follows:
 10% bonus shares in March 2017.
 Right shares in July 2017.
(ii) During the year, a plant costing Rs. 9,500,000 and having a book value of
Rs. 5,200,000 was disposed of for Rs. 4,800,000 of which Rs. 1,800,000 are still
outstanding.
(iii) Depreciation for the year amounted to Rs. 7,350,000.
(iv) Financial charges for the year amounted to Rs. 1,100,000. Accrued financial
charges as on 31 December 2017 amounted to Rs. 112,000 (2016: Rs. 48,000).
(v) Provision for doubtful trade receivables is maintained at 5%.
Required:
IAS 7 ‘Statement of Cash Flows’ using indirect method. (15)
Q.4 Following information pertains to Dhaka Enterprises (DE).
Jul-2017Aug-2017Sep-2017Oct-2017Nov-2017Dec-2017
Production costs
------------------------------------ Rs. in '000 -----------------------------------
Direct material 1,375 1,500 1,750 1,250 1,125 1,000
Direct labour 990 1,080 1,260 900 810 720
Overheads 3,240 3,400 3,800 3,200 2,700 2,600
5,605 5,980 6,810 5,350 4,635 4,320
----------------------------------- No. of units -----------------------------------

Production 550 600 700 500 450 400
DE is preparing its budget for the next year, therefore, it would like to determine the
relationship between production units and cost.
Required:
(a) Using regression analysis, determine the line of best fit for production units and
overheads. (Show all necessary workings) (06)
(b) Compute total prime cost and overheads for production of 650 units. (02)

Q.5 A and B were partners sharing profits and losses in the ratio of 3:2. The balance sheet as
on 31 December 2017 is given below:
Equity and liabilities Rupees Assets Rupees

Capital – A 35,810 Goodwill 2,000
Capital – B 26,540 Fixed assets – net 42,000
Profit and loss account 10,000 Investments 8,000
Trade creditors 32,650 Trade debtors 27,000
Provision for doubtful debts (2,000)
Stock-in-trade 20,000
Cash and bank balances 8,000
105,000 105,000
On 1 January 2018, they agreed to admit C for 1/4th share in the partnership. On
admission of C, it has been agreed that:
 value of goodwill of the firm is Rs. 32,000. Goodwill is to be written-off from the books.
 assets would be revalued as follows:
Revalued amount
Assets
(Rs.)
Fixed assets Investments Stock-in-trade
60,000
9,000
18,000
 provision for doubtful debts is to be made equal to 5% of the debtors.
C has contributed Rs. 38,000 in cash. Capital accounts of the old partners in the new
partnership would be adjusted in their new profit sharing ratio on the basis of C’s
capital. Any excess or deficiency would be adjusted through cash.
Required:
Prepare partners’ capital accounts on admission of C. (12)
Q.6 (a) Following information pertains to a building acquired by SK Limited (SKL) on

1 July 2012 for Rs. 360 million:
(i) The building is being depreciated on straight-line basis over 10 years.

(ii) SKL uses revaluation model for subsequent measurement of buildings. It
accounts for revaluation on net replacement value method. The details of
revaluations as carried out by independent valuer are as follows:
Fair value
Revaluation date
(Rs. in million)
31 December 2013
323
31 December 2015
208
31 December 2017
167
(iii) There is no change in useful life of the building.

(iv) SKL transfers the maximum possible amount from the revaluation surplus to
retained earnings on an annual basis.
(v) SKL’s financial year ends on 31 December.
Required:
Prepare entries to record revaluation surplus/loss on each of the above revaluation
date. (Entries to record depreciation expense, incremental depreciation and elimination of
accumulated depreciation are not required) (11)

(b) Following information pertains to three exchange transactions relating to fixed assets:
(i) (ii) (iii)

--------- Rs. in million ---------
Cash received/(paid) 1.1 (2.1) -
Assets given-up:
Original cost 10.3 12.4 14.5
Book value 6.4 7.3 3.4
Estimated fair value 8.5 6.6 4.6
Assets received:
Estimated fair value 7.1 9.0 4.1
 In case of transaction (i), fair values of both assets are reliably measurable.
 In case of transaction (ii), fair value of the asset received is clearly more evident.
 In case of transaction (iii), fair value of neither asset is reliably measurable.
Required:
Compute gain or loss on disposal of fixed assets in each of the above transactions. (06)
Q.7 Boom Limited (BL) is a manufacturer of sports goods. Following financial statements for
the year ended 31 December 2017 have been submitted to the Chief Executive Officer
(CEO).
Statement of profit or loss
Rs. in ‘000
Revenues 21,000
Cost of sales (17,500)
Gross profit 3,500
Operating expenses (1,900)
Finance cost (450)
Taxation (345)
Profit after tax 805

Rs. in ‘000
Property, plant and equipment 7,500
Current assets 1,500
9,000
Share capital 4,000

Reserves 1,000
Non-current liabilities 3,000
Current liabilities 1,000
9,000
Although performance of BL has improved from the last year, CEO wants to compare
the results with other companies operating in sports manufacturing industry. In this respect,
following industry data has been gathered:
Gross profit margin 23.5%
Net profit margin 7.7%
Current ratio 2.75
Gearing ratio 50:50
Return on non-current asset 32.9%
Return on capital employed 27.4%
Return on equity 31.3%
Required:
(a) Compute BL’s ratios for comparison with the industry. (04)
(b ) F or eac h r at io, g i ve on e po s sib le rea son fo r
For mo r e C A S t u f f , V i s i t N o w : w
v aria tio n fro m the in d us t ry . (0 7)
w w . m h k o r a i . b logspot.c o m
Q.8 Following information pertains to Alpha Traders (AT) for the year ended
31 December 2017:
(i) 60% goods are sold for cash to walk-in customers at list price. Remaining goods are
sold to corporate customers on credit at a trade discount of 2% on list price. They only
pay through cheques.
(ii) Balances extracted from AT’s records:
31-Dec-201731-Dec-2016
--------- Rs. in ‘000 ---------
Furniture and fittings – net ? 10,175
Stock-in-trade 14,500 12,300
Trade debtors – gross 5,900 4,400
Prepaid rent 180 145
Cash in hand 430 750
Trade creditors 9,700 8,500
Accrued salaries 310 460
(iii) All furniture and fittings were purchased on 1 July 2015 and are depreciated using
straight-line method at 5% per annum.
(iv) Provision for doubtful debts is maintained at 4%. During the year, balances
totalling Rs. 260,000 were written-off.
(v) Summarised bank statement:
Deposits Rs. in ‘000 Withdrawals Rs. in ‘000
Opening balance 9,800 Utilities 1,400
Corporate customers 34,240 Rent, rates and taxes 2,100
Cash 56,380 Repairs & maintenance 2,800
Insurance claim 5,500 Cash 6,320
Return outward 2,170 Creditors 87,200
Delivery charges recovered 330 Delivery truck (second hand) 2,300
Miscellaneous expenses 1,300
108,420 108,420
(vi) Cash payments for the year:

Rs. in ‘000
Salaries 6,500
Repairs & maintenance Drawings 500
?
(vii) Insurance claim represents cost of goods lost in transit during the year.
(viii) A cheque of Rs. 300,000 issued on 15 December 2017 against rent, has not yet
been presented whereas cheque from a debtor, deposited on 31 December 2017
amounting to Rs. 3,200,000 is not appearing in the bank statement.
(ix) Creditors are paid through cheques only. Payments made to creditors include:
 Rs. 48,000,000 after availing discount of 4%.
 A cheque of Rs. 1,900,000 issued to a supplier in December 2016. No
discount was allowed by the supplier on this payment.
(x) The delivery truck was purchased on 1 March 2017. Prior to use, the truck was
repaired at a cost of Rs. 260,000. The repair work was completed on 31 March
2017. The amount is included in payment for repairs and maintenance above.
Depreciation on delivery truck is charged on a straight-line basis at 12.5% per
annum.
Required:
Prepare the following:
(a)
Statement of profit or loss for the year ended 31 December 2017. (12)
(b)
Statement of financial position as on 31 December 2017. (08)
(THE END)
For more CA Stuff, Visit Now: www.mhkorai.blogspot.com

Suggested Answers
Ans.1 Kidz Party & Co.

Inventory valuation as on 31 December 2017
Normal Cost to Inventory
Cost NRV
Units selling price sell valuation at lower
per unit per unit
per unit per unit of cost and NRV
1 2 3 4 5=(3–4) 6
----------------------------------------- Rupees -----------------------------------------
Toy cars 7,000 1,250 1,200 150 1,050 NRV 7,350,000
3,000 1,250 1,100 - 1,100 NRV 3,300,000
10,000 10,650,000
Doll houses 1,000 1,800 - - NRV -

800 1,800 900 - 900 NRV 720,000
(5,000-1,000)×20% (1,800×50%)
3,200 1,800 2,700 - 2,700 Cost 5,760,000
5,000 6,480,000
Stuffed toys 350 1,200 500 18 482 NRV 168,700

(420,000÷1,200) (175,000÷350) (6,300÷350)
1,500 1,200 1,900 - 1,900 Cost 1,800,000
1,850 1,968,700
Minion costumes 522 1,500 1,600 200 1,400 NRV 730,800

(870×60%)
348 1,500 1,350 - 1,350 NRV 469,800
870 1,200,600
20,299,300
Ans.2 SK Limited
(a) Performance obligation:
A performance obligation is a promise in a contract with a customer to transfer to the
customer either:
 a good or service (or a bundle of goods or services) that is distinct; or
 a series of distinct goods or services that are substantially the same and that have the
same pattern of transfer to the customer.
Examples of promised goods and services

(i) Goods produced by an entity for sale
(ii) Resale of goods purchased by an entity
(iii) Resale of rights to goods or services purchased by an entity
(iv) Performing a contractually agreed-upon task for a customer
(v) Standing ready to provide goods or services
(vi) Providing a service of arranging for another party to transfer goods or services to
the customer
(vii) Granting rights to goods or services to be provided in the future that a
customer can resell
(viii) Constructing, manufacturing or developing an asset on behalf of a customer
(ix) Granting licences
(x) Granting options to purchase additional goods/services
(b) Adjusting entry Debit Credit

------ Rupees ------
Advance from customers 378,000
Revenue (Smart phones) 315,000
*
(18,000÷ 39,600×34,650) ×20
(Network-usage) *
(21,600÷ 39,600×34,650)×{20×(2÷12)} 63,000
Full price 18,000+1,800×12=39,600
For more CA Stuff, Visit Now: www.mhkorai.blogspPaoge t1

Suggested Answers
Ans.3 Nadir Limited

Statement of cash flows for the year ended 31 December 2017
Rs. in '000
Cash flows from operating activities:
Adjustment for:
Depreciation 7,350
Loss on disposal 5,200–4,800 400
Financial charges 1,100
Increase in provision for doubtful receivables (6,840×5÷95) – (4,446×5÷95) 126
17,931
Working capital changes:
31-12-2017 31-12-2016
Stock-in-trade 5,600 5,750 150
Other receivables 2,385–1,800 585 800 215
Trade receivables-gross (6,840÷0.95);(4,446÷0.95) 7,200 4,680 (2,520)
Trade payables (1,900) (1,400) 500
Accrued exp./Other payables (680–112);(660–48) (568) (612) (44)
Increase in working capital (1,699)
Cash generated from operations 16,232
Payment of interest 1,100 –112+48 (1,036)

Payment of taxes 2,945–650+500 (2,795)
12,401
Additions to PP&E 15,800–7,350–5,200+4,000–21,400 (14,150)
Disposals of PP&E 4,800–1,800 3,000
(11,150)
Issue of right shares (12,400–10,000)–(10,000×10%)+1,400 2,800
Loan repaid 5,000–4,100 (900)
Cash dividend paid [(12,440+6,010)–(10,000×10%)]–13,450 (4,000)
(2,100)
Net cash outflows (849)
Cash and cash equivalent at beginning of the year 3,204
Cash and cash equivalent at year-end 2,355
Ans.4 Dhaka Enterprises

(a) Computation of variable and fixed cost using linear regression analysis
Factory
Units
Overheads xy
Month x2
x y
---------------------------------Rs. in '000 ---------------------------------
Jul-17 550 3,240 302,500 1,782,000
Aug-17 600 3,400 360,000 2,040,000
Sep-17 700 3,800 490,000 2,660,000
Oct-17 500 3,200 250,000 1,600,000
Nov-17 450 2,700 202,500 1,215,000
Dec-17 400 2,600 160,000 1,040,000
n=6 3,200 18,940 1,765,000 10,337,000

Suggested Answers
𝑛(∑ 𝑥𝑦) − (∑ 𝑥)(∑ 𝑦)

Variable overheads per unit =
𝑛(∑ 𝑥2) − (∑ 𝑥)(∑ 𝑥)
(6 × 10,337,000) − (3,200 × 18,940)
⇒ ⟹ 4.04
(6 × 1,765,000) − (3,200)2
(∑ 𝑦)(∑ 𝑥2) − (∑ 𝑥)(∑ 𝑥𝑦)

Fixed overheads =
𝑛(∑ 𝑥2) − (∑ 𝑥)(∑ 𝑥)
(18,940 × 1,765,000) − (3,200 × 10,337,000)
⇒ ⟹ 1,002
(6 × 1,765,000) − (3,200)2
Regression line: 𝑦 = 1,002 + 4.04𝑥
(b) Total prime cost and overhead costs

Rs. in ‘000
Prime cost:
Direct material 650×(1,375÷550)* 1,625
Direct labour 650×(990÷550)* 1,170
2,795
Overheads:
Variable 650×4.04 (a) 2,626
Fixed (a) 1,002
3,628
6,423
*These can be calculated using any production level
Ans.5 Partners' capital accounts

A B C A B C
------------ Rs. ------------ ------------ Rs. ------------
Goodwill (written-off in the new ratio) 14,400 9,600 8,000 Opening balance 35,810 26,540 -
Bank (Balancing) 2,000 4,000 - Profit and loss account 6,000 4,000 -
Revaluation gain (W-2) 10,590 7,060 -
Closing balance Goodwill (in the old ratio) 18,000 12,000 -
(30,000÷0.25)×45%; 30% 54,000 36,000 30,000 Cash and bank - - 38,000
70,400 49,600 38,000 70,400 49,600 38,000
W-1: Profits and losses sharing ratio on admission of C A B C

Profit sharing ratio before admission of C 60% 40% -
C admitted to 1/4th share in the firm (0.6×0.25); (0.4×0.25) -15% -10% 25%
45% 30% 25%
OR
9 6 5
W-2: Revaluation gain/loss on admission of C Gain/(loss)

(Rs.)
Investments 9,000–8,000 1,000
Fixed assets 60,000–42,000 18,000
Provision for doubtful debts: 2,000–(27,000×5%) 650
Stock in trade 18,000–20,000 (2,000)
Net revaluation gain 17,650

Suggested Answers
Ans.6 SK Limited
(a) Accounting entries for revaluation of building
Debit Credit
Date Description Rs. in million
31-Dec-2013 Building 17.00
31-Dec-2015 Revaluation surplus 13.00

Revaluation loss (P&L account) 26.00
Building 39.00
31-Dec-2017 Building 23.00

Revaluation gain (P&L account) 18.00
W-1: Revaluation surplus/(loss) of building: 31-Dec-2013 31-Dec-2015 31-Dec-2017

--------------- Rs. in million ---------------
Fair value 323 208 167
Book value (306) (247) (144)
360-(360÷10×1.5) 323-(323÷8.5×2) 208-(208÷6.5×2)
Revaluation surplus/(loss) 17 (39) 23
Adjustment:
Revaluation surplus 17–(17÷8.5 years×2years) - 13 -
Revaluation loss 26–(26÷6.5years×2years) - - (18)
Revaluation surplus/(loss) 17 (26) 5
(b) Gain/(loss) on exchange of fixed assets:

Trade-in
Book value Gain/(Loss)
value
1 2 3=(1-2)
---------------- Rs. in million ----------------
(I) Where fair value of both the assets is given:
FV of asset given-up is used as trade in value. 8.5 6.4 2.1
(II) Where fair value of receiving asset is clearly more

evident:
FV of asset received is more evident so 'FV of asset
received minus cash paid' is used as trade in value. (9.0-2.1) 6.9 7.3 (0.4)
(III) Where fair value of neither asset is reliably

measurable:
Asset received would be recorded at book value of
asset given-up. 3.4 3.4 -

Suggested Answers
Ans.7 Boom Limited

Comparison of BL's ratios with industry average and possible reasons for variation
Ratios Industry's
(a) BL's ratios (b) Reasons for variation from industry
ratios
Gross profit 16.67% 23.50% Lower than industry
margin  Purchase of raw material at higher prices
3,500 as compared to its competitors
× 100
21,000  Inability to obtain economies of scale in
production as compared to its
competitors
 Higher production costs due to
inefficiencies
 Deliberately keeping selling prices lower
to gain the market share
Net profit 3.83% 7.70% Lower than industry
margin  BL’s gross profit margin is 6.8% lower
805 than industry (16.6% Vs 23.5%) whereas
× 100
21,000 net profit margin is only 3.9% lower
which indicates that BL’s operating
expenses as a percentage of sales are
approximately 2.9% lower than the
industry
Current ratio 1.50 2.75 Lower than industry
 Since gearing ratio is lower than the
1,500 industry so BL might have:
1,000  obtained running finances as
compared to long-term financing
by the industry
 availed extended credit terms from
suppliers
 Low inventory levels are maintained by
BL
 Shorter credit terms are given to debtors
Gearing ratio 37.5: 62.5 50 : 50 Lower than industry
 Difficulty in raising long-term finance
3,000 from banks due to low profits
4,000 + 1,000 + 3,000  Running finance or extended credit terms
from suppliers are available for BL
Return on non- 21.33% 32.90% Lower than industry
current assets  Lower profit margins
1,150 + 450  Relatively newer non-current assets have
× 100
7,500 higher carrying value
Return on 20.00% 27.40% Lower than industry
capital employed  Lower profit margins
1,150 + 450
× 100  High shareholder’s equity
4,000 + 1,000 + 3,000
Return on 16.10% 31.30% Lower than industry

equity  Lower profit margins
805  Higher shareholder’s equity/low gearing
× 100
4,000 + 1,000 ratio

Suggested Answers
Ans.8 Alpha Traders

(a) Statement of profit or loss for the year ended 31 December 2017
Rs. in '000
Sales
Credit sales (W-1) 39,200
Cash sales 39,200÷(100÷98)×(60÷40) 60,000
99,200
Cost of goods sold:
Opening stock (12,300)
Purchases (W-2) (88,500)
Return outward 2,170
Goods lost 5,500
Closing stock 14,500
(78,630)
Gross profit 20,570
Operating expenses:
Utilities (1,400)
Rent, rates and taxes 2,100+(145–180)+300 (2,365)
Repair and maintenance 2,800+(500-260) (3,040)
Salaries 6,500+(310–460) (6,350)
Depreciation - Furniture and fittings 10,175×(5÷92.5) (550)
Depreciation - Delivery truck (2,300+260)×(1÷8)×(9÷12) (240)
Miscellaneous expenses (1,300)
Bad debts 260+(5,900×4%)–(4,400×4%) (320)
Stock lost (5,500-5,500) -
(15,565)
5,005
Miscellaneous income:
Delivery charges 330
Discount income (W-2) 2,000
2,330
Net profit 7,335
W-1: Trade receivables - gross Rs. in '000

Opening balance 4,400 Bank 34,240+3,200 37,440
Credit sales (balancing) 39,200 Bad debts 260
43,600 43,600
W-2: Trade payables Rs. in '000

Bank 87,200–1,900 85,300 Opening balance 8,500
Discount rec. 48,000×4÷96 2,000 Credit purchases (balancing) 88,500
97,000 97,000

Suggested Answers
(b) Alpha Traders

Statement of financial position as on 31 December 2017 Rs. in '000
Assets
Non-current assets
Furniture and fittings - net (10,175–550) (PL) 9,625
Delivery truck - net (2,300+260)–PL 240 2,320
11,945
Current assets:
Trade debtors - gross 5,900
Provision for bad and doubtful debts 5,900×4% (236)
5,664
Stock-in-trade 14,500
Prepaid rent 180
Cash 430
Bank (5,000-300+3,200) 7,900
28,674
40,619
Equity and liabilities
Equity
Opening capital
(9,800-1,900) +(4,400×0.96)+(10,175+12,300+145+750)–(8,500+460) 26,534
Net profit 7,335
Drawings (W-3) (3,260)
30,609
Current liabilities
Trade creditors 9,700
Accrued salaries 310
10,010
40,619
W-3: Cash account Rs. in '000

Opening balance 750 Bank 56,380
Withdrawals from the bank 6,320 Salaries 6,500
Cash sales PL 60,000 Repair and maintenance 500
Closing balance 430
Drawings (balancing) 3,260
67,070 67,070
(The End)


Q.1 A, B and C had been in partnership for many years sharing profits and losses in the ratio
of their fixed capital i.e. 3:2:1. The assets and liabilities appearing in the firm’s statement
of financial position as at 31 December 2016 were as follows.
Particulars Rupees
Non-current assets 500,000
Stocks 250,000
Debtors 200,000
Cash 300,000
Current liabilities 150,000
On 31 December 2016, it was decided to dissolve the partnership. On the said date, the
current account balances of the partners were as follows:
A B C
Rs. 50,000 Rs. 30,000 Rs. (15,000)
Assets and liabilities were realized/settled as under:

(i) Debtors were taken by B at agreed value of Rs. 190,000.
(ii) A non-current asset having book value of Rs. 70,000 was taken by B at an agreed
value of Rs. 60,000.
(iii) Certain assets which had not been recorded in the books were taken by C for
Rs. 80,000.
(iv) Remaining non-current assets and stocks were sold for cash amounting to Rs. 550,000
and Rs. 225,000 respectively.
(v) Current liabilities were settled at Rs. 155,000.
(vi) Dissolution expenses of Rs. 30,000 were paid by A.
Required:
Prepare the following accounts to show the effect of dissolution:
(a)
Realization (05)
(b)
Partners’ capital (05)
(c)
Cash (02)
Q.2 The following information pertains to Sherdil Limited (SL):

(i) Buildings and equipment were acquired on 1 January 2014 for Rs. 450 million and
Rs. 50 million respectively.
(ii) The relevant information relating to both assets is summarised below:
Depreciation Subsequent
Assets Life/rate
method Straight line Reducing
measurement
balance Annual revaluation Cost
Buildings Equipment 20 years
10%
SL transfers the maximum possible amount from revaluation surplus to retained

earnings on an annual basis.
(iii) The revalued amount of buildings as determined by Accurate Valuers (Private)
Limited, an independent valuation company, on 1 January 2015 and 2016 was
Rs. 456 million and Rs. 378 million respectively.
(iv) Equipment costing Rs. 35 million was purchased on 1 August 2015. Half of the
For more eCquAipmeSnttpuurfchfa,seVd oins1iJtanNuaory w201:4

w
waswdiswpos.emd ohff okno30rJaunie.b201l6o. gspot.com
Required:
In accordance with International Financial Reporting Standards, prepare a note on ‘Property
plant & equipment’ (including comparative figures) for inclusion in SL’s financial statements
for the year ended 31 December 2016. (18)
Q.3 Following is the trial balance of Younus Limited (YL) as on 30 June 2017:
Debit Credit
Particular Rs. in ‘000 Particular Rs. in ‘000
Property, plant and equipment 200,000 Share capital (Rs. 10 each) 35,000
Receivables and advances 13,000 Un-appropriated profit 66,820
Office rent 1,120 5% Bank loan 52,000
Opening stock 54,000 Trade payables 10,000
Taxation 6,000 Accumulated dep. – 30 June 2017 120,000
Cash and bank 40,000 Sales 240,000
Purchases 170,000
Selling expenses 20,000
Administrative expenses 17,000
Financial charges 2,700
523,820 523,820
The following additional information is available:

(i) On 1 July 2016 engine of a delivery truck seized and was replaced at a cost of
Rs. 2 million on the next day. Rs. 1.2 million was paid in cash whereas the
remaining amount was adjusted against the trade in value of the seized engine. The
payment was charged to selling expenses.
The delivery truck was purchased on 1 July 2010. The cost of the delivery truck is
Rs. 5 million of which approximately Rs. 1 million is attributable to the seized engine.
Delivery trucks are depreciated over their useful life of 10 years.
(ii) Certain goods despatched on 28 June 2017 reached YL’s warehouse on 2 July
2017. Break-up of the amount paid against these goods is as follows:
Rs. in ‘000
20% advance to supplier 500
Insurance in transit 50
Delivery charges 100
The above amounts are appearing under the head ‘Receivables and advances’.
(iii) Cost of stock in hand as on 30 June 2017 is Rs. 50 million.

(iv) During the year, YL gave free samples to certain customers. The selling price and
gross profit on these goods was Rs. 5.4 million and 20% of cost respectively. No
adjustment has been made in the books in this regard.
(v) Office rent pertains to the period from July 2016 to December 2017 and is inclusive of
an upward revision of 10% with effect from 1 January 2017.
(vi) Bank loan was obtained on 1 July 2015. The principal is repayable in 20 equal
quarterly instalments. The principal along with interest is paid on the first day of the
next quarter.
(vii) Tax expense for the year is Rs. 7.7 million.
Required:
Prepare statement of financial position as at 30 June 2017 and statement of profit or loss for
the year ended 30 June 2017 in accordance with International Financial Reporting
Standards. (20)

Q.4 The following cost data pertains to Al-Khair Limited (AKL):
Production (Units) Cost (Rs.)

90000 712,500
70000 590,000
40000 440,000
20000 300,000
AKL has identified that total fixed costs increase by 20% when production exceeds
35000 units and the average variable costs for all units increase by 5% if production exceeds
75000 units.
Required:
(a) Construct total cost functions for different production ranges using high/low method.
(b) Determine the most feasible option if AKL can sell 25000, 55000 and 80000 units at
Rs. 20, Rs. 17 and Rs. 13 respectively. (09)
Q.5 Progressive Steel Limited (PSL) commenced business in 2015. The following comparative
data pertains to the year ended 30 June 2017:
PSL Industry
Description
2017 2016 2017
Gross profit margin 13% 13% 16%
Net profit margin 8% 7% 10%
Return on shareholders’ equity 22% 18% 25%
Current ratio 1.2 1.6 1.5
Debt to equity ratio 40:60 30:70 50:50
Cash operating cycle in days 119 135 118
Required:
For each ratio/data give possible reasons for variation from comparative and industry data. (12)
Q.6 (a) Jupiter Limited (JL) entered into a two year contract on 1 January 2017, with a
customer for the maintenance of computer network. JL has offered the following
payment options:
Option 1: Immediate payment of Rs. 200,000.
Option 2: Payment of Rs. 110,000 at the end of each year.
The applicable discount rate is 6.596%.
Required:
Prepare journal entries to be recorded in the books of JL under each option over (05)
the period of contract.
(b) Pluto Limited (PL) sells industrial chemicals at following standalone prices:
Rupees
Products
(per carton)
C-1
100,000
C-2
90,000
C-3
110,000
PL regularly sells a carton each of C-2 and C-3 together for Rs. 170,000.
Required:
Calculate the selling price to be allocated to each product, in case PL offers to sell one
c art on o f e a ch p ro du ct f or a to tal
For more C A S t u f f , V is i t N
pr ice of
o w : w w w .m
Rs. 26 0,0 0 0. hkorai.blogspot.c(0o5)
m
(c) An entity shall recognise revenue when (or as) the entity satisfies a performance
obligation by transferring a promised good or service to a customer. An asset is
transferred when (or as) the customer obtains control of that asset.
Required:
List the different indicators of transfer of control. (04)
Q.7 Saleem is the owner of S-Mart, a grocery store. His accountant resigned and left on
1 January 2017. Saleem suspects that the previous accountant was involved in some sort of
misappropriation. The information available with him is as follows:
(i) Summary of bank statement:

Receipts Rupees Payments Rupees
Balance as at 1 Jan 2016 250,000 Suppliers 1,807,500
Cheques from debtors 824,000 Salaries 48,000
Cash sales 1,450,000 Rent 72,000
Sale of old vehicle on 1 Jan 2016 15,000 Utilities 36,000
Other expenses 24,750
New vehicle on 1 Mar 2016 230,000
Balance as at 31 Dec 2016 320,750
2,539,000 2,539,000
(ii) Other balances extracted from the records maintained by the previous accountant:
31-Dec-201631-Dec-2015
Particulars
---------- Rupees ----------
Furniture and fixtures – WDV 555,000 550,000
Equipment – WDV 64,000 80,000
Vehicle – WDV 210,000 18,500
Inventory 215,000 250,000
Debtors 340,000 260,000
Advance rent - 3,000
Cash in hand 31,510 45,000
Creditors 354,500 100,000
Salaries payable 22,000 18,000
(iii) Before depositing the receipts from cash sales in the bank, Saleem took Rs. 12,000 per
month for personal use. All other payments were made through bank and the debtors
settled their accounts through cheques.
(iv) The creditors have confirmed the balances due from them. However review of the
statement provided by one of the creditors indicates that goods returned for cash
amounting to Rs. 24,000 were not recorded in the books.
(v) Unpaid invoice for furniture purchased during the year for Rs. 45,000 is included in
creditors.
(vi) The margin on cash sales and credit sales is 20% and 25% respectively. From 1 July
2016, prices to cash customers were further reduced by 6% due to which quantity sold
against cash in the 2 nd half of the year increased by 25% as compared to the first half of
the year.
(vii) All the debtors confirmed their balances except an amount of Rs. 50,000. On
investigation it was found that the related goods had been issued against fake invoices.
Required:
(a) Determine the amount of suspected fraud. (04)
(b) Prepare statement of profit or loss for the year ended 31 December 2016. (11)
(THE END)

Suggested Answers
Ans.1 (a) Realization

Rupees Rupees
Non-current assets 500,000 Current liabilities 150,000
Stock 250,000 Non-current assets (Cash) 550,000
Debtors 200,000 Stock (Cash) 225,000
Current liabilities (Cash) 155,000 Debtors Capital B 190,000
Dissolution exp. (by A) 30,000 Capital B 60,000
Capital C 80,000
Gain on realization
A 60,000
B 40,000
C 20,000
1,255,000 1,255,000
(b) Partnership capital account A B C Total

------------------------ Rupees ------------------------
Opening balance – in P&L ratio
(W-1) 517,500 345,000 172,500 1,035,000
Dissolution expenses 30,000 - - 30,000
Non-current assets taken over by B - (60,000) - (60,000)
Assets taken on by C - - (80,000) (80,000)
Debtors - (190,000) - (190,000)
Gain on realization 60,000 40,000 20,000 120,000
Current Account balances 50,000 30,000 (15,000) 65,000
Final settlement (Cash) (657,500) (165,000) (97,500) (920,000)
- - - -
W-1: Partners’ capital Rupees

Non-current assets 500,000
Stock 250,000
Debtors 200,000
Cash 300,000
1,250,000
Current liabilities (150,000)
Net assets 1,100,000
Less: Current account balances (65,000)
Partners’ capital 1,035,000
(c) Cash
Rupees Rupees
Opening balance 300,000 Settlement of liabilities 155,000
Realization of assets 775,000 Final settlement A 657,500
B 165,000
C 97,500
1,075,000 1,075,000
Page 1 of

Suggested Answers
Ans.2
Property, plant and equipment 2016
Building Equipment
----------- Rs. in million -----------
Cost / Revalued amount
Opening 456.00 85.00
Cancellation (24.00)
Revaluation Surplus [28.5 – (28.5÷19)] (27.00)
Revaluation loss (27.00)
Disposal (25.00)
Closing 378.00 60.00
Accumulated depreciation
Opening 24.00 10.96
Disposal [2.5 + 2.25+ 1.01] (5.76)
Depreciation
(378÷18) 21.00
[(74.04-20.25)×10% + (20.25×10%×6÷12)] 6.39
Closing 21.00 11.59
Opening net book value 432.00 74.04
Closing net book value 357.00 48.41
Property, plant and equipment 2015

Building Equipment
----------- Rs. in million -----------
Cost / Revalued amount
Opening 450.00 50.00
Revaluation 28.50
Addition 35.00
Closing Cost 456.00 85.00
Accumulated depreciation
Opening 22.50 5.00
Disposal
Depreciation
(456 ÷19) 24.00
[(45×10%)+(35×10%×5÷12)] 5.96
Closing 24.00 10.96
Opening net book value 427.50 45.00
Closing net book value 432.00 74.04
Measurement base Revaluation model Cost model

Useful life 20 years 10 years
Depreciation method Straight line Reducing balance
The last revaluation was performed on 1 July 2016 by Accurate Valuers (Private) Limited, an independent
firm of valuers. Revaluations are performed annually.
Carrying value had the cost model been used instead 382.50 405.00
(450×0.80) (450×0.90)
Page 2

Suggested Answers
Ans.3 Younus Limited

As at 30 June 2017
2017
Rs. in ‘000
Non-current assets
Property, plant and equipment (W-1) 81,200
Current assets
Stock in trade [50,000+ (500÷0.2) + 50+ 100] 52,650
Receivables and advances [13,000–(500+50+100)] 12,350
Short term prepayments (1120 ÷ 1.6 × 0.55 ) 385
Cash & Bank 40,000
105,385
Total assets 186,585
Equity
Issued subscribed and paid up capital 35,000
Unappropriated profit (66,820+18,415) 85,235
120,235
Non-current liabilities
Long term loan (52000 – 16,000) 36,000
Current liabilities
Trade and other payables (10,000+(2,500–500) 12,000
Accrued markup (52,000 × 5% × 3 ÷12 ) 650
Current portion of long term financing (52,000 × 4 ÷ 13) 16,000
Taxation-net (7,700–6,000) 1,700
30,350
Total equity and liabilities 186,585
Younus Limited
Statement of profit or
loss
For the year ended 30 June 2017
2017
Rs. in ‘000
Sales 240,000
Cost of sales (54,000+170,000–50,000 -4,500) (169,500)
Gross profit 70,500
Selling and distribution expenses (20,000 –1,200+500–100+ 4,500) (23,700)
Administrative expenses (17,000+ 735) (17,735)
Operating profit 29,065
Financial charges ( 2,700+ 650) (3,350)
Other operating income ( 800– 400) 400
Profit before taxation 26,115
Taxation (7,700)
Profit for the year 18,415
W-1: Property, plant and equipment Cost Accumulated Book value

Rs. in ‘000
Given 200,000 120,000 80,000
Reversal of old engine depreciation (1,000×10%) (100) 100
Disposal of old engine (1,000) (600) (400)
Cost of new engines 2,000 2,000
Depreciation of new engine (2,000÷4×25%) 500 (500)
201,000 119,800 81,200
Page 3

Suggested Answers
Ans.4 (a) Units Cost (Rs.)

High 70,000 590,000
Low 40,000 440,000
30,000 150,000
Workings: Rupees
Variable cost 150,000/30,000 5.00
Total cost for 20,000 units 300,000

Variable cost at 20,000 units (5×20,000) 100,000
Fixed cost if production is upto 35,000 units 200,000
Fixed cost if production exceeds 35,000 units (200,000×1.2) 240,000
Increase in variable cost if production exceeds 75,000 units (5×1.05) 5.25
Cost function
Up to 35,000 units: 200,000+5x
35,001–75,000 units: 240,000+5x
More than 75,000 units: 240,000+5.25x
(b)
Ans.5 Reasons for fluctuation with

Quantity Ratios Sales (Rs.) Cost (Rs.)
previous year Profit (Rs.) ReasonRemarks
for fluctuation with Industry
25,000
Gross profit 500,000 325,000
In line with previous year. No variation.175,000Lower than industry
margin
55,000 935,000 515,000 420,000 The company
Feasible isoption
in initial phase and may
have kept the selling prices lower than the
80,000 1,040,000 660,000 380,000
industry to gain the market share.
 The company may not have been able to
purchase raw material at prices which is
available to its competitors.
 The company may not have been able to
obtain economies of scale in its
production which may have been obtained
by its competitors.
 Possibility of higher production costs.
Net profit Higher than previous year: Lower than industry however, the difference
margin  Tight control over operating costs. is mainly attributed to lower gross profit
 Increase in other income. margin.
 Decrease in fixed cost per unit due to
increase in sale.
Return on Higher than previous year: Lower than industry

shareholder's  Reduction in tax rates.  Lower gross profit and net profit margins.
equity  Reduction in interest rates.  Lower leverage.
 Decrease in equity might be due to  Higher net assets resulting in higher
buyback of shares. equity.
 Distribution of profits from previous year
which resulted in decrease in equity.
Page 4

Suggested Answers
Current ratio Lower than previous year: Lower than industry

 The company might have obtained  Since the debt equity ratio is lower than
running finance facility to fund it's the industry, company might have
operations in the current year. obtained running finance or might have
 Long term loan payments might have availed extended credit terms from
become due in the next 12 month, which suppliers.
decreases the current ratio.
 Decrease in current assets due to better
inventory management/ reduction in
credit period of debtors.
Debt to equity Higher than previous year Lower than industry
ratio  Decrease in reserves due to dividend pay-  Being a new entrant the company may be
out. in the phase of expansion thereby raising
 Further debt obtained during the period. debt accordingly.
 Decrease in equity might be due to
buyback of shares.
Cash operating Lower than previous year In line with industry.
cycle  Increase in current liabilities might be due
to increase in credit period.
 Decrease in current assets which might be
due to greater stock turnover or better
inventory management.
 By giving lower credit days to debtors.
Page 5

Suggested Answers
Ans.6 (a) Option 1: Lump sum payment

Debit Credit
Date Description ---------- Rupees ----------
01-01-17 Cash 200,000
Contract liability 200,000
31-12-17 Interest expense 13,193
Contract liability (200,000×6.596%) 13,193
31-12-17 Contract liability 110,000
Revenue 110,000
31-12-18 Interest expense 6,807
Contract liability 6,807
(200,000+13,192–110,000)×6.596%
31-12-18 Contract liability 110,000
Revenue 110,000
Option 2: Normal payment terms
Debit Credit
31-12-17 Cash 110,000
Revenue 110,000
31-12-18 Cash 110,000
Revenue 110,000
(b) DISCOUNT ALLOCATION
Stand alone 1st discount Price after 2nd discount Price after
Chemical price allocation 1st discount allocation 2nd discount
------------------------------------------- Rupees -------------------------------------------
C-1 100,000 - 100,000 3,704 96,296
(100,000×10,000/270,000)
C-2 90,000 13,500 76,500 2,833 73,667
(90,000×30,000/200,000) (76,500×10,000/270,000)
C-3 110,000 16,500 93,500 3,463 90,037
(110,000×30,000/200,000) (93,500×10,000/270,000)
300,000 30,000 270,000 10,000 260,000
(c) Indicators of transfer of control include the following:

 The entity has a present right to payment for the asset
 The customer has legal title
 The customer has physical possession (except in case of bill and hold, consignment
sales and repos)
 The customer has significant risks and rewards of ownership of the asset
 The customer has accepted the asset
Ans.7 (a) Loss due to defalcation Rupees

Cash embezzled through purchase returns 24,000
Stock embezzled through fake debtors (500,000×0.75) 37,500
Cash defalcated from cash sales (W-1) 50,740
112,240
W-1: Cash account Rupees
Opening balance 45,000
Add: Cash sales 1,631,250
Less: Drawings (144,000)
Payment into bank (1,450,000)
Closing balance of cash (31,510)
Cash defalcated 50,740
Page 6

Suggested Answers
(b) Statement of profit or loss ------------ Rupees ------------

Total cash sales (1,687,500 -56,250) (W-2) 1,631,250
Total credit sales (W-4) 854,000
2,485,250
Less: Cost of goods sold
Opening inventory 250,000
Purchases (W-3) 2,017,000
Less: Return outward (Alternatives are available) (24,000)
Stock misappropriated (37,500)
Less: Closing stock (215,000) (1,990,500)
Gross profit 494,750
Less: Operating expenses
Rent expenses (72,000+3,000) 75,000
Utilities 36,000
Other expenses 24,750
Loss on sale of vehicle (15,000–18,500) 3,500
Salaries expense (48,000–18,000+22,000) 52,000
Loss due to defalcation 112,240
Depreciation: Furniture (550,000+45,000–555,000) 40,000
Equipment (80,000–64,000) 16,000
Vehicle (230,000–210,000) 20,000 (379,490)
Net profit 115,260
W-2: Total cash sales

Cost Gross sales Discount (6%)
Period Ratio ----------------- Rupees -----------------
First six month 1 600,000 750,000 -
Second six months 1.25 750,000 937,500 56,250
Total (W-5)1,350,000 1,687,500 56,250
W-3: Creditors Rupees

Closing balance (354,500–45,000) 309,500
Add: Payment during the year 1,807,500
2,117,000
Less: Opening balance (100,000)
Purchases during the year 2,017,000
W-4: Debtors Rupees

Closing balance (340,000–50,000) 290,000
Add: Receipts during the year 824,000
1,114,000
Less: Opening balance (260,000)
Credit sales 854,000
Cost of goods sold credit sales (854,000×75%) 640,500
W-5: Cost of goods sold Rupees

Total Cost of goods sold (P&L) 1,990,500
Less: Cost of credit sales (W-3) (640,500)
Cost of cash sales 1,350,000
(THE END)
Page 7 of 7

Certificate in Accounting and Finance Stage Examinations

Q.1 The accountant of Leisure Club was terminated on account of charges of fraud on
31 December 2016 and Mr. Emad has been appointed in his place. Emad has gathered
the following information in respect of the year ended 31 December 2016:
(i) The club has 3,300 members and the membership fee is Rs. 10,000 per annum. The
fee payable by each member becomes due on the first day of the quarter in which
he became a member. The fee received in each quarter was as follows:
Quarter First Second Third Fourth
Subscription received (Rs.) 9,900,000 8,250,000 5,500,000 9,350,000
Last year the fee was Rs. 9,000 per annum. However, the number of members was the
same.
(ii) A summary of the bank account for the year is shown below:
Deposits Rupees Withdrawals Rupees
Balance as at 1 Jan. 2016 3,700,500 Insurance 175,000
Cash deposited into bank 37,848,500 Rent and rates 4,200,000
Written off amount recovered 1,860,000 Utilities 4,365,000
Disposal of fixed assets 750,000 Freehold land purchased 17,000,000
Members subscription received Cash withdrawals from bank 6,120,000
directly in bank account 19,800,000 Payment to creditors 18,155,000
Repairs and maintenance 700,000
Exercise equipment 7,350,000
Balance as at 31 Dec. 2016 5,894,000
63,959,000 63,959,000
(iii) Amounts paid from petty cash were as follows:
Rupees
Salaries 2,300,000
Sundry expenses 640,000
(iv) The club has a tuck shop which earns a profit margin of 20% of sales. All sales of
tuck shop are made on cash. During the year, stock costing Rs. 500,000 was
destroyed by fire.
(v) The opening WDV of fixed assets was Rs. 28,000,000. Exercise equipment was
purchased on 1 October 2016. Fixed assets having opening WDV of Rs. 800,000 were
disposed off on 31 March 2016. Fixed assets are depreciated @ 20% under the
reducing balance method.
(vi) The opening and closing balances of cash in hand were Rs. 300,000 and Rs. 25,000
respectively.
(vii) The following balances have been extracted through a scrutiny of the available
records:
2016 2015
------- Rupees -------
Creditors 3,330,000 2,500,000
Prepaid rent 175,000 168,000
Stock- tuck shop 2,500,000 2,300,000

Required:
(a) Determine the amount of loss incurred by the club due to fraud committed by the
previous accountant. (09)
(b) An income and expenditure account for the year ended 31 December 2016. (05)
(c) Statement of financial position as at 31 December 2016. (06)
Q.2 (a) Define the term ‘performance obligation’ and state the criteria which should be met if
goods or services promised to a customer are to be considered as distinct. (04)
(b) (i) ECL has entered into a contract with Kashif Builders for construction of a
residential project, including supply of construction material, architectural
services, engineering and site clearance. ECL and its competitors provide such
services separately also. (03)
(ii) eSolutions Limited, a software developer, entered into a two year contract with a
customer to provide software license including future software updates and post
implementation support services. The software license would remain functional
even if the updates and post implementation support services are discontinued. (03)
Required:
In view of the requirements of IFRS 15 ‘Revenue from Contracts with Customers’,
discuss whether goods and services provided in each of the above contracts represent a
single performance obligation.
(c) State the disclosure requirements for assets carried at revalued amounts, as referred to
in IAS – 16 ‘Property, Plant and Equipment’. (04)
Q.3 Nawaz Manufacturing Limited (NML) deals in various products. One of its product B2 is
produced using raw material A1. Production is carried out after receiving confirmed sales
order. Following information is available for the month of January 2017:
(i) Opening inventory of A1 was 200 kg @ Rs. 3,000 per kg.
(ii) Details of purchases made during the month ended 31 January 2017 are as follows:
Date Quantity (kg) Price per kg (Rs.)
1-Jan-17 250 2,800
15-Jan-17 250 2,900
50 kg of A1 purchased on 15 January 2017 were returned to the supplier on 16
January 2017 due to inferior quality of material supplied.
(iii) On 18 January 2017, 100 kg of A1 were destroyed. They had no scrap value.
(iv) Under normal circumstances 500 kg of A1 produce 400 liters of B2.
(v) Labour cost per liter of B2 was Rs. 700.
(vi) Overheads are estimated at 120% of labour cost. The actual overheads for the
month were Rs. 275,000.
(vii) There is no opening and closing work in progress.
(viii) Sales of B2 during the month of January were as follows:
Quantity Sales price per

Sale order dateDelivery date
(liters) liter (Rs.)
2-Jan-174-Jan-17
100 7,000
26-Jan-1728-Jan-17
160 6,250
(ix) NML uses weighted average method for valuation of inventory.
Required:
Prepare cost of goods sold statement for the month of January 2017 under each of the
following methods:
(a)
Perpetual inventory method (10)
(b)
Periodic inventory method (05)

Q.4 Complex Industries (CI) is engaged in the manufacturing of a specialized product.

Maximum production capacity of CI is 480,000 units per month.
The number of units produced and total production cost, during the past six months were as
follows:
Production cost
Months Units in ‘000’ Rs. in ‘000’
January 280 6,056
February 232 5,080
March 305 6,552
April 320 6,840
May 230 5,064
June 200 4,800
The management is considering to increase the capacity utilization to 85%, 90% or 95%.
It is estimated that if capacity utilization is increased to 90% or more, the fixed costs
would increase by Rs. 100,000 per month.
Required:
Determine the expected cost at each of the three desired levels, using regression analysis and
identify the most beneficial option. (12)
Q.5 A & B are partners in a firm sharing profits and losses in the ratio of their capital i.e. 3:2.
The statement of financial position of the firm as at 31 December 2016 was as under:

Equity and liabilities Rupees Assets Rupees
Capital – A 1,440,000 Fixed assets 1,300,000
Capital – B 960,000 Debtors - net of 5% provision 1,500,000
General reserve 800,000 Other current assets 1,800,000
Loan from C 600,000
Creditors 800,000
4,600,000 4,600,000
Profits of the firm for the last three years were as follows:
2016 2015 2014

---------------- Rupees ----------------
1,250,000800,000950,000
On 1 January 2017, C who is the son of A, was admitted as a partner under the following
terms and conditions:
(i) Goodwill is to be valued at two years purchase of average profit of the last three
years. However, it was agreed that following adjustments would have to be
incorporated before the computation of goodwill.
 A sale return of Rs. 200,000 on 1 January 2014 was debited to fixed assets. The
firm charges depreciation @ 20% on written down value of fixed assets.
 A debtor balance of Rs. 300,000 was settled against the amount due to the same
customer, in the year 2016. This adjustment was not recorded in the books.
(ii) C’s share of profit would be 20% of which 5% share would be ceded to him by A.
The remaining share would be purchased by C from B.
(iii) Loan from C would be treated as his capital injection.
(iv) The total capital of the new firm will be Rs. 3,500,000. Any excess or shortage will
be settled through cash.
Required:
Prepare partner’s capital account. (12)

Q.6 The statement of financial position of Liaquat Industries as at 31 December 2016 is as

follows:
2016 2015 2016 2015

Equity and liabilities -------- Rupees -------- Assets -------- Rupees --------
Owner’s capital 13,938,060 13,665,280Freehold land 4,778,400 6,600,000
Long-term loan 1,000,000 1,000,000 Building – WDV 5,057,600 4,171,200
Short term loan 1,331,200 1,531,200
Vehicle – WDV 600,000 800,000
Accounts payable 417,120 694,320
Equipment – WDV 1,643,100 2,112,000
Accrued interest 105,600 63,360
Capital work in progress 1,478,400 1,821,600
Long-term deposits 580,800 448,800
Inventory 685,608 320,628
Accounts receivable 1,273,272 595,452
Cash 694,800 84,480
16,791,980 16,954,160 16,791,980 16,954,160
The following information has been extracted from income statement:

Rupees
Depreciation expenses 932,500
Finance cost 141,872
Gain on sale of fixed assets (net) 98,960
Net profit before tax 1,525,948
(i) Details of gain on sale of fixed assets are as follows:
Rupees
Gain on sale of freehold land 168,960
Loss on disposal of equipment due to fire (70,000)
98,960
The loss on disposal of equipment represents the WDV of the equipment. The
amount of insurance claim received, amounting to Rs. 30,000 was erroneously
credited to accumulated depreciation.
(ii) Repairs to building amounting to Rs. 50,000 were erroneously debited to building
account on 31 December 2016.
(iii) Transfers from capital work in progress to building amounted to Rs. 1,200,000.
(iv) The owner withdrew Rs. 150,000 per month.
Required:
IAS – 7 using indirect method. (12)
Q.7 (a) The following information has been gathered by an analyst, in respect of Dairy
Foods Limited (DFL) which specializes in various dairy products.
Industry
Ratio 2016 2015 2014 average
Profit margin % 11% 10% 8% 10.45%
Quick ratio 1.38 1.40 1.42 1.52
Current ratio 1.84 1.67 1.59 1.73
Days purchases in payables 80 91 89 82
In the latest annual report to the shareholders, Directors of DFL have claimed that
liquidity position of the Company has improved significantly.
Required:
Critically analyze and discuss whether you agree with the claim. (03)

(b) Extracts from latest financial statements of two companies are as follows:
Extracts from statements of financial position

A B A B
Equity and reserves Long term loan Trade Fixed
creditors
assets
Other
Stock
payables
in trade Trade debtors Cash and bank
51,69072,114 34,46048,076
-36,057 21,700 20,000
35,79045,135 24,470 44,030
12,0008,500 18,85049,700
99,480 161,806 99,480 161,806
Extracts from statements of comprehensive income

A B
------ Rs. in million ------
Revenue Cost of sales 161,600 220,150
(135,160)(180,520)
Gross profit 26,440 39,630
Operating expenses (9,840) (13,870)
Interest expense (720) (2,313)
Profit before tax 15,880 23,447
Income tax (333)(409)
Profit after tax 15,547 23,038
Required:
Analyze the profitability, liquidity and working capital ratios of both the companies. (12)
(THE END)

Suggested Answer
A.1 (a) Determination of amount of loss incurred due to fraud Rupees

Opening cash balance 300,000
Cash receipts
Collection from members [(3,300×10,000) – 19,800,000] 13,200,000
Bank withdrawals 6,120,000
Tuck shop sales (W-2) 22,856,250
42,176,250
Cash payments
Salaries (2,300,000)
Sundry expenses (640,000)
Cash deposited into bank (37,848,500)
(40,788,500)
Closing cash should have been 1,687,750
Closing cash-actual (25,000)
Loss due to fraud 1,662,750
(b) Income and expenditure account

Income Rupees
Subscription income (W-1) 31,817,500
Income from tuck shop (22,856,250(W-2) – 18,285,000 (W-2)) 4,571,250
Other income – Bad debts recovered 1,860,000
38,248,750
Expenditures
Salaries 2,300,000
Insurance 175,000
Rent expense (168,000 + 4,200,000 – 175,000) 4,193,000
Utilities 4,365,000
Repair and maintenance 700,000
Depreciation (W-3.1) 5,847,500
Sundry expenses 640,000
Loss on disposal [750,000 – (800,000 – 40,000)] 10,000
Loss of inventory due to fire 500,000
Loss due to fraud 1,662,750
20,393,250
Excess of income over expenditures 17,855,500
(c) Statement of Financial Position

2016 2016
Fund and Liabilities Rupees Assets Rupees
Accumulated fund (Balancing) 39,181,500 Fixed asset - WDV (W-3) 45,742,500
Creditors 3,330,000 Stock 2,500,000
Unearned subscription (W-1) 11,825,000 Prepaid rent 175,000
Cash and bank (5,894,000+25,000 ) 5,919,000
Total fund and liabilities 54,336,500 Total assets 54,336,500
W-1: Determination of subscription income 2015

Rupees
Opening unearned subscription income (11,825,000(W-1.1)×9/10) 10,642,500
Add: Receipts for the year (3,300×10,000) 33,000,000
Less: Closing unearned subscription income (W-1.1) (11,825,000)
Subscription income for the year 31,817,500
W-1.1: Closing unearned subscription income
Page 1 of

Suggested Answer
Quarter – 1 -
Quarter – 2 (8,250,000×3/12) 2,062,500
Quarter – 3 (5,500,000×6/12) 2,750,000
Quarter – 4 (9,350,000×9/12) 7,012,500
11,825,000
W-2: Tuck shop sales & cost of sales

Opening stock 2,300,000
Add: Purchases of stock (W-2.1) 18,985,000
Less: Loss due to fire, charged to expenditures (500,000)
Less: Closing stock (2,500,000)
Cost of goods sold 18,285,000
Sales (18,285,000/0.80) 22,856,250
W-2.1: Purchases of tuck shop

Closing creditors 3,330,000
Add: Payments to creditors 18,155,000
Less: Opening creditors (2,500,000)
Purchases 18,985,000
W-3: Fixed assets and depreciation

Opening WDV before disposal 28,000,000
Add: Addition (7,350,000 + 17,000,000) 24,350,000
Less: WDV of assets disposed off (800,000 – 40,000) (760,000)
Less: Depreciation for the year (W-3.1) (5,847,500)
Closing WDV 45,742,500
W-3.1: Depreciation
Depreciation on opening WDV [(28,000,000–800,000)×20%] 5,440,000
Depreciation on disposed asset (800,000×20%×3/12) 40,000
Depreciation on addition (7,350,000×20%×3/12) 367,500
Depreciation for the year 5,847,500
A.2 (a) Performance obligation

Performance obligation is a promise in a contract with a customer to transfer to the
customer either:
 a good or service (or a bundle of goods or services) that is distinct; or
 a series of distinct goods or services that are substantially the same and that
have the same pattern of transfer to the customer.
A good or service is distinct if both of the following criteria are met:

 the customer can benefit from the good or service either on its own or together
with other resources that are readily available to the customer; and
 the entity’s promise to transfer the good or service is separately identifiable
from other promises in the contract.
(b) (i) The different services being performed under the contract are separately
identifiable but the customer cannot benefit from a services separately from the
other.
Based on this, ECL should account for services in the contract as a single
performance obligation.
Page 2

Suggested Answer
(ii) Transfer of software license, software updates and support services are distinct.
However, the software license is delivered before the other services and
remains functional without updates and technical support. Further, the
customer can benefit from each of the services either on their own or together
with other services that are readily available. Thus, the entity’s promise to
transfer the good or service is separately identifiable from other promises in
the contract.
Based on the above, the contract should not be accounted for as a single
performance obligation.
(c) When items of property, plant and equipment are stated at revalued amounts the
following must be disclosed:
 The effective date of the revaluation;

 Whether an independent valuer was involved;
 For each revalued class of property, plant and equipment, the carrying amount
that would have been recognised had the assets been carried under the cost
model; and
 The revaluation surplus, indicating the change for the period and any
restrictions on the distribution of the balance to shareholders.
A.3 (a) Perpetual Inventory

Material A1
Quantity Per unit
Date Description Amount
(kg) cost
------------- Rupees -------------
31-Dec-16 Opening stock 200 3,000.00 600,000
1-Jan-17 Purchase 250 2,800.00 700,000
Balance 450 2,888.89 1,300,000
2-Jan-17 Issuance (100×5/4) (125) 2,888.89 (361,111)
Balance 325 2,888.89 938,889
15-Jan-17 Purchase 250 2,900.00 725,000
Balance 575 2,893.72 1,663,889
16-Jan-17 Purchase return (50) 2,900.00 (145,000)
Balance 525 2,893.12 1,518,889
18-Jan-17 Abnormal loss (100) 2,893.12 (289,312)
Balance 425 2,893.12 1,229,577
26-Jan-17 Issuance (160×5/4) (200) 2,893.12 (578,624)
Balance 225 2,893.12 650,952
Cost of goods sold

Labour @ Rs. FOH @ 120% Cost of goods
Date Description Material 700 per litre of labour sold
------------------------------- Rupees -------------------------------
4-Jan-17 Sale (100 litres) 361,111 70,000 84,000 515,111
28-Jan-17 Sale (160 litres) 578,264 112,000 134,400 824,664
939,375 182,000 218,400 1,339,775
Under-absorption of overheads (275,000–218,400) 56,600

Total cost of goods sold 1,396,375
Page 3

Suggested Answer
(b) Periodic Inventory Quantity Rate Rupees

Opening inventory 200 3,000.00 600,000
Purchases 250 2,800.00 700,000
Purchases 250 2,900.00 725,000
Purchase return (50) 2,900.00 (145,000)
Balance 650 2,892.31 1,880,000
Cost of goods sold statement Rupees

Cost of raw material (325×2,892.31) 940,001
Labour (700×260) 182,000
Overheads – Actual 275,000
Cost of goods sold 1,397,001
A.4
Production units Production costs
(units in ‘000) (Rs. in ‘000) (x2) (xy)
(x) (y)
280 6,056 78,400 1,695,680
232 5,080 53,824 1,178,560
305 6,552 93,025 1,998,360
320 6,840 102,400 2,188,800
230 5,064 52,900 1,164,720
200 4,800 40,000 960,000
1,567 34,392 420,549 9,186,120
𝑛(∑ 𝑥𝑦) − (∑ 𝑥)(∑ 𝑦) 6(9,186,120) − (1,567)(34,392)
𝑏(𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒) = = 18.06
𝑛 ∑ 𝑥2 − (∑ 𝑥)2 6(420,549) − (1,567)2
(∑ 𝑦) − 𝑏(∑ 𝑥) (34,392) − (18.06)(1,567)

𝑎(𝐹𝑖𝑥𝑒𝑑) = = = 1,015.33
𝑛 6
Total Incremental
Units
Capacity production cost of Total cost Cost per
produced in cost y=a+bx repairs
utilization unit
‘000 ---------------- Rs. in ‘000 ---------------- (Rs.)
85% 408 8,383.81 - 8,383.81 20.55
90% 432 8,817.25 100 8,917.25 20.64
95% 456 9,250.69 100 9,350.69 20.51
The most beneficial option is the production at 95% capacity level where per unit cost is
at minimum.
Page 4

Suggested Answer
A.5 PARTNERS' CAPITAL ACCOUNT

A B C A B C
-------------- Rupees -------------- -------------- Rupees --------------
Error rectification (W-1) 52,440 34,960 - Opening capital 1,440,000 960,000 -
Goodwill-new ratio 1,067,954 485,434 388,347 General reserve 480,000 320,000 -
Share gifted to C (W-4) 252,717 Goodwill-old ratio 1,165,040 776,694 -
15% share sold to C(W- 758,150 Share gifted by A(W-4) 252,717
4)
Balance c/f 1,711,930 778,150 622,520 15% share purchased(W-4) 758,150
3,085,040 2,056,694 1,010,867 3,085,040 2,056,694 1,010,867
Balance b/f 1,711,930 778,150 622,520

Loan - - 600,000
Closing balance 1,925,000 875,000 700,000 Bank (balancing) 213,070 96,850 (522,520)
1,925,000 875,000 700,000 1,925,000 875,000 700,000
*1
A: 1,941,734(W-2)×3/5, B: 1,941,734(W-2)×2/5
*2
A: 1,941,734(W-2)×55%(W-3), B: 1,941,734(W-2)×25%(W-3), C: 1,941,734(W-2)×20%(W-3)
*3
A:3,500,000×55%(W-3), B: 3,500,000×25%(W-3), C: 3,500,000×20%(W-3)
W-1: Rectification of errors Rupees

Decrease in sales (200,000)
Decrease in depreciation expense
2014 (200,000×20%) 40,000
2015 [(200,000–40,000)×20%] 32,000
2016 [(200,000–40,000–32,000)×20%] 25,600
97,600
Reversal of provision (300,000×5%) 15,000
(87,400)
W-2: Goodwill of the firm

Average profit of the last three years [(1,250,000+800,000+950,000–87,400)/3] 970,867
Goodwill (970,867×2) 1,941,734
W-3: Computation of revised profit’s sharing ratio of partners

A (60% – 5%) = 55%; B [40% – (20% – 5%)]=25%; C= 20%
W-4: Share purchase/transfer Rupees

Partner’s capital (1,440,000+960,000) 2,400,000
General reserve 800,000
Error rectification (87,400)
Goodwill 1,941,734
Total capital of old firm 5,054,334
Share gifted by A (5,054,334×5%) 252,717

Share purchased from B (5,054,334×15%) 758,150
Page 5

Suggested Answer
A.6 Cash flows from operating activities Rupees

Net profit before tax (1,525,948 – 50,000+ 30,000) 1,505,948
Adjustments for:
Depreciation expenses 932,500
Gain on disposal (70,000 – 30,000 – 168,960) (128,960)
Finance cost 141,872
Adjusted profit before working capital changes 2,451,360
Working capital changes:
Accounts receivable (595,452 – 1,273,272) (677,820)
Inventory (320,628 – 685,608) (364,980)
Accounts payable (417,120 – 694,320) (277,200)
Net cash from operating activities 1,131,360
Proceed from sale of fixed assets (W-2) 2,020,560
Capital expenditure (1,821,600 – 1,200,000 – 1,478,400) (856,800)
Long term deposits (448,800 – 580,800) (132,000)
Net cash from investing activities 1,031,760
Cash flow from financing activities
Interest paid (105,600 – 63,360 – 141,872) (99,632)
Drawing made by the owner (150,000×12) (1,800,000)
Amount injected by the owner (W-1) 546,832
Repayment of short term loan (1,331,200 – 1,531,200) (200,000)
Net cash used in financing activities (1,552,500)
Net increase in cash and cash equivalents 610,320
Cash at the beginning of year 84,480
Cash at the end of year 694,800
W-1: Movement in capital account

Opening capital 13,665,280
Less: Drawings (150,000×12) (1,800,000)
Add: Profit (1,525,948–50,000+30,000) 1,505,948
13,371,228
Less: Closing capital (13,938,060+30,000–50,000) 13,918,060
Capital injected 546,832
W-2: Disposal proceeds from sale of fixed assets
Freehold land – Opening 6,600,000
Lees: Freehold land – Closing (4,778,400)
Disposal cost 1,821,600
Add: Gain on disposal of freehold land 168,960
Sale proceeds from disposal of freehold land 1,990,560
Insurance claim received against fixed assets 30,000
2,020,560
Page 6

Suggested Answer
A.7 (a) While analyzing liquidity positions of DFL, it is noted that current ratio has steadily
increased over the years and is better than industry average. However, the quick ratio
has steadily declined and is even lower then industry average. This is a clear evidence
that the increase in liquidity is caused by an increase in inventory.
Further, by considering the nature of highly perishable inventories kept by a dairy

food company, it is a possibility that DFL may bear high inventory losses due to
short expiry.
Based on the above, I do not agree with the claim of DFL’s directors.
(b) Profitability ratios A B

Gross profit ratio (GP ÷ sales) 16.36% 18.00%
Profit to sales (Profit after tax ÷ sales) 9.62% 10.46%
Return on capital employed (Profit before interest and tax ÷ capital
employed) 32.11% 23.81%
Return on asset employed (Profit before interest and tax ÷ assets) 16.69% 15.92%
Company B's gross profit and net profit ratio is slightly higher as compared to
Company A. The difference is not significant and may be on account of higher
level of sales resulting in lesser fixed costs per unit.
Company A’s return on capital employed ratio and return on asset employed ratio
are better than Company B, because Company B has accumulated large balances
of cash despite of availing long term loan. Had Company B had used its cash
balances to pay off the long term loan, it would have both of these ratio better
than Company A.
Liquidity Ratios A B
Current ratio (current assets ÷ current liabilities) 1.36 2.12
Quick ratio (current asset-inventory ÷ liabilities) 0.91 1.75
Company B has better current and quick ratio. However, it appears that these ratios
are better than Company A due to substantially high amount of trade debts in
term of percentage of sales as sales days. It also represents a risk that these trade
debts may prove irrecoverable. Moreover, they may be indicative of inefficient in debt
collection as well.
Working capital turnover ratios A B

Stock turnover days (Stock ÷ Cost of goods sold × 365) [A] 58.60 40.44
Debtor turnover days (Debtor ÷ Revenue × 365) [B] 55.27 73.00
Creditor turnover days (Creditor ÷ Cost of goods sold × 365) [C] 96.65 91.26
Cash operating cycle [A+B–C] (days) 17.22 22.18
Stock turnover of Company B is better than that of Company A. Company B is

turning over its stock 9 times whereas company A is doing it 6 times a year.
Company A is more effectively collecting it’s debtors than Company B. This could
also be due to the fact that Company B is following a lenient credit policy to
attract more revenue. This fact is also supported from higher stock turnover ratio
of Company B.
Company A have availed better credit facility from its creditors but it may have
forgone some settlement discounts which might have resulted in lower gross profit
ratio than that of Company B.
Page 7

Suggested Answer
Overall cash operating cycle of Company A is better than Company B.

Furthermore Company B has accumulated large balances of cash despite the fact
that it has also availed long term loan. Excess cash balance should have been
used to pay off the long term loan to reduce the finance cost.
(THE END)
Page 8 of 8


Q.1 Rahil runs a retail business. He appointed a cashier at a monthly salary of Rs. 13,000
on 1 April 2016. The cashier did not report for work on 1 July 2016 and it was found
that he had left, taking with him the balance in the till.
It had been Rahil's practice to deposit on each weekend the available balance in the
till after retaining a float of Rs. 5,000. He maintains record of sales on credit and a file
of unpaid invoices in respect of goods purchased by him.
The following information has been ascertained from the available records:
(i) Balance Sheet as on 31 March 2016 was as follows:
Rupees Rupees
Rahil’s capital 233,000 Fixtures and fittings – WDV 161,000
Creditors for goods 159,000 Inventory 111,000
Creditors for expenses 16,000 Debtors 55,000
Cash at bank 76,000
Cash in hand 5,000
408,000 408,000
(ii) Following is a summary of the bank statement from 1 April to 30 June 2016:
Rupees Rupees
Balance on 1 April 2016 76,000 Payment to suppliers for goods 604,000
Cheques received from customers 29,000 Rent & other expenses 37,000
Cash deposited 627,000 Balance on 30 June 2016 91,000
732,000 732,000
(iii) The following amounts were paid from the till:

Rs. per month
Salary to cashier 13,000
Rahil’s drawings 26,000
Petty expenses 5,000
(iv) Fixtures and fittings are depreciated at 10% per annum using reducing balance
method.
(v) Inventory on 1 July 2016 was Rs. 58,000.
(vi) Credit sales during the quarter ended 30 June 2016 amounted to Rs. 64,000
whereas the debtors balances as on 30 June 2016 amounted to Rs. 66,000. However,
direct confirmations from debtors showed that receivables in fact totalled Rs.
54,000.
(vii) Creditors for goods and expenses had always been paid by cheque. Unpaid invoices
for goods on 30 June 2016 totalled Rs. 181,000 and creditors for expenses
amounted to Rs. 13,000. Detailed scrutiny of records revealed that a cash receipt of
Rs. 8,000 which had been received against goods returned to a supplier had not
been recorded.
(viii) Rahil sells goods at a gross profit margin of 20% on sales.
Required:
(a)
Prepare a statement showing calculation of the amount of defalcation. (11)
(b)
Prepare a balance sheet as on 30 June 2016. (09)

Q.2 Khan Limited opened a new branch at Lahore on 1 January 2016. Goods are invoiced
to branch at 25% above cost and branch sells the goods on the invoice price. Expenses
of branch are met from branch cash and the balance amount is remitted to head office
(HO). Following information is available for the year ended 30 June 2016:
Rupees
Cost of goods sent to branch 460,400
Goods received by branch till 30 June 2016 (at invoice price) 454,000
Debtors on 30 June 2016 35,000
Cash remitted to HO 315,000
Cash at branch on 30 June 2016 14,000
Expenses by branch 40,000
Required:
Prepare following ledger accounts:
(a) Branch Cash Account (04)
(b) Branch Stock Account (04)
(c) Branch Stock Adjustment Account (04)
Q.3 The output and production costs of a garment factory for the last 10 months are given
below:
Output Production costs
Months (units in million) (Rs. in billion)
1 1 2.05
2 2 2.82
3 4 4.33
4 8 7.31
5 6 5.80
6 5 5.08
7 8 7.29
8 9 8.10
9 7 6.52
10 6 5.82
Required:
Determine the regression line for output and production costs. Also estimate production
costs for next month if required output is 3 million units. (08)
Q.4 Salman Limited (SL) closes its books on 30th June each year. Due to an
administrative problem, SL carried out the stock-taking on 10 July 2016. The cost of stock
as verified on 10 July 2016 was Rs. 812,500.
Details of transactions from 1 July to 10 July are given below:
(i) Total sales amounted to Rs. 326,000. The goods were sold in the normal course
of business at cost plus 25% except the following:
 a sale of Rs. 25,000 was made at 40% of normal selling price.
 a sale of Rs. 60,000 was made at normal selling price but the goods were
slightly damaged and an expenditure of Rs. 15,000 was incurred on these
goods to bring them to saleable condition.
(ii) Purchases amounted to Rs. 246,000. All such purchases were included in stock as
on 10 July 2016.
(iii) Sales returns and purchase returns amounted to Rs. 11,000 and Rs. 6,000
respectively.
(iv) Goods with customers on sale or return basis were Rs. 50,000 (at invoice value).
The goods had been sent to the customers on 15 June 2016. The customers have the
right to return the goods within four weeks. One of the customers informed SL
on 29 June 2016 that goods worth Rs. 20,000 had been destroyed in fire.
Required:
Calculate the value of stock as at 30 June 2016. (11)
Q.5 Following is the trial balance of Mateen as at 30 June 2016 :
Debit Credit
-------- Rupees --------
Sales 6,892,000
Purchases 4,124,000
Administrative expenses 1,855,000
Distribution costs 549,000
Property, plant and equipment
Cost 1,750,000
Accumulated depreciation at 30 June 2015 350,000
Inventories at 30 June 2015 344,000
Unappropriated profit at 30 June 2015 330,000
Mateen’s capital 2,000,000
Cash in hand 22,000
Cash at bank 14,000
Bank loan 500,000
Trade receivables 2,255,000
Trade and other payables 826,000
Provision for bad debts at 30 June 2015 15,000
10,913,000 10,913,000
The following additional information is available:

(i) Sales include an amount of Rs. 70,000, made to a customer on sale or return basis.
The goods had a cost of Rs. 47,000. The customer paid the amount on 5 July 2016.
(ii) Cost of inventories at 30 June 2016 amounted to Rs. 365,000. The net realizable
value of the inventories was Rs. 350,000.
(iii) Administrative expenses include rent of office building amounting to Rs. 700,000.
70% of the rental amount should be allocated to cost of sales and 30% to
administrative expenses.
(iv) Prepaid administrative expenses and accrued distribution costs at 30 June 2016
amounted to Rs. 131,000 and Rs. 176,000 respectively.
(v) Property, plant and equipment are depreciated at 10% per annum using reducing
balance method. Depreciation on addition is provided from the month in which the
asset is acquired while no depreciation is charged in the month in which the asset is
disposed of. Depreciation should be allocated between cost of sales and
administrative expenses in the ratio of 80:20 respectively.
On 10 January 2016, a generator which was purchased on 1 July 2012 for
Rs. 100,000 was traded-in for a new generator. The disposal was not recorded and
the generator was capitalized at Rs. 500,000 being the net amount paid to supplier
after adjusting trade-in allowance of Rs. 35,000. The cost of installation of the
generator amounting to Rs. 30,000 was debited to administrative expenses.
(vi) Bank loan was taken on 1 October 2015 and carries interest at 8% per annum.
The loan is repayable on 30 September 2016.
(vii) Trade receivables amounting to Rs. 5,000 are required to be written off. Bad debts
are estimated at 4% of the trade receivables.
(viii) Income tax liability for the year ended 30 June 2016 is estimated at Rs. 40,000.
Required:
Prepare the following:
(a)
Statement of comprehensive income for the year ended 30 June 2016; and (10)
(b)
Statement of financial position as at 30 June 2016. (10)

Q.6 (a) Car World sells new cars on deferred payment basis whereby 40% deposit is
received on sale and the balance payment is received at the end of two years.
The appropriate discount rate is 10%.
On 1 July 2014 a car was sold to a customer for Rs. 2,000,000.
Required:
Prepare necessary journal entries to record the above transaction in the books of
Car World for the years ended 30 June 2015 and 2016. (07)
(b) Saleem Engineering (SE) is a supplier of various types of industrial machines. It

also provides services for the maintenance of these machines. Following
transactions were carried out by SE during the year ended 30 June 2016:
(i) Five machines were sold on a lay away basis to one of its frequent customers.
Three out of a total of five instalments had been received till the year end. (03)
(ii) A service contract for maintenance of a machine for a period of one year
was signed and SE received a non-refundable annual fee amounting to Rs.
45,000
as advance on 15 April 2016. (02)
Required:
Discuss when it will be appropriate for SE to recognise revenue in each of the above
situations.
Q.7 Kamran Enterprises (KE) provides depreciation on plant and machines at 10% on
written-down value. Depreciation is charged from the month the asset is available for use
in operations up to the month prior to its disposal. Cost of its plant & machines and
the accumulated depreciation as on 1 July 2015 were Rs. 75 million and Rs. 17 million
respectively.
The following information is available in respect of its plant & machines, for the year
ended 30 June 2016:
(i) On 1 October 2015, a second-hand machine was acquired from a Chinese company
for Rs. 15 million. The machine was renovated and overhauled at a cost of
Rs. 3 million. 25% of this expenditure was in respect of purchase of consumables.
(ii) On 1 November 2015, KE transferred a machine having a list price of
Rs. 10 million from its stock-in-trade to its Engineering Department. KE sells such
machines at cost plus 25%.
(iii) On 1 January 2016, certain worn-out parts of a plant were replaced at a cost of
Rs. 4 million. The replaced parts neither enhanced the useful life of the plant nor its
operating efficiency. The old parts were sold for Rs. 0.75 million. The plant was
purchased for Rs. 25 million on 1 January 2015.
On 1 May 2016, the plant was damaged and remained in-operative for one
month. KE spent an amount of Rs. 3 million on repairs to restore the plant in
working condition.
(iv) On 1 April 2016, a machine which was purchased on 1 July 2012 for Rs. 12
million was completely damaged and was sold for Rs. 1.2 million.
Required:
Prepare accounting entries to record the above transactions in KE’s books for the year
ended 30 June 2016. (17)

(THE END)

Suggested Answers
A.1 (a) Statement of amount of defalcation

Rupees
Cash in hand 30/3/16 5,000
Cash sales [838,750 (W-1)  64,000] 774,750
Receipts from customers as per debtor’s account (W-3) 24,000
Less: Cash utilized
Bank lodgments (627,000)
Assistant's salary (13,000×3) (39,000)
Petty expenses (5,000×3) (15,000)
Drawings (26,000×3) (78,000)
(759,000)
Defalcation against cash sales 44,750
Difference in debtors balance 12,000
Defalcation from amount received from supplier against purchase return 8,000
Total defalcation amount 64,750
Working Notes:
W-1: Sales Rupees

Stock on 1 April 2016 111,000
Add: Purchases for 3 months (626,000 – 8000) (W-2) 618,000
729,000
Less: Stock on 30 June 2016 (58,000)
671,000
Add: Gross profit 20% on sales (671,000 × 20÷80) 167,750
Total sales 838,750
W-2: Purchases Rupees

Cash paid to creditors against goods supplied 604,000
Add: Creditors on 30 June 2016 181,000
785,000
Less: Creditors on 31 March 2016 (159,000)
Cash received for returns (8,000)
Total purchases 618,000
W-3: Cash received from credit customers Rupees

Balance on 1 April 2016 55,000
Add: Credit sales for 3 months 64,000
119,000
Less: Balances outstanding on 30 June 2016 as per books (66,000)
53,000
Less: Receipts (cheques) shown in cash book (29,000)
Amount presumably received in cash 24,000
(b) Balance Sheet of Rahil

As on 30 June 2016
Liabilities Rs. Assets Rs.
Sundry creditors 181,000 Fixtures and fittings (net) 156,975
Expenses owing 13,000 Stock in trade 58,000
Capital: Sundry debtors 54,000
Balance on 1 April 2016 233,000 Balance at bank 91,000
Add: Net profit (W-1) 10,975
Less: Drawings (78,000)
165,975
359,975 359,975

Suggested Answers
W-1: Net profit for 3 months Rupees

Gross profit - 20% on sales (671,000 × 20÷80) 167,750
Less:
Depreciation (161,000×10%×3÷12) 4,025
Assistant's salary and petty cash expenses 54,000
Rent & other expenses 37,000
Decrease in creditors for expenses (16,000  13,000) (3,000)
Loss due to defalcation 64,750
(156,775)
10,975
A.2 In the books of Khan Limited
Dr. Branch Cash Account Cr.

Date Particulars Rs. Date Particulars Rs.
Branch debtors a/c - cash received 293,000 31-12-16 Branch expenses a/c 40,000
Branch stock a/c - cash sales (bal. fig.) 76,000 Remittance to H.O. 315,000
Balance c/d 14,000
369,000 369,000
Dr. Branch Stock Account Cr.

31-12-16 Goods sent to branch a/c 575,500 31-12-16 Cash sales 76,000
(460,400×125%/100) Branch debtors A/c – Credit
sales 328,000
Stock-in-transit (575,500454,000) 121,500
Balance c/d 50,000
575,500 575,500
Dr. Branch Stock Adjustment Account Cr.

Stock-in-transit A/c – Loading 31-12-16 Goods sent to branch A/c –
(121,500×25/125) 24,300 Loading (460,400×25%) 115,100
Balance c/d – Loading on closing
stock (50,000×25/125) 10,000
31-12-16 Branch P & L A/c – G.P.
transferred (bal. fig) 80,800
115,100 115,100
A.3 (a) Output Production costs

(Rs. in (Rs. in billion) (xy) (x2)
million) (y)
(x)
1 2.05 2.05 1.00
2 2.82 5.64 4.00
4 4.33 17.32 16.00
8 7.31 58.48 64.00
6 5.80 34.80 36.00
5 5.08 25.40 25.00
8 7.29 58.32 64.00
9 8.10 72.90 81.00
7 6.52 45.64 49.00
6 5.82 34.92 36.00
56 55.12 355.47 376

Suggested Answers
(56)(55.12)
(∑ 𝑥𝑦) − (∑ 𝑥)(∑ 355.47 − 10 46.8
𝑏(𝑉𝑎𝑟i𝑎𝑏𝑙𝑒) = = (56)2 = = 0.75
𝑦)/𝑛 376 − 62.40
(∑ 𝑥�)2 1
∑ 𝑥2 −
(∑ 𝑦) − 𝑏(∑ 𝑥) (55.12) − (0.75)(56) 13.12
𝑎(𝐹i𝑥𝑒𝑑) = = = = 1.31
𝑛 10 10
Estimated regression equation is 𝑦 = 𝑎 + 𝑏𝑥
𝑦 = 1.31 + 0.75𝑥
(b) The estimated production costs for next month if required output is 3 million units will be:
𝑦 = 1.31 + 0.75𝑥
𝑦 = 1.31 + 0.75(3)
𝑦 = 𝑅𝑠. 3.56 𝑏i𝑙𝑙i𝑜𝑛
A.4 ------ Rupees ------

Cost of stock on 10 July 2016 812,500
Less:
Purchases from 01 July to 10 July 2016 (246,000)
Sales returns, at cost (Rs. 11,000 × 100/125) (8,800)
557,700
Add:
Cost of stock sold for Rs. (326,000  25,000)/1.25 240,800
Cost of good sold at 40% of invoice price (25,000/0.4)×100/125 50,000
Goods on sale or return basis (50,000*20,000)× 100/125 24,000
Purchase returns 6,000
320,800
Cost of stock on 30 June 2016 (A) 878,500
Less: NRV Adjustments

Stock on which repair is done (60,00015,000) 45,000
Cost (60,000/1.25) 48,000 (3,000)
Stock sold at 40% of selling price

Normal cost (25,000/0.4/1.25) 50,000
Selling price 25,000 (25,000)
NRV of stock (B) 850,500
Value of stock as on 30 June 2016 [lower of cost (A) and NRV(B)] 850,500
*Goods destroyed in fire (Rs. 20,000) taken as sold
A.5 Income statement for the year ended 30 June 2016

Rupees
Revenue (6,892,000 – 70,000) 6,822,000
Cost of sales (W-1) (4,652,684)
Gross profit 2,169,316
Administrative expenses (W-1) (1,338,376)
Distribution costs (W-1) (725,000)
Profit from operations 105,940
Finance cost (500,000×8%×9÷12) (30,000)
Income tax expense (40,000)
Profit for the period 35,940

Suggested Answers

As at 30 June 2016
Rupees Rupees

Capital 2,000,000 Non-current assets
Retained earnings (330,000+35,940) 365,940 Property plant and equipment (W-2) 1,281,140
2,365,940
Current liabilities Current assets

Bank loan 500,000 Inventories (W-1) 397,000
Trade and other payables Trade receivables
(826,000+176,000) 1,002,000 (2,250,000 – 70,000) – 87,200
Taxation 40,000 2,092,800
Prepaid admin expenses 131,000
Bank interest payable 30,000 Cash and bank (22,000+14,000) 36,000
3,937,940 3,937,940
Workings:
W-1: Allocation of expenses Administrative Distribution
Cost of sales
expenses costs
--------------- Rupees ---------------
Balances as per trial balance 1,855,000 549,000
Opening inventories as per trial balance 344,000
Purchases as per trial balance 4,124,000
Adjustments:
Closing stock (350,000 + 47,000) [(ii) & (i)] (397,000)
Transfer of 70% rent to cost of sales (iii) 490,000 (490,000)
Prepaid and accrued expenses (iv) (131,000) 176,000
Installation charges incorrectly expensed out (v) (30,000)
Depreciation expenses (W-2) (vi) 91,684 22,921
Loss on disposal (W-2) (vi) 34,255
Bad debts expenses
[(4% × (2,250,000 70,000))  15,000+5,000] 77,200
4,652,684 1,338,376 725,000
W-2: Depreciation and loss on disposal Rupees Dep. for the year
Property, plant & equipment as per trial balance 1,750,000
Less: Cost of generator disposed of (A) (100,000)
Less: Cost of generator purchased during the year (500,000)
Cost of PPE used throughout the year 1,150,000
Less: Opening balance of Acc. Dep. (350,000)
Add: Opening balance of Acc. Dep. relating to disposed of generator
[100,000 – (100,000 × 0.9 × 0.9 × 0.9)] (B) 27,100
WDV of PPE used throughout the year 827,100
Depreciation for the year (827,100×10%) (82,710) 82,710
Addition:
New generator 500,000
Old generator – trade-in-allowance 35,000
Installation charges 30,000
565,000
Depreciation on additions (565,000 ×10% × 6/12) (28,250) 28,250
536,750
Depreciation on disposed of generator
[(100,000 – 27,100) × 10% × 6/12] (C) - 3,645
1,281,140 114,605

Suggested Answers
Loss on disposal [(A– B– C) – 35,000] 34,255
A.6 (a) Debit (Rs.) Credit (Rs.)

Date Particulars --------- Rupees ---------
1/7/2014 Cash (40%×2,000,000) 800,000
Receivables (2,000,000  800,000) 1,200,000
Car sales [800,000 + 991,736(W-1)] 1,791,736
Deferred income 208,264
30/6/15 Deferred income (10% × 991,736) 99,174
Finance income 99,174
30/6/16 Cash 1,200,000
Deferred income (208,264  99,174) 109,090
Finance income 109,090
Receivables 1,200,000
W-1: Present value of future payments Rupees

Amount receivable 1,200,000
1,200,000
𝑃𝑉 =
(1 + 10%)2 991,736
(b) (i) Revenue from lay away sales is recognized when the goods are delivered against full payment.
However, based on experience, such revenue may be recognized earlier e.g. when a significant
deposit is received provided the goods are on hand, identified and ready for delivery to the buyer.
Hence the sale may be recognized in this case provided the machines are ready for delivery because
the sale is to a frequent customer and a significant portion of the sale proceeds has been received.
(ii) Although the fee is non-refundable, it will be recognized as income on the basis of matching
principle i.e. 1/12th of the annual fee will be taken to income each month.
A.7 Debit Credit

Date Description ------- Rupees -------
1-10-2015 Machine B (15+3×75%) 17,250,000
Cost of sales/Repair and maintenance / Profit & loss a/c 750,000
Bank 18,000,000
1-11-2015 Machine a/c (10,000,000×100/125) 8,000,000

Stock-in-trade 8,000,000
1-1-2016 Plant and Machine 4,000,000

Bank 4,000,000
1-1-2016 Bank 750,000

Cost of sales/Other income 750,000
1-5-2016 Cost of sales/Repair and maintenance / Profit & loss a/c 3,000,000
Bank/payable 3,000,000
1-4-2016 Bank 1,200,000

Accumulated depreciation – Machine [12-(12×0.9×0.9×0.9×0.925)] 3,908,100
Loss on sale of machine (balancing) 6,891,900
Machine 12,000,000
30-1-2016 Depreciation expense (W-1) 7,608,383

Accumulated depreciation – Plant and machine 7,608,383

Suggested Answers
W-1:
Written down Depreciation for the
value year
-------------Rupees-------------
Opening balance (75,000,000-17,000,000 58,000,000
Less: Disposal [12,000,000×(0.9)3] (8,748,000)
49,252,000 4,925,200
Addition
Addition on 01 October 2015 (17,250,000×10%×9/12) 17,250,000 1,293,750
Addition on 01 November 2015 (8,000,000×10%×8/12) 8,000,000 533,333
On 1 January 2015 4,000,000 200,000
Disposal
Depreciation on machine sold during the year (8,748,000×0.1×9/12) 656,100
Total depreciation 7,608,383
(THE END)


Q.1 Seaview Club started its operations on 1 February 2015. Sponsor of the club contributed
Rs. 50 million towards general fund for the start of operations and placed the amount in the
bank. Following is the receipts and payments summary for the period from 1 February 2015
to 31 December 2015:
Receipts Rs. in ‘000 Payments Rs. in ‘000
Sponsor's contribution 50,000 Furniture & fixtures 1,200
Joining fees 20,800 Van 1,500
Subscription from members 29,952 Salaries 1,000
Sale of beverages 1,500 Rent 3,600
Utilities 570
Insurance 120
Repairs and maintenance 275
Purchase of beverages 1,367
Advance for plot of land 65,000
Balance 27,620
102,252 102,252
(i) The joining fee for award of membership is Rs. 50,000. Annual subscription is
Rs. 24,000. All new members pay three years’ subscription in advance. The
memberships were awarded as follows:
Month March June September December
No. of members 112 98 101 105
(ii) The club sells beverages at a gross profit margin of 20%. All sales are billed in the first
week of the next month and the payment is received in the same month. Sale of
beverages during December 2015 amounted to Rs. 150,000.
(iii) 25% of total purchases of beverages made during the year remained unsold at
year-end.
(iv) Salaries are paid on the first day of next month. The amount of salaries includes an
advance amounting to Rs. 10,000 paid to an employee on 1 December 2015. The
advance is repayable on 1 February 2016.
(v) Rent for three years was paid in advance on 1 February 2015.
(vi) Presently the club is operating on rental premises. However, a plot of land has
been purchased on which construction would commence shortly. Title of land
would be transferred after completion of legal formalities.
(vii) Payments for utilities include security deposit paid to utility companies amounting to
Rs. 20,000. Utility bills are paid on the 7th day of the next month.
(viii) Insurance premium was paid on 1 February 2015 covering a period of 12 months.
(ix) Repairs and maintenance include an advance of Rs. 100,000 paid to a contractor for
construction of a parking shed. Repair bills amounting to Rs. 7,000 were outstanding
at year-end.
(x) Furniture & fixtures and van were purchased on 1 February 2015. Depreciation on
these assets is to be charged at 10% and 20% respectively.
Required:
Prepare statement of financial position as at 31 December 2015 and income & expenditure
account of Seaview Club for the period ended 31 December 2015. (20)
Q.2 AK Limited follows a perpetual inventory system. Following information is available

from the accounting records for the month of January 2016:
Quantity Amount (Rs.)

Inventory as at 31 December 2015 3,500 35,000
Purchase on 7 January 2016 3,700 44,400
Sale on 12 January 2016 3,000 60,000
Sale on 25 January 2016 5,500 115,500
(i) 100 units out of 4,200 units purchased on 13 January 2016 were found defective and
returned to supplier on 28 January 2016.
(ii) Inventory count conducted on 31 January 2016 revealed that 4,820 units were
physically available.
Required:
(a) Prepare inventory ledger cards for the month of January 2016 under the perpetual
system showing quantity, unit cost and value under each of the following basis of
inventory valuation:

FIFO (07)

Weighted average (06)
(b) Under weighted average method, prepare journal entries to record the defective items
returned to supplier and surplus/shortfall in the inventory due to physical count. (02)
Q.3 (a) In respect of sale of goods, give any two examples of each of the following situations:
(i) Legal title passes but the risks and rewards are retained.
(ii) Legal title does not pass but the risks and rewards are passed on to the customer. (03)
(b) State how revenue should be recognised in the following cases:
(i) Karim Industries Limited (KIL) has sold a machine on credit to Yawar
Engineering (YE). The machine would be used by YE if it is able to secure a
contract for providing services to AMZ & Company. KIL has agreed that the
machine may be returned at 90% of the price, if YE fails to secure the contract. (02)
(ii) Asif Electronics (AE) is about to sell a new type of food factory. Since
customer demand is high, AE is taking advance against orders. The selling
price has been fixed at Rs. 7,000 per unit and so far 175 customers have paid
the initial 25%
deposit which is non-refundable. (02)
(iii) Nazir Engineering Limited (NEL) entered into a contract for the provision of
services over a period of two years. The total contract price was Rs. 25 million
and NEL had initially expected to earn a profit of Rs. 5 million on the
contract. However, the contract had not progressed as expected. In the first year,
costs of Rs. 12 million were incurred. Management is not sure of the ultimate
outcome but believes that at least the costs on the contract would be
recovered from the
customer. (02)
(c) Abid Textile Mills Limited (ATML) sold a property to a financial institution for
Rs. 90 million when the fair value and carrying value of the property was
Rs. 100 million and Rs. 95 million respectively. However, there is an agreement
between the parties whereby ATML could repurchase the property after one year
for Rs. 99 million.

State how the above transaction should be recorded in ATML’s records. (03)

Q.4 (a) What conditions must be satisfied if an item has to be recognised as property,
plant and equipment? Also state at what amount such item shall be carried after the
initial
recognition if the entity is following the revaluation model. (03)
(b) On 1 January 2013 Delta acquired a specialized machine for its production
department. The available information is as follows:
Rupees
List price of machine 9,200,000
Freight charges 263,000

Electrical installation cost 245,000
Staff training for use of machine 351,000
Pre-production testing 193,000
Purchase of a three-year maintenance contract 528,000
Estimated residual value 175,000
Trade discount on list price 5%

Early settlement discount taken 3%
Estimated life (in machine hours) 12,000
Machine hours used during the years ended 31 December 2013, 2014 and 2015
were 2000, 3200 and 1400 respectively.
On 1 January 2015 Delta decided to upgrade the machine by adding new components
at a cost of Rs. 1,753,000. This upgrade led to a reduction in the production time
per unit of goods being manufactured by the machine. The upgrade also increased
the estimated remaining life of the machine at 1 January 2015 to 8,000 machine hours
and its estimated residual value to Rs. 350,000.
Required:
For the years ended 31 December 2013, 2014 and 2015, compute the relevant
amounts to be included (under each head) in the income statement and statement of
financial position. Notes to the financial statements are not required. (10)
Q.5 Maqsood Enterprises has its head office in Karachi and ten branches all over Pakistan.
Following are the details of balances related to the Peshawar branch in the books of head
office:
31-Dec-1531-Dec-14
------ Rupees ------
Non-current assets 750,000 700,000
Inventory 250,000 200,000
Receivables 120,000 90,000
Cash 35,000 25,000
Goods returned by the branch 29,700 -
Other relevant information is as under:

(i) Goods invoiced to Peshawar branch during the year amounted to Rs. 330,000. Goods
are sent to Peshawar branch at cost plus 10%. Branch sells these goods at a further
mark-up of 15%.
(ii) During the year, Peshawar branch sent goods which were appearing in its books at
Rs. 27,500 to Lahore branch.
(iii) During the year, certain goods were sold by the branch on 30 days credit and invoiced
at Rs. 35,420 to a customer. However, the goods were returned by the customer before
the due date of payment directly to the head office. No entry has been made in respect
of return of goods.
(iv) Branch expenses amounted to Rs. 50,000 which were paid in cash.

(v) Non-current assets are net of depreciation. During the year, head office purchased
non-current assets on behalf of Peshawar branch amounting to Rs. 62,000.

Required:
Prepare Peshawar branch account in the books of head office for the year ended
31 December 2015 showing profit/(loss) made by the branch. (12)
Q.6 Following are the extracts from income statement of Quality Enterprises (QE) for the
year ended 31 December 2015 and its statement of financial position as at that date, together
with some additional information:
Income statement for the year ended 31 December 2015

Rs. in ‘000
Profit from operations 6,402
Other income 1,357
Interest expense (100)
Income tax expense (1,376)
Profit for the year 6,283
Statement of financial position as at 31 December 2015

2015 2014 2015 2014
--- Rs. in ‘000 --- --- Rs. in ‘000 ---
Non-current assets
Owner’s capital 14,219 10,703 Property, plant and equipment 19,628 11,845
Unappropriated profit 10,652 6,697 Investments 7,645 6,498
27,273 18,343
Revaluation surplus 2,676 1,911
10% bank loan 6,000 -
Current liabilities Current assets
Trade and other payables 3,337 4,953 Inventories 4,642 3,073
Income tax payable 1,300 994 Trade and other receivables 2,273 3,865
Bank overdraft - 27 Cash and bank 3,996 4
4,6375,974 10,911 6,942
38,18425,285 38,184 25,285
(i) During the year, movements in property, plant and equipment include:
 Depreciation amounting to Rs. 5,280,000.
 Machinery having a carrying amount of Rs. 2,481,000 was sold for Rs. 3,440,000.
 Factory building was revalued from a carrying amount of Rs. 5,963,000 to
Rs. 8,000,000.
 An office building which had previously been revalued, was sold at its carrying
amount of Rs. 2,599,000.
(ii) The owner of QE withdrew Rs. 300,000 per month. The amounts were debited to
unappropriated profit.
(iii) Trade debts written off during the year amounted to Rs. 200,000. The provision for
bad debts as at 31 December 2015 was Rs. 400,000 (2014: Rs. 550,000)
(iv) The interest on bank loan is payable on 30 th June every year. The bank loan was
received on 1 November 2015. Interest for two months has been accrued and included
in trade and other payables.
(v) Other income includes investment income of Rs. 398,000. As at 31 December
2015, trade and other receivables included investment income receivable
amounting to Rs. 96,000 (2014: Rs. 80,000).
Required:
Prepare a statement of cash flows for Quality Enterprises for the year ended
31 December 2015, using the indirect method. (18)

Q.7 The following particulars/projections pertain to a well-maintained medium-sized car:
Rupees
Cost of car 1,200,000
Salvage value after 100,000 kilometres (km) Maintenance300,000
cost:
Service after every 5,000 km
Replacement of spares/parts (per 2,000 km) 6,000
4,000
Vehicle tax per annum (20% adjustable against
income tax payable by the owner)7,500
Insurance per annum36,000
Cost of petrol per litre75
Cost of tyres replacement after 25,000 km20,000
On an average, the car consumes one litre for every 15 km.
Required:
For three different levels of use i.e. 10,000, 20,000 and 30,000 km per annum, prepare a
schedule showing:
 Variable, fixed and total costs
 Variable, fixed and total costs per km
In respect of each type of cost, give appropriate justification for treating it as a variable or a
fixed cost. (10)
(THE END)

Suggested Answers
A.1 Seaview Club

Income & Expenditure Account
For the period ended 31 December
2015
Expenditure Rs. in ‘000 Income Rs. in ‘000

Salaries and wages (1000–10+99) 1,089 Joining fees 20,800
Rent (3600/3×11/12) 1,100 Subscription income (W-1) 4,630
Utilities (570–20+55) 605 Profit on sale of beverages (W-2) 330
Insurance (120/12×11) 110
Repairs and maintenance (275–100+7) 182
Depreciation expense
(1,200×10%×11/12+1,500×20%×11/12) 385
Excess of income over expenditure 22,289
25,760 25,760
Seaview club
Statement of Financial Position
As at 31 December 2015
General Fund & Liabilities Rs. in ‘000 Assets Rs. in ‘000

General fund 50,000 Non-Current Assets
Excess of income over expenditure 22,289 Land/Capital advance 65,000
72,289 Furniture & fixtures (1,200110) 1,090
Van (1,500275) 1,225
Deferred income/long term advance Advance for parking shed 100
(W-1) 15,338 Long term deposits 20
Long term prepayment 1,300
Current Liabilities 68,735
Creditors (1,760 – 1,367) 393 Current Assets
Accrued expenses (7+55+99) 161 Stock (W-2) 440
Advance subscription (W-1) 9,984 Debtors for beverages (credit sale) 150
10,538 Advance & prepayments (W-3) 1,220
Bank 27,620
29,430
Total General Fund & Liabilities 98,165 Total Assets 98,165
W-1: Subscription income

Subscription for 3 years is Rs. 72,000 so subscription for 1 year is Rs. 24,000 or Rs. 2,000 per month
No. of No. of Subscription income for Deferred subscription

members months the year income
Month A×B×2,000 A×(36B)×2,000
A B
--------------- Rupees ---------------
March 112 10 2,240,000 5,824,000
June 98 7 1,372,000 5,684,000
September 101 4 808,000 6,464,000
December 105 1 210,000 7,350,000
4,630,000 25,322,000
Less: Short term [(112+98+101+105)×24,000] (9,984,000)
Long term 15,338,000

Suggested Answers
W-2: Beverage sale results Rs. in ‘000

Sales (1,500 + 150) 1,650
Less: Cost of sales 1,760
Purchases (1,320/0.75) (440) 1,320
Closing stock (1,760×25%) 330
W-3: Advance & prepayments Rs. in ‘000

Rent [(3,600–1,100)–1,300(long term)] 1,200
Insurance (120 – 110) 10
Advance salary 10
1,220
A.2 (a) Ledger card - FIFO Method

Transaction Balance
Dates Description Unit Unit
Quantity Rupees Quantity Rupees
cost cost
1/1/2015 Opening inventory 3,500 10 35,000
7/1/2015 Purchase 3,700 12 44,400 3,500 10 35,000
3,700 12 44,400
12/1/2015 Sale (3,000) 10 30,000 500 10 5,000
3,700 12 44,400
13/1/2015 Purchase 4,200 14 58,800 500 10 5,000
3,700 12 44,400
4,200 14 58,800
25/1/2015 Sale (500) 10 5,000
(3,700) 12 44,400
(1,300) 14 18,200 2,900 14 40,600
28/1/2015 Purchase return (100) 14 1,400 2,800 14 39,200
31/1/2015 Purchase 2,000 13 26,000 2,800 14 39,200
2,000 13 26,000
31/1/2015 Surplus inventory 20 14 280 2,820 14 39,480
2,000 13 26,000
Ledger card -Weighted average method

Transaction Balance
Dates Description Unit Unit
Quantity Rupees Quantity Rupees
cost cost
1/1/2015 Opening inventory 3,500 10.00 35,000
7/1/2015 Purchase 3,700 12.00 44,400 7,200 11.03 79,400
12/1/2015 Sale (3,000) 11.03 (33,083) 4,200 11.03 46,317
13/1/2015 Purchase 4,200 14.00 58,800 8,400 12.51 105,117
25/1/2015 Sale (5,500) 12.51 (68,826) 2,900 12.51 36,290
28/1/2015 Purchase return (100) 14.00 (1,400) 2,800 12.46 34,890
31/1/2015 Purchase 2,000 13.00 26,000 4,800 12.69 60,890
31/1/2015 Surplus/closing inventory 20 12.69 254 4,820 12.69 61,144
(b) Journal entries

Debit Credit
28/1/2015 Payables (58,800/4,200×100) 1,400
Purchase returns/stock/purchases 1,400
31/1/2015 Inventory (4,820-4,800)×12.69 254

Miscellaneous income 254

Suggested Answers
A.3 (a) Examples of the situations where legal title passes but risk and rewards are retained
 An entity may retain obligations for unsatisfactory performance not covered by normal warranty
provisions;
 The receipt of revenue may be contingent on derivation of revenue by the buyer for its sale of
goods.
Examples of the situations where legal title does not pass but the risks and rewards are transferred
 A seller may retain the legal title to the goods to protect the collectability of the amount due
but transfer the significant risks and rewards of ownership.
 In retail sale, a seller may offer a refund if the customer is not satisfied.
(b) (i) The completion of the sale transaction is uncertain because it is contingent upon purchaser
securing the contract with another company. Therefore, KIL should only recognize the revenue
when it is certain that YE will secure the contract. 10% revenue may be recognized if and when it
is confirmed that YE would not be able to secure the contract.
(ii) Revenue should be recognized when the food factory is delivered to the customer. Until then no
revenue should be recognized and the deposit should be carried forward as deferred income. 25%
advance may be transferred to other income if the parties do not claim the asset.
(iii) If the outcome of a service transaction cannot be estimated reliably, revenue should only be
recognized to the extent that expenses incurred are recoverable from the customer. Thus revenue
to the extent of Rs. 12 million may be recognised.
(c) Since the sale and repurchase prices are lower than the fair values, the substance of the arrangement
appears to be that the financial institution has granted ATML a one year loan secured on the property,
charging interest of Rs. 9 million.
The transaction should be accounted for in ATML’s books as follows:

 continue to recognise the property as an asset at the carrying amount.
 credit the Rs. 90 million received to a liability account.
 recognise finance cost of Rs. 9 million over a period of one year.
 debit the liability when Rs. 99 million cash is paid out.
A.4 (a) The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if:
(i) It is probable that future economic benefits associated with the item will flow to the entity; and
(ii) The cost of the item can be measured reliably.
After recognition as an asset, an item of property, plant and equipment whose fair value can be
measured reliably shall be carried at a revalued amount, being its fair value at the date of the
revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment
losses.
(b) Year ended 31-Dec-13 31-Dec-14 31-Dec-15

Income statement: --------------- Amount in Rs. ---------------
Cost of sales
Cost of sales (W-3) 1,720,333 2,646,934 1,371,028
Other income (Discount received i.e.
(8,740,000×3%)) (262,200) - -
Administration expenses
(Staff training) 351,000 - -
As at 31-Dec-13 31-Dec-14 31-Dec-15

Statement of financial position: --------------- Amount in Rs. ---------------
Property, plant and equipment (W-4) 7,896,667 5,425,733 5,983,705
Long term deposit 176,000
Short term deposit 176,000 176,000

Suggested Answers
Workings
W-1: Cost price of machine Rupees
List price 9,200,000
Less: Trade discount (9,200,000×5%) (460,000)
8,740,000
Add: Freight charges 263,000
Electrical installation cost 245,000
Pre-production testing 193,000
9,441,000
W-2: Valuation after upgrade Rupees

Original cost (W-1) 9,441,000
Depreciation upto 31 December 2014 [1,544,333(W-3)+2,470,934(W-3)] (4,015,267)
Carrying amount on 1 January 2015 5,425,733
Capitalization of Upgrade 1,753,000
Value after capitalization 7,178,733
W-3: Costs of sales 2013 2014 2015

------------------ Rupees ------------------
Depreciation
[9,441,000(W-1)175,000]×2,000/12,000 1,544,333
[9,441,000(W-1)175,000]×3,200/12,000 2,470,934
[7,178,733(W-2)350,000]×1,400/8,000 1,195,028
Maintenance cost (528,000/3) 176,000 176,000 176,000
1,720,333 2,646,934 1,371,028
W-4: Property, plant and equipment:

Cost (W-1) 9,441,000 9,441,000 *11,194,000
Accumulated depreciation (1,544,333) (4,015,267) (5,210,295)
7,896,667 5,425,733 5,983,705
* [9,441,000+1,753,000]
A.5 Peshawar Branch Account

Balance b/d Rs. Balance b/d Rs.
Non-current assets 700,000 Inventory reserve (1/11 of 200,000) 18,182
Inventory 200,000 Mark-up on goods sent to br. 30,000
Receivable 90,000 Goods returned to HO by customers 29,700
Cash 25,000 Goods returned to HO directly
Goods sent to br. 330,000 (35,420/1.15) 30,800
Mark up on goods returned by br. 2,700 Goods transferred to Lahore br. 27,500
Mark up on transfer to Lahore br. 2,500 Cash sent to HO (W-1) 166,220
Mark up on goods returned directly to Balance c/d
HO 2,800 Non-current assets 750,000
Non-current assets purchased by HO 62,000 Inventory 250,000
Balance c/d Receivable (W-1) 84,580
Inventory reserve 22,727 Cash 35,000
Branch loss 15,745
1,437,727 1,437,727

Suggested Answers
W-1: Cash Remitted to Head Office by Peshawar branch Rupees

Opening cash 25,000
Opening debtors 90,000
Add: Total sales at branch price (192,000 (W-1.1) ×1.15) 220,800
Less: Closing debtors (120,00035,420) (84,580)
Expenses incurred (50,000)
Closing cash (35,000)
Cash remitted to head office 166,220
W-1.1: Peshawar branch cost of sales Rupees

Opening stock 200,000
Goods received from head office 330,000
Goods returned to head office (29,700)
Goods transferred to Lahore (27,500)
Goods returned by customers (30,800)
Closing stock (250,000)
Total branch sales at HO price 192,000
A.6 Quality Enterprises

Statement of cash
flows
For the year ended 31 December 2015
Rupees
Cash flow from operating activities
Profit before tax 7,659,000
Non-cash adjustments
Investment income (398,000)
Interest expense 100,000
Depreciation charge 5,280,000
Bad debt expense [(200,000 +(400,000 – 550,000)] 50,000
Profit on disposal of property, plant and equipment (3,440,000–2,481,000) (959,000)
Changes in working capital

Increase in inventories (3,073,000–4,642,000) (1,569,000)
Decrease in trade and other receivables 1,558,000
[(3,865,000–80,000–2,273,000+96,000+(550,000– 400,000– 200,000))]
Decrease in trade and other payables [(4,953,000–(3,337,000–100,000))] (1,716,000)
Net changes in working capital (cash generated from operations) 10,005,000
Income tax paid (W-2) (1,070,000)
Net cash from operating activities 8,935,000
Cash flow from investing activities

Purchase of property, plant and equipment (W-3) (16,106,000)
Proceeds from sale of property, plant and equipment (3,440,000+2,599,000) 6,039,000
Investment income received (W-1) 382,000
Purchase of investments (7,645,000 – 6,498,000) (1,147,000)
Net cash used in investing activities (10,832,000)
Cash flow from financing activities

Obtain bank loan 6,000,000
Additional capital (14,219,000 – 10,703,000) 3,516,000
Drawings (3,600,000)
Net cash from financing activities 5,916,000
Net increase in cash and cash equivalents 4,019,000
Cash and cash equivalents at beginning of period (4,000–27,000) (23,000)
Cash and cash equivalents at end of period 3,996,000

Suggested Answers
W-1: Investment income received Amount in Rs.

Balance b/d 80,000 Cash (balancing) 382,000
Income Statement 398,000 Balance c/d 96,000
478,000 478,000
W-2: Tax paid Amount in Rs.

Taxes paid (balancing) 1,070,000 Balance b/d 994,000
Balance c/d 1,300,000 Income Statement 1,376,000
2,370,000 2,370,000
W-3: Property, plant and Equipment Amount in Rs.

Balance b/d 11,845,000 Disposals (2,481,000+2,599,000) 5,080,000
Revaluation surplus
(8,000,0005,963,000) 2,037,000 Depreciation 5,280,000
Additions (balancing) 16,106,000 Balance c/d 19,628,000
29,988,000 29,988,000
A.7 (a) -------------- Kilometers --------------

A 10,000 20,000 30,000
Variable costs: -------------- Amount in Rs. --------------
Maintenance - service after every 5000 km 12,000 24,000 36,000
Spares 20,000 40,000 60,000
Petrol 50,000 100,000 150,000
Provision for replacement of tyres
(20,000÷25,000×A) 8,000 16,000 24,000
Depreciation
[(1,200,000300,000)/100,000×A] 90,000 180,000 270,000
B 180,000 360,000 540,000
Fixed costs:
Vehicle tax 6,000 6,000 6,000
Insurance 36,000 36,000 36,000
C 42,000 42,000 42,000
Total cost 222,000 402,000 582,000
Variable cost per km (B÷A) 18.00 18.00 18.00

Fixed cost per km (C÷A) 4.20 2.10 1.40
Total cost per km 22.20 20.10 19.40
(b) (i) Spares and petrol:

Spares and petrol are variable costs being dependent on the usage of car.
(ii)
Depreciation:
The depreciation in this case is variable because it is being charged on the basis of actual
running/usage and not on the basis of time.
(iii)
Maintenance:
Service is to be done after each 5,000 kms and is therefore a variable cost.
(iv)
Vehicle tax:
Vehicle tax is payable per year irrespective of actual running and is therefore a fixed cost.
(v)
Insurance:
Insurance is payable per year irrespective of usage and is therefore a fixed cost.
(vi)
Tyres:
If the cost of tyres is accrued on the basis of usage, it would be a variable cost.
(THE END)


Q.1 Mr. Razi, a sole proprietor, runs a small business. On 30 June 2015, he realized that his cash
and bank balances have reduced considerably. He suspected that one of his employees is
involved in misappropriation. He has provided you the following information:
Opening balances on 1 July 2014 Rs. in ‘000’

Cash and bank 389
Debtors 1,560
Stock 856
Land 450
Equipment – WDV (purchased on 1 April 2014 at a cost of Rs. 600,000) 585
Creditors 1,348
Accrued expenses: Marketing 30
Utilities 25
Salaries 48
Other miscellaneous 15
Receipts and payments for the period from 1 July 2014 to 30 June 2015 Rs. in ‘000’
Receipts from cash sales 1,728
Receipts from debtors 4,475
Payments made to creditors 4,774
Payments for marketing expenses 205
Payments for utility expenses 240
Payments for salaries 600
Payments for other miscellaneous expenses 107
Equipment (purchased on 1 October 2014) 250
Withdrew by Razi for his personal expenditures 125
Other information:
(i) Razi makes 35% margin on gross sales price. However, during the year, he offered 5%
discount on credit sales and 10% discount on cash sales. 70% of his total sales were on
credit.
(ii) Actual bills for the year were as follows:
Rs. in ‘000’
Marketing expenses 200
Utility expenses 250
Other misc. expenses 100
(iii) Salary of the staff was Rs. 52,000 per month.

(iv) Balances of debtors and creditors as on 30 June 2015 were Rs. 1,091,000 and
Rs. 1,195,000 respectively.
(v) Closing stock at 30 June 2015 was Rs. 1,167,000. It included 150 units costing
Rs. 1,500 each which were damaged and Razi incurred Rs. 900 per unit in July
2015 to bring them into saleable condition.
(vi) Razi depreciates equipment on straight line basis at the rate of 10% per annum.
Required:
Prepare income statement for the year ended 30 June 2015 and balance sheet as at
30 J une 20 15. Al so c om pu te th e a mo un to f
For mo r e C A S t u f f, V i s i t N o w
ca sh sh orta ge, i f an y. (1 9)
: w w w . m h korai.blogspot.c o m
Q.2 Following is the summarised trial balance of Eagles Limited (EL) as at 30 June 2015:
Debit Rs. in ‘000’ Credit Rs. in ‘000’
Plant 2,500 Accumulated depreciation at 1 July 2014
Equipment 700 – Plant 1,000
Stock as on 1 July 2014 1,500 – Equipment 270
Trade debtors 1,300 Provision for obsolete stock at 1 July 2014 45
Cash and bank 1,759 Provision for bad debts at 1 July 2014 48
Purchases 6,987 Capital 2,500
Salaries & wages 843 Accumulated profits 960
Warehouse rent 740 Trade creditors 1,545
Repair and maintenance 500 Revenue 10,706
Utilities expenses 400 Other income 425
Insurance expenses 300 Accruals at 1 July 2014
Bad debt written off 30 – Repairs & maintenance 45
Obsolete inventory written off 40 – Utilities expenses 55
17,599 17,599
Additional Information:
(i) The sales include goods supplied on 27 June 2015 to a customer at a price of
Rs. 390,000 on a sale or return basis. The goods were returnable by 15 July 2015.
EL sells such goods at a mark-up of 30% on cost.
(ii) Other income includes proceed from sale of an equipment amounting to Rs. 100,000
received on 31 December 2014. The cost and written down value of the equipment
at 1 July 2014 were Rs. 200,000 and Rs. 70,000 respectively.
(iii) Plant and equipment are depreciated at the rate of 10% and 15% respectively on
straight line basis.
(iv) Cost of stock on 30 June 2015 was Rs. 1,400,000, having net realizable value of
Rs. 1,450,000.
(v) The management estimates that:
 5% of trade debts would not be recovered.
 3% of the stock is obsolete.
(vi) Current warehouse rent is Rs. 600,000 per annum which was paid in advance on
1 October 2014.
(vii) Following bills for expenses were received but not entered in books:
Rs. in ‘000’
Repair and maintenance Utilities expenses 56
67
(viii) The company revalued its non-current assets on 31 December 2014. Valuer has
suggested following fair values:
Rs. in ‘000’
Plant Equipment 1,650
175
(ix) The tax charge for the current year after making all related adjustments is estimated at
Rs. 200,000.
(x) No entry has been made in respect of disposal, revaluation and depreciation of fixed
assets.
Required:
Prepare statement of financial position as at 30 June 2015 and statement of comprehensive
income for the year ended 30 June 2015. (Deferred tax implication is to be ignored) (19)
Q.3 (a) When a company follows revaluation model for subsequent measurement of its
Property, Plant and Equipment, it is required to provide certain additional disclosures
(as compared to cost model). Specify such disclosures as have been mentioned in
IAS 16 ‘Property, Plant and Equipment’. (03)

(b) PQR Enterprises was incorporated on 1 July 2012. The company depreciates its
property, plant and equipment on straight line basis over their useful life. It uses
revaluation model for subsequent measurement of the property, plant and equipment
and has a policy of revaluing these after every two years.
Following information pertains to its property, plant and equipment:
Cost as onWDV as onValue as determinedUseful life in years

01-07-201301-07-2013by professional valuerOriginal at Remaining as
Assets
on 30-06-2014acquisition determined by valuer
---------------- Rs. in million ----------------
Office building 6,000 5,500 5,750 12 8
Factory building 4,400 3,960 3,320 10 9
Warehouse 4,500 4,050 3,350 10 8
During the year there were no addition or deletion in the above assets.
As per policy, PQR transfers the maximum possible amount from the revaluation
surplus to retained earnings on an annual basis.
Required:
Prepare necessary journal entries for the year ended 30 June 2014 and 2015. (12)
Q.4 Diamond Limited has its head office in Karachi and two branches in Lahore and Quetta.
Balances of its head office and branch operations for the year ended 30 June 2015 are as
under:
Head office Lahore Quetta

Karachi branch branch
-------------- Rs. in million --------------
Inventory as at 1 July 2014 400 30 48
Sales 4,800 1,550 1,198
Purchases 3,800 230 200
Expenses 500 276 202
Head office – current account (Cr.) - 200 178
Lahore branch – current account (Dr.) 230 - -
Quetta branch – current account (Dr.) 235 - -
Goods sent to branches 1,760 - -
Goods received from head office - 1,070 618
Provision for unrealized profit - 1 July 2014 13 - -
(i) Head office transfers goods to branches at cost plus 20%.
(ii) Inventory as at 30 June 2015:
Rs. in million
Head office Lahore branch Quetta branch 375
28
150
(iii) Goods worth Rs. 20 million and Rs. 52 million sent to Lahore branch and Quetta
branch respectively were in transit at year-end.
(iv) Cash transfers to head office by Lahore branch and Quetta branch amounting to Rs. 10
million and Rs. 5 million respectively were in transit at year-end.
Required:
(a) Prepare statement of comprehensive income for the year ended 30 June 2015 showing
the total profit/loss as well as profit/loss earned by the head office and two branches. (10)
(b) Reconcile the balances between the head office and the two branches. (02)

Q.5 (a) Describe the term ‘revenue’ and state when and how revenue shall be recognised in the
case of royalties and dividend. (03)
(b) Adnan Limited (AL) is a supplier of machinery and spare parts. The machines supplied
are installed by AL. Following transactions took place in the last week of the
accounting year i.e. 30 June 2015:
(i) A machine was delivered to a customer. The invoiced amount was Rs.
500,000. In accordance with the Operating Manual, the customer had to
arrange a voltage stabiliser before connecting the machine to the power supply.
Machine became
operational on 1 July 2015. (02)
(ii) A specialised machine was sold to Sun Technologies (ST) for Rs. 800,000. ST
agrees to make the payment on 7 July 2015. However, ST informed AL that it
would accept the delivery in the month of August 2015. (03)
Required:
Applying the principles of IAS 18, explain when revenue from the sale of above
machines may be recorded.
(c) (i) On 31 March 2015 a machine was sold under a package deal. The package
includes a machine with free after sale service for 2 years at a total price of
Rs. 50,000. Selling price of standalone unit is Rs. 40,000. Cost of providing after
sales service is estimated at Rs. 4,000 per year. (03)
(ii) A machine was delivered to the customer on 1 July 2014. However, the invoice
was raised on 30 September 2014. According to the invoice, the total price of
Rs. 300,000 is to be paid in 2 half yearly installments of Rs. 150,000 each,
commencing from 1 January 2015. Appropriate discount rate is 10% per
annum. The present value of these two half yearly installments is to be taken
as
Rs. 278,912. (03)
Required:
Prepare necessary journal entries to record the above transactions in the books of
Adnan Limited for the year ended 30 June 2015.
Q.6 A company deals in Solar Panels which are imported from China. The company follows a
perpetual inventory system and values its inventory on weighted average basis. Details of
sales and purchases during the year ended 30 June 2015 are as follows:
(i) Opening inventory on 1 July 2014 amounted to Rs. 49,000,000 and consisted of 2,450
solar panels.
(ii) Purchases during the year were as follows:
Date Quantity (Units) Price (Rs. in ‘000’)
30-Sep-2014 4,200 78,120
31-Mar-2015 4,350 87,000
Costs related to imports were 29% of purchase cost, of which 17% is refundable.
(iii) Sales during the year were as follows:
Date Quantity (Units) Price (Rs. in ‘000’)
31-Jul-2014 2,100 52,500
31-Oct-2014 2,050 48,750
28-Feb-2015 2,300 55,200
15-May-2015 2,260 53,110
(iv) Sale on 31 October 2014 includes 100 solar panels which were damaged during the
year and sold at Rs. 12,000 per unit.
(v) On 31 May 2015, 50 solar panels were totally damaged and were written off.
(vi) On 30 June 2015 there was a significant decline in the prices of solar panels as a
new type of solar panel was introduced in the market. Selling prices are now Rs. 18,500

per unit. However, the company has made some modification in its product which
will enable it to sell it at Rs. 22,000 per unit. Cost of modification is Rs. 2,500 per unit.

Required:
Prepare disclosure of inventories in the financial position as at 30 June 2015 in accordance
with the requirements of IAS-2 ‘Inventories’. (Note: Accounting policy note and comparative
figures are not required) (13)
Q.7 A manager is interested in knowing the relationship between machine hours and production
expenses. Data collected for January 2015 to August 2015 is as follows:
Machine hoursProduction expenses

Months
(Rs. in million)
January February March April May June July August
26450
39090
28070
35585
375100
33075
30070
29060
Required:
Develop relationship between production expenses and machine hours and predict
production expenses if machine works for 365 hours. (08)
(THE END)


Q.1 Babar had purchased a running business from Razi on 1 January 2014 at a total agreed price
of Rs. 960,000. Babar died on 16 June 2014 and his son Sami took over the business.
Sami wants to assess the profitability of the business and for that purpose he has
collected the following information from the records maintained by him and his father:
(i) Correspondence between Babar and Razi has revealed that they had agreed to
value the inventory and other assets of the business at Rs. 600,000 and Rs.
120,000 respectively. However, in view of Razi’s standing in the market, the deal
had been finalised at a lump sum price of Rs. 960,000 payable in two equal
instalments. The first instalment was paid by Babar from his personal account.
(ii) Babar had opened a bank account in the name of the business. An analysis of the
bank statement revealed the following details:
Receipts Rupees
Amount deposited by Babar on 1 January 2014 from his personal account 2,000,000
Day to day collections banked at day end 3,800,000
Payments
Second instalment to Mr. Razi on 31 January 2014 480,000
Purchases 3,150,000
Lease rent 120,000
Electricity 22,000
Furniture purchased on 1 July 2014 25,000
(iii) Babar and Sami kept a notebook which shows that the following payments were
made out of daily sale proceeds before depositing them in the bank:
Rupees
Salaries and EOBI payments 184,300
Purchases 49,500
Sundry shop expenses 35,600
Drawings 192,500
(iv) On 31 August 2014, there was a burglary at the warehouse and inventory costing
Rs. 50,000 was stolen. Due to defect in the insurance policy, the insurance company
acknowledged the claim of Rs. 20,000 only, which was received on 5 November 2014.
(v) On 31 December 2014, stock on hand costed Rs. 450,000. Cash in hand, trade
creditors and accrued expenses (electricity) amounted to Rs. 34,500, Rs. 82,500 and
Rs. 5,200 respectively.
(vi) Depreciation on fixtures and fittings is to be provided at the rate of 10% per annum.
Required:
Prepare Trading and Profit and Loss Account for the year ended 31 December 2014 and
Balance Sheet as on 31 December 2014. (20)

Q.2 Trade Link Enterprises opened a branch at Lahore on 1 January 2014. The branch has
provided the following summary of transactions carried out by it during the year 2014 :
Rupees
Goods received from head office 21,732,000
Sales made during the year, of which 40% on credit Realized from credit 15,846,250
customers
Trade discount allowed to customers Sales return by customers 4,753,875
Bad debts 36,220
Petty expenses incurred Closing stock 108,660
Goods in transit from head office at year-end 9,055
Purchase of fixed assets, bills discharged by head office Expenses incurred and reimbursed by head off
70,629
Rent and utilities 6,385,000
Sales promotion 250,000
Payroll 1,448,800
537,100
144,880
724,400
Other information:
(i) Head Office invoices goods to branch at cost plus 25 percent.
(ii) The branch maintains an imprest of Rs. 100,000 and a balance of Rs. 500,000 in its
bank account. All other takings are transferred to head office.
(iii) Depreciation on fixed assets is to be charged at 15% per annum.
Required:
Prepare Lahore Branch Account in the books of Trade Link Enterprises for the year ended
31 December 2014 showing the profit made by the branch. (12)
Q.3 (a) HCL had agreed to provide services to NPL. The total contract price was Rs.
800,000 and HCL had initially expected to earn 25% profit on the contract. 50% of
the work had been completed at year end at the cost of Rs. 320,000. Soon thereafter, a
dispute arose on the quality of work and further work has been stopped pending
settlement of the dispute. HCL is however very confident of recovering the cost
incurred on the contract plus a margin of 10% above cost.
Required:
Discuss how much revenue should be recognised at the year end? (02)
(b) Saleem owns 10,000 shares in a listed company on 3 December 2014. On the same
date, the company declared a dividend of Rs. 2 per share on the basis of shares
held on 31 December 2014.
The dividend was paid by the company on 15 January 2015.
Required:
Prepare necessary journal entries relating to the dividend in the books of Saleem. (02)
(c) A company sold equipment to a customer on 1 September 2014 for Rs. 15 million.
As per market norms the company has agreed to provide free support services for the
next two years. The cost of providing the support services is estimated at Rs. 250,000
per annum. On such services, the company usually earns a profit of 20% of cost.
Required:
Prepare journal entries relating to this transaction for the year ended
31 December 2014. (04)
(d) In the sale of goods how should the revenue be recognised when goods are shipped
subject to installation and inspection?
Q.4 (a) List the elements of financial statements. (02)
(b) Following is the draft balance sheet of XYZ Limited as at 31 December 2014 which
was prepared by its accountant:
Rs. in Rs. in
Assets million Equities and liabilities million
Leasehold land – cost 250 Capital 1,000
Leasehold land – accumulated amortisation (200) Accumulated profit 1,816
Building – cost 1,000 Long term bank loan 200
Building – accumulated depreciation (500) Trade payables 228
Machinery – cost 1,750 Income tax payable 85
Machinery – accumulated depreciation (1,150) Accrued interest 13
Long term deposit 70
Stocks 910
Account receivables – net of provision 361
Cash and bank 851
3,342 3,342
(i) Profit before tax and income tax expenses for the year amounted to Rs. 275
million and Rs. 13 million respectively.
(ii) Balances as at 31 December 2013 were as under:
Rs. in million
Stock 703
Account receivables – net of provision 418
Cash and bank 243
Trade payables 150
Income tax payable 80
Long term deposit 70
The company follows a policy of maintaining provision for bad debts equal to
5% of account receivables.
(iii) The bank loan was obtained on 1 January 2014 and carries interest @ 9% per
annum.
(iv) XYZ uses straight line method for depreciation. Rates of depreciation are as
under:
Leasehold land 2%
Building 5%
Machinery 10%
Full month’s depreciation is provided in the month of acquisition but no

depreciation is charged in the month of disposal. Depreciation for the year 2014
has already been provided.
On review the CFO has discovered the following:

 A machine with list price of Rs. 50 million was purchased on
1 January 2014. An amount of Rs. 30 million had been paid in cash
whereas Rs. 20 million were adjusted against trade-in of a machine costing
Rs. 40 million and having a book value of Rs. 25 million. The
transaction was recorded by debiting the plant and machinery account
by Rs. 30 million i.e. the net amount paid to the supplier.
 One of the company's customers became bankrupt during the year. Rs. 5
million out of total debt of Rs. 25 million were recovered from him.
Balance has to be written off.
Required:
Prepare a statement of cash flow as at 31 December 2014. (20)
Q.5 (a) List the particulars that are required to be disclosed in the financial statements in
respect of inventories, according to IAS 2. (03)
(b) Soya Fry Limited manufactures Cooking Oil. Following information is available with
respect to purchases and overheads for the year ended 31 December 2014.
Details of purchases: Rs. in ‘000’
Raw material purchased (including 17% sales tax which
is refundable) 60,500
Packing material purchased 2,050
Settlement discount received on raw material purchases 400
Transportation cost relating to raw material (70%) and
packing material (30%) 300
Details of overheads:
Rent 2,700
Salaries and wages 2,500
Other variable overheads 5,000
Other fixed overheads 1,500
Other information:
(i) The break-up of rent is as follows:
Rs. in ‘000’
Factory 2,000
Warehouse (50% for raw material, 10% for packing material and 40% for finished
500
200
(ii) Break-up of salaries and wages, other variable and fixed overheads is as follows:
Allocation between
ManufacturingAdministration
Salaries and wages Other variable overheads
*60% 80%Other fixed40%overheads
60% 20%
40%
*Manufacturing salaries includes 70% direct wages to labourers working in the factor
(iii) Normal production level is 45,000 units per annum. Actual production during
the year was 40,000 units.
(iv) Opening and closing inventories are as follows:
1-Jan-2014 31-Dec-2014
--------- Rs. in ‘000’---------
Packing material 700 285
Raw material 5,000 7,780
Finished goods 2,962 4,162
Work in process 1,950 3,000
Goods costing Rs. 200,000 (2013: Rs. 300,000) are considered as obsolete and
have been fully provided. Further, closing stock of finished goods include goods
costing Rs. 75,000 which were damaged due to flood and can only be sold at
60% of its cost.
Required:
Disclose the above information in the note on ‘Cost of goods sold’ as would appear in
the profit and loss account for the year ended 31 December 2014. (17)

Q.6 You have recently been appointed as chief financial officer of Al-Hafeez Limited (AHL).
While finalizing the company’s financial statements for the year ended 31 December 2014,
you have observed the following issues:
(a) Plant and equipment includes Machine A-31 at a carrying amount of Rs. 918,400
which was fabricated in-house by AHL in February 2014 by using existing plant
and machinery. The details are as follows:
Rupees
Direct material and labour 656,000
Depreciation – existing plant and machinery 24,000
Administration costs 140,000
20% profit (normally charged to its customers) 164,000
984,000
Less: Depreciation for the year (10% of the cost for 8 months) (65,600)
Carrying value of the machine at year-end 918,400
Direct material includes material lost due to fire amounting to Rs. 40,000.
The fabricated machine was transferred and available for use on 1 March 2014 and
was brought into commercial production on 1 May 2014. (07)
(b) AHL provides transportation services to its factory workers through its fleet of six
buses. The buses are depreciated on straight line basis. At the end of last year, the
buses had carrying value of Rs. 7 million and remaining useful life of 5 years.
On 1 July 2014, the local government promulgated a new legislation whereby all
public transport buses were required to undergo regular major inspection after a
period of three years. An inspection exercise of the fleet of buses was undertaken
on 1 September 2014 at a cost of Rs. 1.8 million and this amount was capitalized in
the
carrying amount of buses. (04)
(c) On 31 December 2014, AHL acquired a used specialized machine which has no
active market, by exchange of Machine X. The newly acquired machine was
booked at the carrying value of Machine X which was Rs. 9.5 million. However, the
fair value of Machine X on the date of sale was Rs. 8 million but no adjustment
was made on the premise that the acquisition of this specialised machine would
increase efficiency
and consequently save approximately Rs. 1.5 million over its useful life. (03)
Required:
Explain the correct accounting treatment of the transactions by AHL and substantiate your
point of view with references to International Accounting Standards – 16 ‘Property, Plant
and Equipment’. Also prepare the necessary journal entries.
(THE END)


Q.1 Following is the summarised trial balance of ABC Limited as at 30 June 2014:
Rs. in million
Sales 737
Stock at 1 July 2013 75
Purchases 301
Manufacturing expenses 240
Selling and marketing expenses 28
Administrative expenses 51
Factory building – cost at 1 July 2013 200
Machines – cost at 1 July 2013 280
Factory building – accumulated depreciation at 1 July 2013 50
Machines – accumulated depreciation at 1 July 2013 87
Advance income tax 4
Debtors 117
Cash and bank 51
Creditors 83
Share capital 300
Unappropriated profit at 1 July 2013 90
1,3471,347
(i) Depreciation on factory building and machines are provided on reducing balance
method @ 10% and 15% per annum respectively. 60% depreciation on factory
building and 100% depreciation on machines are charged to cost of sales. The balance
depreciation is charged to administrative expenses.
(ii) On 31 May 2014, a fully depreciated machine was sold for Rs. 3 million. The sale
proceeds were received on 5 July 2014. No entries have been made in respect of these
transactions.
(iii) Debtors include an amount of Rs. 28 million owed by a customer who experienced
cash flow problems prior to the year-end. The company has agreed to accept
Rs. 18 million in full and final settlement of the debt. Four other debtors
aggregating Rs. 5 million are required to be written off.
(iv) Income tax liability for the year ended 30 June 2014 is estimated at Rs. 25 million.
(v) On 20 June 2014 an advance of Rs. 12 million was received under a contract for
supply of goods in August 2014. The advance was credited to sales.
(vi) Closing stock at 30 June 2014 amounted to Rs. 114 million. It included stock
costing Rs. 20 million whereas the related invoice was booked on 4 July 2014.
(vii) In June 2014, a competitor developed a new product which has affected ABC’s ability
to sell one of its products at its normal price of Rs. 160. It is estimated that to sell
the product, the company needs to offer a discount of 25%. 150,000 units of that
product were in hand as on 30 June 2014 at a cost of Rs. 120 per unit. Its selling
costs are estimated at Rs. 20 per unit.
Required:
Prepare the statement of comprehensive income for the year ended 30 June 2014 and the
statement of financial position as at that date in accordance with International Financial
Reporting Standards. (20)

Q.2 Zeeshan Enterprise invoice goods to its Islamabad branch at cost plus 20 percent. The
expenses of the branch are paid by the head office. The branch has supplied the
following information for the year ended 30 June 2014:
Rupees
Opening stock - at invoice price 240,000
Closing stock - at invoice price 180,000
Cash sales 175,000
Collection from debtors 378,000
Debtors as on 30 June 2014 91,600
Goods received from head office - at invoice price 300,000
Goods returned to head office 30,000
Goods in transit from head office as on 30 June 2014 - at invoice price 36,000
Branch expenses paid by the head office 104,000
Required:
Show the Branch Account as it would appear in the books of head office for the year ended
30 June 2014 showing the profit made by the branch. (10)
Q.3 (a) List the conditions which are necessary to be fulfilled for recognizing revenue from sale
of goods under IAS 18 ‘Revenue’. (04)
(b) Attire Limited (AL) is a manufacturer of kids’ garments which are supplied to large
departmental stores. Following are some of the transactions which were carried out in
August 2014:
(i) AL delivered 2,000 garment pieces to Elegant Mart (EM). According to the terms
of sale, at the expiry of three months from the date of delivery, EM would have
the right to return the unsold garments to AL. All garments sold during this
period or retained by EM would be invoiced after three months of delivery and
would thereafter be paid within seven days.
EM has agreed to display AL’s garments at a prominent place at all its stores and
in return AL has agreed to allow a discount of 2%. (03)
(ii) AL sold 10,000 pieces of garments to Salam Garments on lay away basis. The
payment is to be made in 12 monthly instalments of Rs. 1,000,000 each. (03)
Required:
Describe how the above transactions would be accounted for in AL’s books of account.
Q.4 Shahzad Textile Mills Limited (STML) purchased a plant for Rs. 500 million on 1 July
2010. The plant has an estimated useful life of 10 years and no residual value.
STML uses revaluation model for subsequent measurement of its property, plant and
equipment and accounts for revaluations on net replacement value method. The details of
revaluations performed by an independent firm of valuers are as follows:
Revaluation date Fair value

1 July 2011 Rs. 575 million
Required:
Prepare journal entries to record the above transactions from the date of acquisition of the
plant to the year ended 30 June 2014. (Ignore tax implications) (15)

Q.5 Hammad Limited (HL) imports and supplies three products, Alpha, Gamma and Beta.
The opening balances and transactions for the month of June 2014 are as follows:
Units purchased Units Sold during the

Opening balance
during the month month
Items
Invoice
Qty. Value (Rs.) Qty. value (Rs.) Qty. Value (Rs.)
Alpha 20 60,000 360 920,000 350 1,820,000
Gamma 100 4,800,000 50 2,375,000 70 4,060,000
Beta 30 120,000 490 1,820,000 400 1,640,000
The following information is also available:
(i) HL’s bank charges a commission of 0.5% of invoice value for opening the letter of
credit.
(ii) Import taxes and duties were 23% of the invoice value out of which 40% are
refundable/adjustable.
(iii) The transportation charges are Rs. 1,500 per trip. 20 units of Alpha, 2 units of Gamma
or 15 units of Beta can be transported in each trip.
(iv) All goods are repacked after import. The cost of packing per unit was Rs. 300,
Rs. 1,500 and 700 respectively.
(v) HL values its stock on first-in, first-out basis.
(vi) Average selling costs per unit are Rs. 700, Rs. 1,500 and Rs. 400 respectively.
Required:
Compute the value of stock of each product as at 30 June 2014 in accordance with IAS-2
‘Inventories’. (15)
Q.6 Following information has been extracted from the financial statements of Full Speed
Enterprises (FSE) for the year ended 30 June 2013:
Rupees
Vehicles – cost 65,201,300
Less: Accumulated depreciation (24,450,500)
WDV of vehicles 40,750,800
FSE provides depreciation on vehicles @ 15% per annum on written down values.
Depreciation on addition/deletion is provided in proportion to the period of use.
Other related information is as follows:
(i) On 1 August 2013, a vehicle which was acquired at a cost of Rs. 850,000 on
1 July 2011 was exchanged for a new vehicle. The balance was settled with a cheque
for Rs. 350,000. The list price of the new vehicle was Rs. 900,000.
(ii) Three new vehicles were purchased on 1 December 2013 for Rs. 1,250,000 each.
(iii) On 1 February 2014, a vehicle having written down value of Rs. 550,000 was
repaired at a cost of Rs. 250,000. It is expected that the repairs would improve the
efficiency of the vehicle significantly.
(iv) On 30 June 2014, a vehicle purchased on 1 January 2012 at a cost of Rs. 1,500,000 was
sold for Rs. 1,350,000.
Required:
Prepare the following ledger accounts for the year ended 30 June 2014:
(a) Vehicles account
(b) Accumulated depreciation on vehicles
(c) Loss/gain on sale of vehicles (10)

Q.7 Following is the balance sheet of Ashfaq as at 30 June 2013:

Owner's equity / Liabilities Rupees Assets Rupees
Ashfaq’s capital 4,396,600 Motor car 2,000,000
Creditors 1,102,000 Furniture 1,000,000
Accrued rent 20,000 Stock-in-trade 1,805,000
Loan taken from a friend 27,900 Debtors 350,000
Prepaid insurance 15,000
Balance at bank 360,600
Cash in hand 15,900
5,546,500 5,546,500
Ashfaq needs to submit his Trading and Profit and Loss Account for the year ended 30 June
2014 and Balance Sheet as of that date to his bankers in order to obtain an overdraft facility.
He has not maintained proper books of account of the business but has provided you the
following information:
(i) He purchased goods from a single supplier who allows a discount of 3% on goods
purchased in excess of Rs. 3,000,000 in a year. The discount for the year ended
30 June 2014 amounts to Rs. 265,800 and would be received in August 2014.
(ii) All goods are sold at cost plus 60%.
(iii) All cash received against sale of goods has been banked with the exception of the
following weekly average cash expenses/drawings:
Rupees
Drawings 30,000
Carriage outward 5,000
Petrol 3,000
Misc. expenses 2,500
(iv) Cash in hand on 30 June 2014 amounted to Rs. 26,700.

(v) An analysis of Ashfaq’s bank statement revealed the following information:
Receipts Rupees Payments Rupees

Collection from debtors 464,400 Purchase of goods 9,850,700
Cash deposited into bank 13,717,800 Car expenses (for business) 73,000
Rent 42,000
Repayment of loan to friend 27,900
Salaries 1,600,000
Purchase of freehold land 2,500,000
Travelling expenses 40,000
Printing & stationery 46,000
Advertisement 125,000
Insurance 50,000
Truck hire charges 657,000
Misc. expenses 362,300
14,182,200 15,373,900
(vi) Depreciation on motor car and furniture is to be provided @ 30% and 15%
respectively under the reducing balance method.
(vii) Stock-in-trade on 30 June 2014 amounted to Rs. 702,000.
Required:
Prepare Trading and Profit and Loss Account for the year ended 30 June 2014 and Balance
Sheet as on 30 June 2014. (20)
(THE END)

Past Paper FAR1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Past Paper FAR1

Uploaded by

Copyright:

Available Formats

For more CA Stuff, Visit Now: www.mhkorai.blogspot.

Financial Accounting and Reporting-I

Final dividend *Interim dividend

(b) A manufacturing entity sets up a plant in an area of high unemployment. A

Following other information is available:

For more CA Stuff, Visit Now:

Profit or loss Other comprehensive income

(x) A debtor turnover of 6 times means that:

For more CA Stuff, Visit Now:

(d) average debtors are collected 2 times in a year (01)

For more CA Stuff, Visit Now:

Statement of financial position as on 30 June 2019

Statement of profit or loss for the year ended 30 June 2019

(vi) During the year, STL issued right shares at premium.

For more CA Stuff, Visit Now:

Q.6 The following information pertains to Monday Limited (ML):

(i) The balances of property, plant and equipment as on 1 January 2018:

Revaluation surplus related to the office building as at 1 January 2018 amounted

(ii) On 1 September 2018, a new equipment was acquired by making payment of

(iii) On 1 January 2018, ML commenced construction of a manufacturing plant. The

(v) Other relevant details are as follows:

For more CA Stuff, Visit Now:

(i) Assets and liabilities as on 1 January 2018:

(vi) Debtors amounting to Rs. 138,000 are considered as irrecoverable.

For more CA Stuff, Visit Now:

Alpha placed the following orders:

For more CA Stuff, Visit Now:

For more CA Stuff, Visit Now:

Financial Accounting and Reporting-I

Rs. in '000 Rs. in '000

For more CA Stuff, Visit Now:

Statement of financial position

Equity and reserves 10,400 9,000 8,600

Statement of profit or loss

For more CA Stuff, Visit Now:

Q.5 The following information pertains to Piano Limited (PL):

Revaluation on 31 December 2016

Revaluation on 31 December 2018

For more CA Stuff, Visit Now:

Assets Rs. in '000 Liabilities Rs. in '000

Assets Rs. in '000 Liabilities Rs. in '000

For more CA Stuff, Visit Now:

Statement of cash flows

Decrease in cash balance during the year(350)

For more CA Stuff, Visit Now:

Ans.1 Partners' capital

Ans.2 (a) Regression analysis and high-low analysis compared

Regression analysis High low method

For more CA Stuff, Visit Now:

Ans.3 (a) Working capital cycle 2018 2017

Liquidity ratios: 2018 2017

Current assets 8,200 8,500

Current assets − inventor 8,200 − 4,000 8,500 − 4,500

[(4,200 + 3,200) ÷ 2] [(3,200 + 1,800) ÷ 2]

Average inventory [(4,000 + 4,500) ÷ 2] [(4,500 + 3,000) ÷ 2]

[(3,500 + 4,400) ÷ 2] [(4,400 + 4,200) ÷ 2]

For more CA Stuff, Visit Now:

(b) Measures to improve working capital cycle days:

 the parties to the contract have approved the contract.

Standalone price Proportion Transaction price

Till 31 December 2018, revenue would be recognized in respect of:

 Sale of machine Rs. 1,530,000

Remaining amount of Rs. 157,500 would appear in liabilities as deferred revenue.