SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS 1 of 9

FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2

Marks
Question No. 2
(a) (i)

Interest incurred Rs.

Shafiq Bank Limited 12,500,000*15%*12/12 1,875,000 0.75
Faraz Bank Limited 8,000,000*10%*6/12 400,000 0.75
Regal Bank Limited 4000,000*12%*7/12 280,000 0.75
Total 2,555,000 0.75

(ii) Weighted average interest rate

= interest incurred during the year/ Average general loans outstanding during the year
2,555,000(i) /18,833,333 (W-1) 13.5664% 01
(W-1):
Average loan balances outstanding during
the period of construction (apportioned for
time) Rs.
Shafiq Bank Limited 12,500,000*12/12 12,500,000 0.75
Faraz Bank Limited 8,000,000*6/12 4,000,000 0.75
Regal Bank Limited 4,000,000*7/12 2,333,333 0.75
18,833,333 0.75

(iii) Borrowing cost to be capitalized:

Accumulated Expense Accumulated

Average
balance incurred Interest expense
Period cumulative
Opening during the capitalized closing
expense
Balance period balance
W-1 W-2 W-3
1-Jan - 2,000,000 2,000,000 22,611 2,000,000 1.00
1-Feb 2,000,000 12,954,545 14,954,545 169,066 14,954,545 1.25
1-Mar-31- 1.25
Dec 14,954,545 9,545,455 20,204,545 2,284,186 26,784,186
2,475,863 0.25
Working:
W-1: Expense incurred during the period: 0.75
 1-Jan: 2,000,000
 1-Feb: 12,000,000 + (10,500,000/11) = 12,954,545
 1-Mar-31- Dec: 10,500,000- 954,545 = 9,545,455
W-2: Average cumulative expense: 0.75
 1-Jan: 2,000,000
 1-Feb: 2,000,000 + 12,954,545 = 14,954,545
 1-Mar-31- Dec: 14,954,545+954,545+ (10,500,000-954,545-954,545)/2= 20,204,545
W-3: Interest capitalized: 0.75
 1-Jan: 2,000,000*13.5664%*1/12=22, 611
 1-Feb: 14,954,545* 13.5664%*1/12=169,066
 1-Mar-31- Dec: 20,204,545* 13.5664%*10/12=2,284,186

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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS 2 of 9
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
(b) Rayyan Limited
(i) Statement of Profit or Loss for the year ended December 31,2019
Rs.
Research and development expenses (W-1) 2,910,000 1.00

(ii) Statement of Financial Position as at December 31, 2019: Rs.

Property, Plant and equipment
Land 9,000,000 1.50
Research centre (net of accumulated depreciation of Rs. 1,160,000) 22,040,000 1.50

(W-1)
The detail of the research and development expenses are as follows:
Research and development expenses Rs.
Depreciation—research centre (23,200,000*5%) 1,160,000 0.75
Salaries and benefits. 950,000 0.75
General administration expenses 800,000 0.75
2,910,000 0.75
Note:
All research and development costs should be charged to expense when incurred.
Therefore, all of Rayyan Limited’s costs related to its research and development activities
for 2019 would be expensed regardless of the long-term benefits.

Question No. 3
(a) Rafaqat Limited
Statement of Profit or loss
For the year ended December 31, 2019
Rs. ‘000’
Net sale W-1 3,201,500 0.25
Cost of goods sold W-2 (1,935,000) 0.25
Selling expense W-4 (715,580) 0.25
Administration expense W-4 (326,370) 0.25
Total expenses (2,976,950) 0.25
Other Income W-5 62,940 0.25
Profit before tax 287,490 0.25
Income tax (29%) (83,372) 0.50
Net profit 204,118 0.50
Other Comprehensive Income
Gain on revaluation of land and building W-6 65,500 0.25
Total comprehensive income for the year 269,618 0.50

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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS 3 of 9
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
Workings:

W-1: Net Sales Rs. ‘000’

Sales revenue 3,300,000 0.25
Less: equipment sales (2,500) 0.25
Sales Discount (43,500) 0.25
Sales return and Allowance (52,500) 0.25
Net sales 3,201,500 0.25

W-2: Cost of Goods Sold: Rs. ‘000’

Inventory - opening 267,000 0.25
Purchases 1,830,000 0.25
Less: purchase discount (30,000) 0.25
Net purchases 2,067,000 0.25
Add: freight -in 60,000 0.25
Inventory available for sale 2,127,000 0.25
Less: closing inventory (192,000) 0.25
Cost of goods sold 1,935,000 0.25

Rs. ‘000’
W-3: Depreciation Building Equipment Total
Cost 294,000 420,000 714,000 0.50
Less: Accumulated depreciation (58,800) (84,000) (142,800) 0.50
Book value 235,200 336,000 571,200 0.50
book value of disposed of assets (4,000) (4,000) 0.25
Revaluation of building/ book value of
equipment 300,000 332,000 632,000 0.50
Depreciation rate 5% 10%
Depreciation charge for the year 15,000 33,200 48,200 0.50

Rs. ‘000’
W-4: Administrative and Selling Expenses Administrative Selling
Expense as per trial balance 297,000 696,000 0.50
Depreciation for the year (48,200*60%) (48,200*40%) 28,920 19,280 0.50
Bad debt expense (750*60%) (750*40%) 450 300 0.50
Total 326,370 715,580 0.50

Rs. ‘000’
Allowance for Doubtful Debts 0.25
b/d 15,000
Profit or loss 750

c/d: 15,750
15,750 15,750

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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS 4 of 9
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
W-5: Other Income: Rs.'000'
Investment income 2,940 0.25
loss on disposal of equipment (1,500) 0.25
grant income 7,500 0.25
Rent income 54,000 0.25
Other income 62,940 0.25

Since, the grant assist over a period of 30 years an appropriate method of accounting the grant as
income is the straight line basis over the 30 years during which the employee cost will be recognised
in Profit or loss Statement: 300,000,000/30*9/12=7,500,000. 0.50

W-6: Revaluation of land & building:

Rs. ‘000’
Land Building Total
Carrying value 420,000 235,200 655,200 0.50
Revaluation 420,700 300,000 720,700 0.50
Revaluation gain 700 64,800 65,500 0.50

(b) Rafaqat Limited

Statement of changes in equity
For the year ended December 31, 2019
Rs. ‘000’
Share Share General Revaluation Accumulated
capital premium reserves reserves profits Total
Balance as at
Jan 1, 2019 900,000 30,000 47,000 - 480,000 1,457,000 1.25
Total
comprehensive
income - - 65,500 204,118 269,618 1.50
Less: Cash
dividend - - - (135,000) (135,000) 0.75
Balance as at
Dec 31, 2019 900,000 30,000 47,000 65,500 480,000 1,522,500 1.50

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS 5 of 9
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
Question No. 4
(a) Boston Limited 06
(i) Corporate Office Building: The delay in the timing of the transfer of the existing
building imposed by the company demonstrate that the corporate office building is not
available for immediate sale. The criteria that ‘the asset must be available for immediate
sale in its present condition subject only to term that are usual and customary for sale of
such assets and its sale must be highly probable’ would not be met until construction of
the new building is completed, even if a firm purchase commitment for the future
transfer of the existing building is obtained earlier. Therefore, the corporate office
building will not be classified as held for sale.
(ii) Manufacturing Facility: The transfer of incomplete customer orders at the sale date
will not affect the timing of the transfer of the manufacturing facility the criteria that the
asset must be available for immediate sale in its present condition subject only to terms
that are usual and customary for sale of such assets and its sale must be highly
probable would be met at the plan commitment date. Therefore, the company will
classify the manufacturing facility as held for sale.
(iii) Plant: Assets that meet the criteria to be classified as held for sale to be measured at
the lower of carrying amount and fair value less costs to sell, and depreciation on such
assets to cease.
(b) The plant will be measured at lower of:
Rupees
Carrying value [W-1] 1,375,000 0.25
F.V less Cost to sell [W-1] 1,950,000 0.25
The company will measure the plant at Rs. 1,375,000. 0.50
Working:
W-1: Rupees
Cost 5,500,000 0.25
Depreciation 15% 0.25
Depreciation for the year 825,000 0.50
Accumulated Depreciation (825,000 *5) 4,125,000 0.75
Carrying value (Cost-Acc.dep) (5,500,000 – 4,125,000) 1,375,000 0.75
F.V less Cost to sell (2,000,000 – 50,000) 1,950,000 0.50

(b) Luxury Furniture (Pvt.) Limited:

Rupees
Stand-alone
Product Cost of production Margin (10%)
selling price
Floor Lamps 1,350,000 135,000 1,485,000 0.75
Table Lamps 800,000 80,000 880,000 0.75
Hanging Lamps 750,000 75,000 825,000 0.75
3,190,000 0.25
Stand-alone selling Allocation of
Product
price transaction price
Floor Lamp 1,485,000 1,396,552 0.50
Table Lamp 880,000 827,586 0.50
Hanging Lamp 825,000 775,862 0.50
3,190,000 3,000,000 0.50
Conclusion:
The transaction price of Rs. 3,000,000 includes a discount of Rs. 190,000. 0.50

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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS 6 of 9
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
Question No. 5
(a) Delightful Biscuits Limited
Statement of Cash flows
For the year ended December 31, 2019
Rs. ‘000’
Cash flows from operating activities
Profit before tax 640,000 0.25
Adjustments:
Depreciation 100,000 0.25
Impairment loss 20,000 0.50
Profit on sale of plant (20,000) 0.50
Operating profit before working capital changes 740,000 0.50
Increase in Trade debts (20,000) 0.25
Decrease in prepaid expense 4,000 0.25
Increase in inventories (40,000) 0.25
Decrease in Expenses payables (2, 000) 0.25
Decrease in Trade and other payables (20, 000) 0.25
Cash generated from operations 662,000 0.50
Income tax paid (185,600) 0.50
Net cash flow from operating activities 476,400 0.50
Cash flow from investing activities
Disposal of plant 180,000 0.50
Additions to plant W-1 (380,000) 0.50
Net Cash flow from investing activities (200,000) 0.50
Cash flow from financing activities
Dividend paid W-2 (78,400) 0.50
Loans repaid W-3 (40,000) 0.50
Proceeds from loans raised W-3 60,000 0.50
Proceeds from share issue W-4 66,000 0.50
Cash flow from financing activities 7,600 0.50
Net increase in cash flows 284,000 0.50
Cash & cash equivalent opening 20,000 0.25
Cash & cash equivalent-ending 304,000 0.50

Rs. ‘000’
W-1
2.0
Property, Plant and equipment
b/d 600,000 Depreciation 100,000
impairment 20,000
bank 380,000 disposal 160,000
c/d 700,000

980, 000 980,000

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS 7 of 9
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
W-2 Rs. ‘000’
Dividend paid 1.0
b/d 4,000
declared 134,400
paid 78,400

c/d 60,000
138,400 138,400

W-3 Rs. ‘000’ 1.0

Long term finances – secured
loan repaid 40,000 b/d 100,000

loan raised 60,000

c/d 120,000
160,000 160,000

W-4 Rs. ‘000’

1.0
Share Capital
b/d 144,000
Shares
c/d 210,000 issue 66,000
210,000 210, 000

(b) Yazdan Limited

Statement Of Financial Position
As At December 31, 2019
Rs. ‘000’
ASSETS
Non-current assets
Property, plant and equipment [510 million+744 million+
(2,520 million-1,440 million-120 million)] 2,214,000 1.00
Intangible assets(240 million-24 million) 216,000 0.25
Long term investments 2,034,000 0.25
Total Non-current assets 4,464,000
Current assets
Cash and bank balances (246,000+13,500) 259,500 0.25
Trade Receivables [981 million -39,240 (4%)] 941,760 0.50
Stock in trade 1,251,000 0.25
Prepaid insurance 35,400 0.25
Total Current assets . 2,487,660
TOTAL ASSETS 6,951,660 0.25

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS 8 of 9
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
EQUITY AND LIABILITIES
Share capital and reserves
Authorized capital
360,000,000 ordinary shares of Rs. 10 each 3,600,000 0.25
Issued, subscribed and paid up capital 3,000,000 0.25
Share premium 270,000 0.25
Accumulated profit (W-1) 614,460 0.25
Total Share capital and reserves 3,884,460
Non-current liabilities
Term finance certificates (TFCs) 1,200,000 0.25
Current liabilities
Notes payables 564,000 0.25
Trade and other payables 888,000 0.25
Accrued expenses (295,200+120,000) 415,200 0.25
Total Current liabilities 1,867,200
TOTAL LIABILITIES & EQUITY 6,951,660 0.25

Workings:
W-1: Accumulated profit: Rs. ‘000’
TB 828,000 0.25
Less:
Interest on TFCs (120,000) 0.25
Depreciation on equipment (120,000) 0.25
Amortization of patents (24,000) 0.25
Add: recovered debts 13,500 0.25
Add: Decrease in provision for doubtful debts 36,960 0.25
614,460 0.25

Question No. 6
(a) Imperial Limited
Difference between accounting profit and taxable profit: 02
Accounting Profit: it comprises income earned during the period less expenses incurred.
Taxable Profit: it is constituted by income that is taxable less expenses that are deductible for tax
purposes.

(b)
Calculation of taxable profit Rupees
Profit before tax (Accounting profit) Given 50,000,000 0.50
Add/ (Less) permanent differences
Add: non-deductible items fine Given 2,400,000 0.50
Add/ (Less) movement in temporary differences
Add: Income received in advance (rent) 2,000,000 0.75
Less: Prepaid expense (water) (1,600,000) 0.75
Add: Depreciation (28,000,000 * 25%) 7,000,000 1.00
Less: Capital allowance (28,000,000 * 15%) (4,200,000) 1.00
Add: research expense 3,200,000 0.75
Less: Research deduction allowed (800,000) 1.00
Add: provision for legal fee 3,600,000 0.75
Taxable profit 61,600,000 1.00
Current tax (29%) 17,864,000 1.00
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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS 9 of 9
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
Notes:
N-1: At December 31 2019, both this interest receivable and electricity bill payable had already
been included in the calculation of the 2019 Profit Before Tax, because:
 Interest income had been recognized in 2019(debit: Interest receivable Credit: Interest income)
on the ground it was earned in 2019.
 Electricity bill payable had been recognized as an expense in 2019. (debit: electricity expense
credit : payable)
Similarly we are told that interest was taxable in 2019 and the electricity was tax deductible in
2019. Thus, since the tax authority ‘agrees’ that the interest is income in 2019 and that the
electricity is an expense in 2019 , no adjustment is made to the Profit Before Tax in order to
convert it in to the taxable profit. 2.0

THE END

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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.