SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2019 EXAMINATIONS 1 of 8

FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2

Marks
Question No. 2
(a) Reportable Segments:
As Tasneem Mills Limited (TML) has both profits and losses making operating segments, the
result of those in profits and those in losses must be totalled to see which is the greater.

Rs. ‘000’
Profits (Rs.1,455 million + Rs.607.5 million + Rs.75 million) 2,137,500 0.75
Losses (Rs.165 million + Rs.472.5 million) (637,500) 0.75
1,500,000 0.75

So, the 10% of profit or loss test must be applied with reference to Rs. 2,137,500. 0.50

Operating Reportable
Explanation
Segments (Yes/ No)
Spinning Yes Because it generates more than 10% of revenue. 0.75
Weaving No Because it fails to meet any of the criteria specified in IFRS-8 0.75
Dyeing Yes Because it generates more than 10% of revenue. 0.75
Home textile Yes Because it has more than 10% of assets. 0.75
Garments Yes Because its losses are more than 10% of absolute losses. 0.75

Check whether 75% test is satisfied:

(Rs.5,287.5 million + Rs.2,250 million + Rs.675 million) ÷ Rs.8,827.5 million = 93% 0.5

(b) Calculation of Revised Profit:

Rs. ‘000’
Draft profit for the year 1,250,000 1.0
Amount of fraud detected (10,000) 1.0
1,240,000 1.0

Events Impact
Tax rate changed from 30% to 29% on Event incurred after the reporting date and is
July 15, 2019 non-adjusting.
Fire broke out in the factory on July 15, 2019 Event incurred after the reporting date and is
non-adjusting.
Debtor went bankrupt on August 02, 2019 Event incurred after the reporting date and is
5.0
non-adjusting.
Mr. Rashid lodged a claim on July 15, 2019 Event incurred after the reporting date and is
non-adjusting.
Auditor of the company detected a fraud on Event incurred before the reporting date and is
August 08, 2019 adjusting.

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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
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 SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2019 EXAMINATIONS 2 of 8
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
Question No. 3
Shaheer Limited
Statement of Cash Flows
for the year ended December 31, 2018
Rupees
Cash flows from Operating Activities
Profit before tax (PBT) 720,000 0.5
Adjustments for:
Depreciation 600,000 1.0
Profit on sale of property, plant and equipment [W-2] (15,000) 1.0
Finance costs [W-3] 75,000 0.5
1,380,000 0.25
Changes in Working Capital:
Increase in trade receivables (180,000) 1.0
Decrease in inventory 30,000 1.0
Decrease in trade payables (45,000) 1.0
Cash generated from operations 1,185,000 0.25
Interest paid (75,000) 0.5
Income taxes paid (105,000) 0.5
Net cash flow from operating activities 1,005,000 0.75
Cash Flows from Investing Activities
Payments to acquire property, plant and equipment [W-5] (1,920,000) 0.5
Receipts from sale of property, plant and equipment 435,000 0.5
Net cash flow from investing activities (1,485,000) 0.75
Cash Flows from Financing Activities
Proceeds from issue of share capital [W-4] 450,000 0.5
Receipts from increase in long-term loans 225,000 0.5
Dividends paid (75,000) 0.5
Net cash flow from financing activities 600,000 0.75
Net increase in cash and cash equivalents 120,000 0.25
Cash and cash equivalents – at the beginning of the year [W-1] (105,000) 0.25
– at the end of the year [W-1] 15,000 1.0

Workings:
W-1: Cash and Cash Equivalents:
Rupees
2018 2017
Cash on hand and balances with bank 45,000 75,000 0.25 + 0.25
Running finance (30,000) (180,000) 0.25 + 0.25
Cash and cash equivalents 15,000 (105,000) 0.25 + 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 – SPRING 2019 EXAMINATIONS 3 of 8
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
W-2: Profit on Sale of Property, Plant and Equipment:
Rupees
Original cost 675,000 0.25
Accumulated depreciation (255,000) 0.25
Carrying value – at the date of the sale 420,000 0.25
Sales proceeds (435,000) 0.25
Profit on sale of property, plant and equipment 15,000 0.25
W-3:
Finance Costs Account Rupees
Balance b/d – Expense 75,000 0.0 + 0.5
Interest paid 75,000 Balance c/d – 0.5 + 0.0
75,000 75,000
W-4:
Share Capital Account Rupees
Balance c/d – Share capital 1,650,000 Balance b/d – Share capital 1,350,000 0.25 + 0.25
– Share premium 300,000 Balance b/d – Share premium 150,000 0.25 + 0.25
Proceeds from issue of
share capital 450,000 0.0 + 0.25
1,950,000 1,950,000
W-5:
Property, Plant and Equipment Account Rupees
Balance b/d 3,075,000 Depreciation 600,000 0.25 + 0.25
Revaluation surplus 300,000 Disposal – Carrying value 420,000 0.5 + 0.5
Purchase of property, plant and
equipment 1,920,000 Balance c/d 4,275,000 0.25 + 0.25
5,295,000 5,295,000

Question No. 4
(a) Professional Books (Pvt.) Limited
Statement of Profit or Loss
for the year ended December 31, 2018
Rupees
Revenue 25,313,130 0.25
Cost of sales [W-3] (13,307,100) 0.25
Gross profit 12,006,030 0.25
Distribution costs [W-3] (4,616,825) 0.25
Administrative expenses [W-3] (5,473,515) 0.25
Other income 90,000 0.25
Profit before tax 2,005,690 0.25
Income tax (581,820) 0.25
Profit for the year 1,423,870 0.25

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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 – SPRING 2019 EXAMINATIONS 4 of 8
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
Workings:
W-1: Closing Inventory:
Rupees
Total inventories at cost – as per inventory count 1,336,810 0.25
Cost of damaged inventories (49,000) 0.25
Net realisable value (NRV) – 70% of selling price [W-2] 48,020 0.25
Inventory write down (980) 0.25
Value of closing inventory 1,335,830 0.25

W-2: Net Realisable Value (NRV):

Rupees
Cost 49,000
0.25
Mark-up – 40% of cost [(Rs.49,000 x 140/100) – Rs.49,000] 19,600
Selling price (Rs.49,000 x 140/100) 68,600 0.25
NRV – 70% of selling price (Rs.68,600 x 70%) 48,020 0.25

W-3: Cost of Sales, Distribution Costs and Administrative Expenses:

Rupees
Cost of Distribution Administrative
Sales Costs Expenses
Opening inventory 1,179,810 – – 0.25
Purchases 13,463,120 – – 0.25
Closing inventory [W-1] (1,335,830) – – 0.25
Expenses – 3,988,110 4,888,300 0.5
Import duties – – (43,500) 0.25
Amortization of intangible asset – 120,000 120,000 0.5
Allowance for doubtful debts – 3,980 3,980 0.5
Depreciation – Motor vehicle – 65,160 65,160 0.5
– Furniture and fixtures – 126,750 126,750 0.5
– Premises – 312,825 312,825 0.5
Total 13,307,100 4,616,825 5,473,515 0.75

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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 – SPRING 2019 EXAMINATIONS 5 of 8
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
(b) Professional Books (Pvt.) Limited
Statement of Financial Position (Balance Sheet)
as at December 31, 2018
Rupees
Assets
Non-Current Assets
Property, plant and equipment [W-5] 8,484,870 0.50
Investments 1,500,000 0.25
Intangible assets 2,160,000 0.5
Total non-current assets 12,144,870
Current Assets
Inventory [W-1] 1,335,830 0.5
Trade receivables (Rs.4,870,500 – Rs.194,830 [W-4]) 4,675,670 0.5
Cash and cash equivalents – 0.25
Total current assets 6,011,500
Total assets 18,156,370 0.5
Equity and Liabilities
Equity
Share capital (Rs.1,950,000 + Rs.600,000) 2,550,000 0.5
Share premium (Rs.300,000 + Rs.1,103,815 – Rs.600,000) 803,815 0.5
Retained earnings (Rs.1,423,870 + Rs.7,233,330) 8,657,200 0.5
Revaluation surplus 157,800 0.5
Total equity 12,168,815
Liabilities
Non-Current Liabilities
Long-term loan 1,871,250 0.25
Total non-current liabilities 1,871,250
Current Liabilities
Trade payables 3,702,110 0.25
Running finance 216,195 0.5
Current tax liabilities 198,000 0.5
Total current liabilities 4,116,305
Total equity and liabilities 18,156,370 0.5

W-4:
Allowance for Doubtful Debts Account Rupees
Balance c/d 194,830 Balance b/d 186,870 0.5 + 0.0
Profit or Loss Account 7,960 0.0 + 0.5
194,830 194,830

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 – SPRING 2019 EXAMINATIONS 6 of 8
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
W-5: Property, Plant and Equipment:
Rupees
Furniture and Motor
Premises Total
Fixtures Vehicle
Costs 12,675,000 3,223,500 1,020,000 16,918,500 1.0
Accumulated depreciation (5,812,500) (2,186,760) (368,400) (8,367,660) 1.0
Carrying value – as at
January 01, 2018 6,862,500 1,036,740 651,600 8,550,840 1.0
Purchases – 900,000 – 900,000 1.0
Import duties – 43,500 – 43,500 1.0
Adjusted carrying value 6,862,500 1,980,240 651,600 9,494,340 1.0
Depreciation (625,650) (253,500) (130,320) (1,009,470) 1.0
Carrying value – as at
December 31, 2018 6,236,850 1,726,740 521,280 8,484,870 1.0

Question No. 5
(a) Value of Drilling Platform:
Rs. in million
Fair value 784 1.0
Value in use (Rs.924 million – Rs.168 million) 756 1.5
Recoverable amount (higher of these two amounts) 784 1.0
Carrying value – as at June 30, 2019 840 0.5
Impairment loss 56 1.0

The carrying value should be reduced to Rs.784 million. 1.0

(b) (i) Total Value of Closing Inventory:

Rupees
Net Realizable Lower of Cost or
Types of Inventories Cost
Values (NRV) NRV
Table eggs 234,000 260,000 234,000 0.75
Day old chicks 182,000 156,000 156,000 0.75
Chickens 299,000 312,000 299,000 0.75
Total 715,000 728,000 689,000 0.75

The value of closing inventory is Rs.689,000.

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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 – SPRING 2019 EXAMINATIONS 7 of 8
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
(ii) The situations in which net realisable value (NRV) is likely to be less than cost is where
there has been: 2.0
 An increase in costs or a fall in selling price
 Physical deterioration of inventories
 Obsolescence of Products
 A decision as part of a company’s marketing strategy to manufacture and sell
products at a loss
 Errors in production or purchasing

(c) Value of Closing Inventory:

Rupees
Total inventories at cost – as per inventory count 1,130,482 0.5
Inventory destroyed accidentally (150,800) 0.5
Cost of damaged inventories 96,850 0.75
Net realisable value (NRV) (Rs.78,330 – Rs.22,090) (56,240) 0.75
Inventory write down (40,610) 0.25
Value of closing inventory 939,072 1.25

Question No. 6
(a) Elements of Measuring Performance and Financial Status of a Business Enterprise: 5.0
The elements directly related to the measurement of financial position are assets, liabilities
and equity. These are defined as follows:
Assets: A resource controlled by the entity as a result of past events and from which future
economic benefits are expected to flow to the entity.
Liability: A present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity of resources embodying economic benefits
Equity: The residual interest in the assets of the entity after deducting all its liabilities
Income: Increase in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decrease of liabilities that result in increase in equity, other than
those relating to contributions from equity participants.
Expenses: Decrease in economic benefits during the accounting the accounting period in the
form of outflows or depletion of assets or incurrence of liabilities that result in decrease in
equity, other than those relating to distributions to equity participants.

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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 – SPRING 2019 EXAMINATIONS 8 of 8
FINANCIAL ACCOUNTING [M4] – MANAGERIAL LEVEL-2
Marks
(b) (i) Taxable Temporary Differences: 5.0
Taxable Temporary Differences are temporary differences that will result in taxable
amounts in future years when the related assets are covered. It gives rise to record
deferred tax liabilities.
Examples:
 Unrealized holding gains for financial reporting purpose (including use of the fair
value option) but deferred for tax purpose.
 Sales accounted for on the accrual basis for financial reporting purposes and on the
installment (cash) basis for tax purpose.
 Contracts accounted for under the percentage of completion method for financial
reporting purposes and the cost recovery method (zero profit method) for tax
purpose.
 Investments accounted for under the equity method for financial reporting purposes
and under the cost method for tax purposes.

(ii) Deductible Temporary Differences: 5.0

Deductible temporary differences are temporary differences that will result in deductible
amounts in future years, when the related book liabilities are settled. It gives rise to record
deferred tax assets.
Examples:
 Product warranty liabilities
 Estimated liabilities related to discontinued operations or restructurings
 Litigations accruals
 Share-based compensation expense

THE END

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
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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.