FINANCIAL ACCOUNTING

Time allowed – 2½ hours

Total marks – 100

[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) What are the objectives of Financial Statement in the context of the Framework for the
preparation and presentation of financial statements? What are the components to be
included in a complete set of financial statements as per BAS 1? 6
(b) What is the difference between Accounting Depreciation and Tax Depreciation. 4
(c) What is functional currency? What factors are used to determine a reporting entity’s
functional currency? 4
(d) Describe the four principal qualitative characteristics that determine the usefulness of
information in the financial statement. 4
(e) Explain the two concepts of capital maintenance. What is the principal difference between the
two concepts? 4

2. Mr. Kamal, the proprietor of Kamal Traders. He didn’t appoint qualified accountant in his
company. He keeps the records of his assets and liabilities as on 31.12.2009 as follows:
Tk. Tk.
Kamal’ capital 31,500 Premises 15,600
Creditors 7,210 Plant and Machinery 4,200
Stock 8,760
Debtors 9,820
. Cash 330
38,710 38,710
The following is a summary of his receipts and payments for the year ended on 31.12.2010:

Receipts Tk. Payment Tk.

Cash on account of credit sales 42,760 Creditors 39,540
Cash sales 18630 Wages 7,430
General Expenses 6,270
Capital 2,000 Machinery (1-7-08) 1,600
. . Drawings 5,360
63,390 60,200
On 31.12.2010, the amount due to creditors was Tk.8,710 and the debtors and stock amounted to
Tk.9,200 and Tk.8,540 respectively.
You are required to prepare a comprehensive income statement for the year ended on 31.12.2010
and Balance Sheet as on that date, after making adjustments in respect of the followings: 18
1. Depreciation @10% for plant and machinery.
2. Tk.500 to be provided for bad debts.
3. General expenses include Tk.1,400 paid as life insurance premium.
4. Wages include Tk.150 paid for erection of new machinery.
5. A sum of Tk.350 for goods supplied to the proprietor was included in the debtors balance at
31.12.2010.
6. The amount of Tk.8,170 due to creditors on 31.12.2010 includes admission of an old claim by a
creditor of Tk.600 relating to purchases before 01.01.2010, but the claim was not shown in the
balance sheet as on 31.12.2009.

3. You are the financial controller for Brownhoods Limited a company listed on the Dhaka Stock
Exchange. The Chairman has asked you to explain a number of matters relating to the substance
of transactions and the reporting of lease transactions in financial statement. He has approached
you as you have recently attended a number of training courses on BFRS and are in the process of
preparing the draft financial statements for the year ended 31 May 2011 in accordance with BFRS.

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Brownhoods Ltd. recently entered in to a lease contract for a new piece of machinery. The new
machine could have been purchased for a cash price of Tk.150,000. The terms of the lease are:
(i) The lease is for four years.
(ii) An initial deposit of Tk.30,000 was payable on 1 June 2010 followed by eight half-yearly
payments thereafter of Tk.20,000 payable on the 1 December and 1 June each year,
commencing on 1 December 2010.
The estimated useful life of the equipment is four years. Brownhoods Limited uses the sum of the
digits method to allocate finance charges on finance leases.
Brownhoods Limited’s factory premise is held on a 25 year lease. The period of the lease is
expected to be similar to the life of the factory building and at the end of the 25 years the land
reverts back to the lessor.
Requirements
Prepare financial statement extracts and supporting disclosure notes that show how the
machinery lease transaction should be presented in the financial statements of Brownhoods
Limited for the year ended 31 May 2011. 10

4. Mallik Enterprise Ltd. Wholesales and distributes toys and models and provides distribution
services to other organizations. The following balances have been extracting from its books of
account of at 31 December 2010.
Tk.’000
Ordinary shares 800
5% redeemable preference shares 200
Share premium account 350
Revaluation reserve 400
Retained earnings at January 2010 2000
Revenue 11899
Purchases 8935
Inventories at January 2010 974
Staff costs – distribution 270
Staff costs – administration 352
Depreciation charge for the year
Freehold land and buildings 30
Distribution equipment 116
Other plant and equipment 160
General expenses 432
Interest receivable 41
Interest payable 35
Taxation – charge for the year 336
Paid dividends
Ordinary shares – final regarding 2009 60
Ordinary shares – interim regarding 2010 30
5% redeemable preference shares – for 2010 10
Patent rights 200
Freehold land and buildings 1500
Distribution equipment – cost 800
Other plant and equipment – cost 1400
Accumulated depreciation at 31 December 210
Freehold land and buildings 30
Distribution equipment – cost 320
Other plant and equipment – costs 250
Trade receivables 1600
Trade payables 850
Cash and cash equivalents 300
Tax liability 400

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Additional information
(i) Included in revenue are invoices totaling Tk.120,000 in relation to distributions services
rendered under a contract to a customer who is very unhappy with the quality of the
services provided. The overall outcome of the contract is uncertain and management
believes that of the Tk.90,000 costs incurred to date under the contract, probably only
Tk.65,000 will be reimbursed by this customer.
(ii) The patent was acquired during the year. Amortization of Tk.20,000 should be charged to
administrative expenses.
(iii) Inventories at 31 December 2010 were valued at Tk.1,304,000.
(iv) Costs not specifically attributable to one of the income statement expenses headings should
be split 50:50 between distribution costs and administrative expenses.
(v) The freehold land and buildings were revalued on 1 January 2010 and the surplus of
Tk.400,000 over its previous carrying amount of Tk.1,100,000 (cost Tk.1200,000 and
accumulated depreciation Tk.100,000) has been recognized in the revaluation reserve. The
depreciation charge for the year increased by Tk.8,000 as a result of the revaluation.
(vi) General expenses include a material bad debt write off of Tk.100,000.
(vii) A final ordinary share dividend for 2010 of Tk.50,000 was proposed in May 2011 payable on
28 June 2011.
(viii) Tk.450,000 cash was received during the year as a result of a right issue of ordinary shares.
The nominal value of the shares issued was Tk.100,000.
(ix) On 1 June 2010 the company made the decision to sell its loss-making soft toy division as a
result of servere competition in the market. The company is confident that the closure will
be completed by 30 April 2011. The division’s operations represent in 2010 10% of revenue
(after all adjustments). 15% of cost of sales, 10% of distribution costs and 20% of
administrative expenses. No balance sheet disclosures are necessary.

Requirements
Prepare Mallik Enterprises Ltd’s income statement and statement of changes in equity for the year
to 31 December 2010, a balance sheet at that date and movements schedules and noted in
accordance with the requirements of BFRS, to the extent the information is available. 25

5. (a) Identify the required accounting treatment for different levels of investment in undertakings
for consolidated accounts purposes. Explaining why these are appropriate. 5
(b) The following are the summarized Balance Sheets of A Ltd. and B Ltd. as on 31 December,
2009:
Figure in Taka Figure in Taka
Liabilities A Ltd. B Ltd. Properties A Ltd. B Ltd.
Authorised, issued & paid
up capital:
Equity share of Tk.100 each 800,000 400,000 Fixed assets 1,015,000 809,000
12% preference shares of - 200,000 Equity shares in B Ltd. 450,000 -
Tk.10 each
General reserve 360,000 200,000 12% pref. shares in B 180,000 -
Ltd.
P/L A/c Balance 240,000 140,000 10% debentures in B 25,000 -
Ltd.
10% debentures of Tk.100 - 50,000 Current assets 260,000 480,000
each
Proposed Dividends:
On equity shares 120,000 60,000
On preference shares - 24,000
Debenture interest accrued - 5,000
Trade creditors 410,000 210,000
1,930,000 1,289,000 1,930,000 1,289,000

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Other information
(i) A Ltd. acquired its interest in B Ltd. on 1st January 2010 when the balance in the General Reserve
Account of B Ltd. was Tk.180,000.
(ii) The balance of the Profit & Loss Account of B Ltd. as on 31st December 2010 was arrived at as
under:
Balance on 1.1.10 Tk.40,000
Current profit (including dividends) 204,000
244,000

Less: Transfer to General Reserve 20,000

Proposed dividend 84,000
104,000
Balance as on 31.12.10 140,000

(iii) Balance in the Profit & Loss A/c of B Ltd. as on 1.1.10 was after providing for dividends on
preference shares and 10% dividends on equity shares for the ended 31st December 2009. These
dividends were paid in cash by B Ltd. in May 2010.
(iv) No entries have been made in the books of A Ltd. for debenture interest due or for proposed
dividends of B Ltd. for the year ended 31.12.10.
(v) Mutual indebtedness of Tk.24,000 is reflected in the balances shown in the Balance Sheets.
(vi) On 1 October, 2010 B Ltd. issue fully paid up bonus shares in the ratio of one share for every
four shares held by utilizing it’s General Reserve. This was not recorded in the books of both the
companies.
From the above information, you are required to prepare the Consolidated Balance Sheet of A Ltd.
and is Subsidiary B Ltd. as on 31 December 2010. 20

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