CMA December-2020 Examination

Operational Level
Subject: F1.Financial Operations

MODEL SOLUTION

Solution of the Q. No. 2(a)

2. a) K C Company
Journal Entries
Date Description L.F. Debit Credit
Taka Taka
2020
20-Jan Investment in R & S Co. 30,600
Cash 30,600
10-Jun Memorandum Entry

1-Nov R & S Co. Stock Right 1,224

Investment in R & S Co. 1,224
Cost assigned to rights: (3 X 30,600)/ (72 +3 )= 1,224

18-Nov Investment in R & S Co. 6,816

R & S Co. Stock Right 816
Cash 6,000
Cost assigned (400): (1224X400)/600=816
Cash Payments: (400X60)/4= 6,000

Cash 394
Loss on sale of stock right 14
R & S Co. Stock Right 408
Cost assigned (200 rights): (1224X200)/600=408
Cash Received: (200X2) - 6= 394
28-Dec Cash 6,772
Investment in R & S Co. 4,896
Gain on Sales of stocks 1,876
Sales (100 X 68.25) - 53 = 6,772
Less Cost:
Original Investment 30,600
Stock rights 1,224
'29,376
Tk.29,376 / 600 = Tk.48.96
100 X Tk.48.96 =4,896
=1,876

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(b)
Mr. Hasan
Income Year: 2020-2021
Assessment Year: 2021-2022
Calculation of Monthly Tax to be deducted from salary of July 2020

Particulars Amount (Tk.)

Basic Pay (50,000X12) 600,000
House rent (600,000*60% -300,000) 360,000
Transport Allowance (60,000-30,000) 30,000
Festival Bonus (50,000X2) 100,000
Employer’s Contribution to CPF 60,000
Total Taxable Income 1,150,000
Tax on First 300,000 0
Tax on next 100,000 @ 5% 5,000
Tax on next300,000 @10% 30,000
Tax on next400,000 @15% 60,000
Tax on remaining (1,150,000 -1,100,000) 50,000@20% 10,000
Total Tax Liability 105,000
Less: Estimated rebate- (1,150,000X25% 15%) 43,125
Estimated total tax liability for income year 2020-2021 61,875
Tax deducted from July 2020 (61,875/12) 5156.25

(c) The transactions that took place by Mr. Habib are as under:

Particulars Amount VAT

i) Purchase of Goods 57,500 7,500
ii) Sale of Goods 80,500 10,500
iii) Deposit of VAT 3,000 3,000
iv) Return of sold goods 4,600 600

Balance of in VAT Current Account = 7,500 + 3,000 - 9,900 = Tk. 600.

Journal Entries: Tk. Tk.

Debit Credit
Purchase A/C 50,000
Input VAT A/C 7,500
Trade Payable A/C 57,500
Trade Receivable A/C 80,500
Sales A/C 70,000
Output VAT A/C 10,500
VAT Current A/C 3,000
Bank A/C 3,000
Sales Return A/C 4,000
Output VAT A/C 600
Trade Receivable A/C 4,600
VAT Current A/C 7,500
Input VAT A/C 7,500
Output VAT A/C (10,500-600) 9,900
VAT Current A/C 9,900

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(d)
There are five fundamental principles of ethics for professional accountants:
(a) Integrity – to be straightforward and honest in all professional and business relationships.
(b) Objectivity – not to compromise professional or business judgments because of bias, conflict of interest
or undue influence of others.
(c) Professional Competence and Due Care – to: (i) Attain and maintain professional knowledge and skill at
the level required to ensure that a client or employing organization receives competent professional service,
based on current technical and professional standards and relevant legislation; and (ii) Act diligently and in
accordance with applicable technical and professional standards.
(d) Confidentiality – to respect the confidentiality of information acquired as a result of professional and
business relationships.
(e) Professional Behavior – to comply with relevant laws and regulations and avoid any conduct that the
professional accountant knows or should know might discredit the profession.

(e)
(a) the Recoverable amount of an asset is the higher of
i) the asset fair value less cost to sell and
ii) the value in use.
b) the recoverable amount of the PPE is tk. 4 million
c) Impairment: Tk. million
Current PPE carrying amount 75
Less Value in use 40

Impairment loss 35
d) Amount to be charged to profit and loss is tk.5 million.

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Solution of the Q. No. 3
Required No-1)
The way in which a cash flow statement is of use of a potential investor in a company as follows:
I) The cash flow statement provided information’s about the liquidity, viability and financial
adaptability of a company.
iii) They gave an indication of the relationship between profitability and cash gearing
ability.
II) The cash flow reveal transaction’s that have taken place in one period and they may
expected to produce future cash flows.
Required no-ii)
New Horizon Plc
Cash flow statement for
the year ended 30 June, 2020
Tk. 000 Tk. 000
Operating activities
Operating profits 1,653
Depreciation-Land & buildings 60
Machinery 235
Vehicles 720
Loss on disposal of machinery 25
Increase in inventories (520)
Increase in trade receivables (370)
Increase in tax payable 235
Tax paid (730)
Interest paid (88)
Net cash from operating activities 1,220
Cash flows from investing activities
Purchas of vehicles (2,750-2,250) (500)
Purchase of investments (50)
Proceeds of sale of machinery 100
(450)
Cash flows from financing activities
Debentures redeemed (800)
Dividends paid (505)
(1,305)
Net decrease in cash & cash equivalents (535)
Cash & cash equivalents at beginning of the year 650
Cash & cash equivalents at the end of the year 115
Required no iii) Reconciliation of net cash to movement in net debt
Tk. 000
Decrease in cash during period (535)
Cash used to repurchase debentures 800
Change in net debt 265
Net debt as at 1 July 2019 (650)
Net debt as at 30 June 2020 (385)

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Solution of the Q. No. 4
(i) Hussein Ltd., Income Statement for the year ended 31 December 2020.
Taka Taka
Revenue Tk. (3,500,000 - 1,000) (a) 3,499,000
Cost of Sales (WI) 2,809,800)
Gross Profit 689,200

Operating expenses (10,000)

Bad debt Tk. (10,000 - 1,000) (a) (9,000)
Loss of scrapped office furniture Tk. (32,000 - 28,500) (b) (3,500)
Depreciation on new furniture Tk. [(54,000+20,500) (b) x
15% (d)] (11,175)
Amortization of patent Tk. (15,000 / 20) (e) (750)
Impairment of patent Tk. (15,000 - 750 -14,000) (e) (250) (34,675)
Operating Profit 654,525
Finance cost: preference dividend (120,000 x 4%) (4,800)
Profit before tax 649,725
Provision for income tax (250,000)
Net profit for the year 399,725

(ii) Hussein Ltd., Balance Sheet as at 31 December 2020.

ASSETS Taka Taka
Non-current assets
Property, plant and equipment (W2) 5,139,325
Intangible Assets- patent Tk. [15,000-750-250] (e) 14,000 5,153,325

Current assets
Inventories Tk. [WIP 50,200 + Finished goods (15,000 -
1,000 (a))] 64,200
Accounts and other receivables Tk. (37,500 -10,000) 27,500
Cash and cash equivalents 263,500 355,200
Total Assets 5,508,525

EQUITY AND LIABLILTIES

Capital and reserve
Ordinary share capital of Tk.10 each
[500,000+(500,000/10)/5x10] (f) 600,000
Share premium account Tk. [200,000 - 100,000 (bonus
share)] (f) 100,000
Revaluation reserve Tk. [5,000,000 - (3,600,000 -640,000)]
('c) 2,040,000
Retained earnings Tk. [1,968,600 +399,725] (note -1) 2,368,325 5,108,325

Non-current liabilities
4% Redeemable preference share of Tk. 10 each 120,000
Current liabilities
Preference share dividend payable (120,000 x 4%) 4,800
Accounts and other payables 25,400

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Income tax payable 250,000 280,200
Total equity and liabilities 5,508,525

Working 1 (Cost of sales) Taka Taka

Raw materials and consumables 1,570,000
Less: Raw materials used for office furniture and capitalized
(b) (54,000)
Material used for production of goods 1,516,000
Salaries and wages 1,250,500
Less: employees' time used for office furniture and
capitalized (b) (20,500)
Salaries and wages used for production of goods 1,230,000
Work in progress inventories at 1 January 2020 45,600
Work in progress inventories at 31 December 2020 (50,200)
Depreciation:
Building Tk. [(5,000,000 - 4,000,000) x 4%] ('c) 40,000
Plant Tk. [(520,000 - 375,000) x 20%] (d) 29,000 69,000
Finished goods inventories at 1 January 2020 13,400
Finished goods inventories at 31 December 2020
Tk.(15,000-1,000) (a) (14,000)
2,809,800
Working -2
Land & Plant & Furniture Total
Building Machinery
Property, plant and equipment (PPE)
Cost: Taka Taka Taka Taka

Opening balance 3,600,000 520,000 32,000 4,152,000

Addition during the year Tk. (54,000 +
20,500) - - 74,500 74,500

Revaluations reserve ('c) (deductions) (b) 1,400,000 - (32,000) 1,368,000

Closing balance 5,000,000 520,000 74,500 5,594,500
Accumulated Depreciation:
Opening balance 640,000 375,000 28,500 1,043,500

Revaluations ('c) / Adjustments (b) (640,000) - (28,500) (668,500)

Depreciation for the year @4%, 20% &
15% 40,000 29,000 11,175 80,175

Closing balance 40,000 404,000 11,175 455,175

Net book value/ Carrying amount of PPE 4,960,000 116,000 63,325 5,139,325

Note 1: The devidend on ordinary share capital does not meet the criteria of a present obligation. No
provision should be recognised at 31 December 2020. Such dividends are disclosed in the notes to the
financial statements in accordance with BAS 1.

= THE END =

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