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    22-Winter 2019 - FA - QP

    Uploaded by

    Muhammad Kashif

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    © All Rights Reserved
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    2. FINANCIAL ACCOUNTING [M4] @ICMA seco WINTER 2019 EXAMINATIONS =a Pakistan Monday, the 18th November 2019 Entra Reading Timer 16 Minutes Writing Time: 02 Hours 50 Minutes @ Ww Gi) (iv) (v) (wi) OD) iii) (00) ‘Attempt all questions. Write your Roll No. in the space provided above, Answers must be neat, relevant and brief. Itis not necessary to maintain the sequence. Use of non-programmable scientific calculators of any model is allowed. Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper. In marking the question paper, the examiners take into account clarity of exposition, logic of arguments, effective presentation, language and use of diagram/ chart, where appropriate. D0 NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script. Question No. 1 ~ "Multiple Choice Questions” printed separately, is an integral part of this question paper. Question Paper must be returned to invigilator before leaving the examination hall. DURING EXTRA READING TIME, WRITING IS STRICTLY PROHIBITED IN THE ANSWER SCRIPT EXAMINEES ARE ADVISED TO MANAGE SOLUTIONS/ ANSWERS WITHIN PROPOSED TIME Question No. 2 Proposed (a) (b) Marks 1e : 30 Min. | Total Marks : 16 Being the Manager Taxation of Tehran Limited, you are required to calculate the carrying values and tax bases for each of the following assets/ liabilities and determine whether taxable or deductible temporary difference arise 10 (i) The statement of financial position of the company shows interest receivable of Rs, 900,000. The interest will be taxed when received (ii) Rent payable has a carrying amount of Rs. 725,000, The related expense has been deducted for tax purposes. (iii) Company purchased a machine costing Rs. 2,355,000. At the end of the year the carrying amount is Rs. 1,530,750. The depreciation for tax purposes is Rs. 706,500. (iv) The current liabilities include accrued expenses of Rs. 520,000. It is deductible for tax on cash paid basis. (v) The company recognizes a liability of Rs. 5,000,000 for accrued product warranty cost on June 30, 2019. These product warranty costs will not be deductible for tax purposes until the entity pays claims. (vi) Accounts receivable have a carrying amount of Rs. 4,250,000. The revenue has already been included in taxable profit. ‘An equipment costing Rs. 3,250,000 with a depreciation charges of Rs. 585,000 for the year. Tax allowance of Rs. 975,000 has been claimed against it. A loan payable has a carrying amount of Rs. 1,350,000. The repayment of the loan has no tax consequence Firdous Limited entered into a 10-year operating lease for a property on July 01, 2018. The company decided to utilize this property for a new manufacturing process for which some alterations were needed. For this purpose, the company obtained permission from the owner to make the necessary alterations to the property. The owner granted the permission at the condition that Firdous Limited would have to restore the property to its original condition before handing back the property at the end of the lease. The information relevant to the cost of the lease contract is as follows: + The rental payments are Rs. 2.5 million per annum. + The cost of the alterations are Rs. 10 million. + The estimated restoration cost on July 01,2018, discounted at 8% per annum to its present value, is Rs. 5 million Required Prepare extracts of the financial statements of Firdous Limited for the year ended June 30, 2019, incorporating above-mentioned facts. 06 FA-Winter 2019 10f5 PTO Question No. 3 Proposed Time : 45 Min. | Total Marks : 24 Precious Constructions Limited has remained proficient in facilitating its clients in the construction of residential and commercial buildings over many years with the high level of commitment, service excellence and innovative approaches. The following trial balance relates to the company as at June 30, 2019: Rs. 000" Particulars: Debit Credit Bank 7,537,610 Accounts receivable 2,803,700 Allowance for doubtful debts 122,935 Plant and machinery - Cost 3,967,500 Accumulated depreciation — Plant and machinery 2,012,500 Building — Cost 1,385,865 Accumulated depreciation — Building 199,815 Office equipment - Cost 243,800 ‘Accumulated depreciation — Office equipment 154,330 Land 1,380,000 ‘Share capital (Rs. 10 each) 1,100,000 ‘Share premium 172,000 Revaluation surplus 126,500 Retained eamings 3,514,710 Accounts payable 1,805,845 Revenue 14,251,720 Sales retum 83,780 Purchases 3,110,280 Purchases return 62,500 Inventory - Administrative expenses 595,180 Distribution costs 4,415,140 Construction contract 4,000,000 23,522,855 23,522,855 The following information is relevant for the preparation of financial statements of the company: + The balance on the construction contract is made up of the following items: Cost incurred to date (Rs. in million) 14,000 Value of contract billed (work certified) (Rs. in million) 10,000 The contract commenced on July 01, 2018 at a fixed price of Rs. 25,000 million. The cost to complete the contract at June 30, 2019 is estimated to be Rs. 6,000 million. Company has the policy to accrue profits on construction contracts based on a stage of completion given by the work certified as a percentage of the contract price. + The company has the policy to charge depreciation on non-current assets for the year based on the following methods: - Office equipment: 10% reducing-balance = Plant and machinery: 20% straightline on cost + The building was revalued at Rs. $36 million on July 01, 2018. A professional valuer estimated the residual value of the building Rs. 287.50 million and remaining useful life was twenty years + The company has the policy to maintain allowance for doubtful debts at 5% of closing balance of accounts receivable. + The applicable tax rate for the company is 29%. + There was no closing inventory. Required: Prepare the following financial statements of Precious Constructions Limited in accordance with IAS 1, Presentation of Financial Statements: (a) Statement of Profit or Loss for the year ended June 30, 2019 (b) Statement of Financial Position as at June 30, 2019 FAWinter 2019 20f5 Marks 12 12 Question No. 4 Proposed (a) (b) (c) ime : 38 Min. | Total Marks : 20 Before application of IAS 37 companies used to make provisions for profit smoothing which was misleading .The objective of IAS 37 is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to enable users to understand their nature, timing and amount. Required In which of the following situations a provision might be recognized and what amount would be provided? (i) Blue Leaf Limited provides warranty for the cost of repairs of any manufacturing defect that is brought forward to them within the first three months of purchases. Following is the pattem of company's expected repairs: Percentage of Goods Defected Defects Cost of Defect (Rupees) 50% None = 30% Major 2,000,000 20% Minor 950,000 (ii) On April 30, 2019 the Board of Directors of Pearl Limited decided to close down its division in Quetta. The financial year of the company ends on June 30. On May 25, 2019, a detailed plan for closing down the division was agreed, letters were sent to the customers and termination notices were sent to the staff of the division. The company estimates that it is probable that it will have to bear Rs, 5,000,000 in restructuring cost. (iii) One of the employees of Mehran Limited filed a lawsuit for Rs. 1,000,000 on March 30, 2019 against the company for the damages he met, as he slipped and suffered a serious injury at the factory. The company's lawyer believes that they will not lose the lawsuit. (iv) Murphy Oil Limited is obliged to dismantle and remove the oil platform at the end of its useful life, estimated to be five years. The company has estimated the dismantling and removal cost Rs. 2,500,000, based on a discount rate of 10%. (v) Mehtab (Pvt) Limited has a policy of refunding purchases to dissatisfied customers even though it is under no legal obligation to do so. Custom Footwear (Pvt.) Limited is engaged in serving its customers through a strong retail network comprising of many retail outlets across the different cities of the country. During the financial year ended June 30, 2019, the company owned a building that it used as its corporate office. The company measures the building at cost model. The company vacated the building on July 01, 2018, on this date, the building had the carrying amount of Rs. 62.50 million and fair value Rs. 75 million, The Board of Directors of the company decided to hold the building to be used in operating lease in order to take benefit from the increase in property prices and to measure the investment properties at fair value. On June 30, 2019, the building had a fair value of Rs. 78.125 million Required Discuss the accounting treatment of the building in the financial statements of Custom Footwear (Pvt.) Limited as per IAS 40, Investment Property, for the financial year ended June 30, 2019, The Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements for external users. Enlighten the purposes of the Conceptual Framework FA-Winter 2019 30f5 Marks 10 06 04 PTO Question No. 5 Cloud Coal (Pvt) Limited started Proposed Time : 38 Min. | Total Marks : 20 its commercial production in 1988. The company is engaged in the exploration and development of coal deposits. Following are the company’s financial information for the year ended June 30, 2019: Cloud Coal (Pvt.) Limited Statement of Profit or Loss For the year ended June 30, 2019 Rs. in million Revenue 53,613 Cost of sales (38,094) Gross profit 15,519 Other income — Interest received 525 Distribution costs (2,625) Administrative expenses (5,544) Finance costs (1,575) Profit before tax 6,300 Income tax expense (1,827) Net profit after tax 4473 Cloud Coal (Pvt.) Limited ‘Statement of Financial Position As at June 30, Rs Assets 2019 Non-current assets Property, plant and equipment 7,980 6,405 Intangible assets 5,250 4,200 Investment property - 525 73,230 17,130 Current assets Inventories 3,150 2,142 Accounts receivable 8,190 6,615 Short-term investments 14,113 - Cash and bank 42 21 12,495 8,778 Total Assets 25,725 19,908 Equity and Liabilities Equity Share capital (Rs. 10 each) 4,200 3,150 Share premium 3,360 3,150 Revaluation surplus 2,100 1,911 Retained earings 5,523 3,780 75,183 11,994 Non-current liabilities Long-term loan 2,730 7,050 Environmental provision of coalmine 840 - 3,570 7,050 Current liabilities Accounts payable 4,452 4,587 Taxation 2,520 2,310 6,972 6,867 Total Equity and Liab) 25,725 19,908 FA-Winter 2019 40f5 Marks Marks Additional Information: + The proceeds of the sale of investment property amounted to Rs. 630 million. + Office equipment with an original cost of Rs. 1,785 million and a net book value of Rs. 945 million, was sold for Rs. 672 million during the year. + The following information relates to property, plant and equipment Rs. in million June 30,2019 June 30, 2018 Cost 15,120 12,495 Accumulated depreciation (7,140) (6,090) Net book value 7,980 6,405 + The short-term investments are highly liquid and are close to maturity. + 105 million ordinary shares were issued during the year at a premium of 20% per share. + On June 30, 2019, the company purchased a coalmine from which extraction will take place for five years. At the end of year five, the company will be obliged to close off the coalmine and make the area safe. The cost of closing the coalmine has been estimated and discounted to a present value of Rs. 840 million, which is included in the carrying amount of the coalmine and shown as a provision. Required: Prepare Statement of Cash Flows of Cloud Coal (Pvt.) Limited, using indirect method in accordance with IAS 7, Statement of Cash Flows, for the financial year ended June 30, 2019. 20 Question No. 6 Proposed Time: 19 Min. | Total Marks : 10 ‘The CEO of Vega Limited has introduced an equity-settied share-based payment option to enhance the motivation level of employees which had been decreasing at work resulting in decline in sales and profitability of the company. Following transactions relate to the share-based payment option * On July 01, 2016, Vega Limited grants 150 share options to each of its 500 employees. Each grant is conditional upon the employees, working for the company until June 30, 2019. At the grant date, the fair value of each share option is Rs. 30. * During the financial year 2016-17, 20 employees left and it was estimated that another 80 employees would leave during 2017-18 and 2018-19. * During the financial year 2017-18, 30 employees left and another 25 employees were estimated to leave during 2018-19. © During the financial year 2018-19, a further 15 employees left. Required: For each of the three years ended June 30, 2017 to 2019: {a) Calculate the amounts of remuneration expenses and liabilities, which will be recognized in the financial statements in respect of the share-based payment transactions o7 (b) Prepare extracts of Statements of Profit or Loss and Statements of Financial Position of Vega Limited, showing the impacts of above transactions. 03 THE END Present Valu Ieest Factor PUF(n)= (1+) Present Vl terest Factor for on Anny PVIFAG, = Gos

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