Financial Accounting and Reporting-I

Suggested Answer
Certificate in Accounting and Finance – Spring 2023

A.1 EPS for 2021:

Basic EPS ⇒ 24 – 5.6(2×20×14%) 18.4

= = Rs. 2.54/share
7.24(W-1) 7.24

Diluted EPS ⇒ Rs. 2.54/share

As share options are out of money, their effect has not been considered.

EPS for 2022:

Basic EPS ⇒ 34 – 5.6(2×20×14%) 28.4

= = Rs. 3.38/share
8.4 8.4

Diluted EPS ⇒ 28.4 28.4 Rs. 3.16/share

= =
8.4+0.6(W-4) 9 (Dilutive)

W-1: Weighted average number of shares for 2021 In million

1 Jan 6×9/12×32÷28(W-2) 5.14
1 Oct 8.4×3/12 2.10
7.24

W-2: Right adjustment factor

Right adjustment factor ⇒ Market price 32

=
Ex-theoretical price (W-3)28

W-3: Ex-theoretical price

Shares already in issue 6.0 × 32 = 192
Right shares 2.4 × 18 = 43.2
8.4 235.2
Ex-theoretical price = 235.2 ÷ 8.4 = 28

W-4: Free shares for options

45 – 36
3× = 0.6
45

A.2 (a) Since this grant has been given as compensation for expenses or losses that were already
incurred in 2021, it should be recorded in profit or loss in 2022. The amounts reported
in 2021 should not be restated.

(b) Since there is reasonable assurance that conditions attaching to the grant will be met,
This is a grant related to income which should be recognized in the statement of profit
or loss over the 5 years in which the entity incurs the costs of employing 50 local people.
Amount taken to the statement of profit or loss may either be presented as other income
or shown as deduction from the related expense. The remaining amount of grant will
be presented as deferred income under liabilities in the statement of financial position.

(c) The saving of transportation cost is not a government grant as no transfer of resources
has been made. Further, it is not considered as government assistance as the benefits is
provided indirectly to the entity. Building of the road is basically a provision of better
trading conditions to all entities operating in the industrial zone. Consequently, the
effect of saving of transportation cost need not be accounted for nor disclosed in the
financial statements of the entity.

Page 1 of 8
 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2023

A.3 Change in policy of

Ratios investment property, plant
inventory
property and equipment
Net profit to sales ratio Increase Decrease Increase
Return on assets Increase Decrease Increase
Return on capital employed Increase Decrease Increase
Debt equity ratio Decrease Decrease Decrease
Current ratio No effect No effect Increase

A.4 Manufacturing plant:

Rs. in million
Cost 570.00
Depreciation for 2019 570×15%×6÷12 (42.75)
Carrying value at 31 December 2019 527.25
Depreciation for 2020 527.25×15% (79.09)
Carrying value at 31 December 2020 448.16
Depreciation for 2021 448.16×20% (89.63)
358.53
Recoverable amount: Higher of 327.15 (W-1) or 300 327.15
Impairment 358.53–327.15 (31.38)
Carrying value at 31 December 2021 327.15
Depreciation for 2022 327.15×20% (65.43)
261.72
Recoverable amount: Higher of 326.51 (W-2) or 280 326.51
Carrying amount without impairment (358.53×80%) 286.82
Reversal of impairment based on lower of the two 286.82–261.72 25.10
Carrying value at 31 December 2022 286.82

W-1: Value in use 2021

2022 2023 2024 2025
---------------------------- Rs. in million ----------------------------
Annual inflows 245.00 245.00 245.00 245.00
Annual outflows (167.00) (167.00) (167.00) (167.00)
Disposal 142.00
78.00 78.00 78.00 220.00
P.V. @ 12% 69.64 62.18 55.52 139.81
Total 327.15

W-2: Value in use 2022

2023 2024 2025
-------------------- Rs. in million ---------------------
Annual inflows 263.00 263.00 263.00
Annual outflows (174.00) (174.00) (174.00)
Disposal 140.00
89.00 89.00 229.00
P.V. @ 10% 80.91 73.55 172.05
Total 326.51

Page 2 of 8
 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2023

A.5 Statement of profit or loss Rs. in '000

Sales 55+70 125
Cost of sale 25+35 (60)
Gross profit 65

Inflation adjustment
- Specific (Product A) 25×12% (3)
- Specific (Product B) 45–35 (10)
(13)
Profit for the year 52

Statement of financial position

Equity: Rs. in '000
Opening equity 60
Inflation reserve 13
Equity after adjustment 73
Profit for the year 52
125

A.6 (i) (b) Rs. 111,000

(ii) (c) Acquisition of a long-term loan at high interest rate
(iii) (a) Both are correct
(iv) (d) Share consolidation
(v) (c) Rs. 180 million
(vi) (a) Increase No impact
(vii) (c) Land held for undetermined use
(viii) (d) None is correct
(ix) (b) Interest received
(c) Dividend paid

Page 3 of 8
 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2023

A.7 Roman Limited

Statement of changes in equity
For the year ended 31 December 2022
Share capital Share Retained Revaluat-
Ordinary Preference premium earnings ion surplus
------------------------ Rs. in million ----------------------
--
Balance as at 31 December 2020 800 - - 715 399
Final bonus dividend @ 10% – 2020 80 - - (80) -
Right issue @ 25% 220 - 209 - -
(880×25%) 220–(22×0.5)
Total comprehensive income for 2021
 Net profit - Restated 195+20 - - - 215 -
 Other comprehensive income - Restated 115+30 - - - - 145
Transfer of incremental depreciation - - - 26 (26)
Balance as at 31 Dec 2021 - Restated 1,100 - 209 876 518
Issue of preference shares - 500 250 - -
Interim cash dividend @ 5% (1,100+500)×5% - - - (80) -
Net profit for 2022 285–5 - - - 280 -
Transfer of revaluation surplus upon disposal - - - 75 (75)
Transfer of incremental depreciation 30+3 - - - 33 (33)
Balance as at 31 December 2022 1,100 500 459 1,184 410

Revaluation impacts:

Debit Credit
Date Description
--- Rs. in million ---
2021 Property, plant and equipment 400–350 50
Profit or loss 24×10/12 20
Revaluation surplus 30

2022 Depreciation expense 50/10 5

Property, plant and equipment 5
Revaluation surplus 30/10 3
Retained earnings 3

Page 4 of 8
 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2023

A.8 (a) Aztec Sports Club

Statement of income and expenditure for the year ended 31 December 2022
Income Rs. in '000
Membership (W-1) 6,925
Canteen rent 840
Gain on disposal 3,300–2,600 700
Unrestricted contribution 1,100
9,565
Expenditure
Depreciation (W-3) 1,890
Insurance 1,404+274351(1,404×3/12) 1,327
Other expenditures 2,788865 1,923
(5,140)
Surplus of income over expenditure 4,425

(b) Aztec Sports Club

Statement of financial position as on 31 December 2022
Rs. in '000
Non-current assets
Land 4,000
Other fixed assets (W-3) 7,960
11,960
Current assets
Rent receivable 840(IE)+630(W-4) 1,470
Prepaid insurance 351
Cash (W-2) 2,456
4,277
16,237
Funds
Opening general fund (W-4) 3,512
Surplus of income over expenditure 4,425
7,937
Land fund 3,000
10,937
Liabilities
Advance membership (W-1) 3,900
Deferred contribution - tractor 1,400
5,300
16,237

W-1: Membership Rs. in '000

Income (bal.) 6,925 Opening advance 150×10+270×10 4,200
Receipts - 1st half 220×10+220×12 4,840
Closing advance 220×12+105×12 3,900 - 2nd half 105×5+105×12 1,785
10,825 10,825

W-2: Cash Rs. in '000

Opening 223 Fixed assets 6,000
Subscription (4,840+1,785) 6,625 Insurance 1,404
Fixed assets disposal 3,300 Other expenditures 2,788
Contribution (1,100+1,400) 2,500 Closing 2,456
12,648 12,648
Page 5 of 8
 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2023

W-3: Other fixed assets Rs. in '000

Opening 6,450 Asset disposed of (3,000–400) 2,600
Purchase 6,000 Depreciation expense
- Disposal 3,000×8/12×20%=400
1,890
- Addition 6,000×8/12×20%=800
- Remaining (6,450-3,000) ×20%=690
Closing 7,960
12,450 12,450

W-4: Opening fund

Cash 223
Other fixed assets 6,450
Prepaid insurance 274
Land 4,000
Land fund 4,000–1,000 (3,000)
1,000
Rent receivable 840×9÷12 630
Accrued other expenditures (865)
Advance membership (W-1) (4,200)
General fund 3,512

Page 6 of 8
 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2023

A.9 Mesopotamia Limited

Statement of profit or loss for the year ended 31 December 2022
2022 2021
------ Rs. in million ------
Fair value gain on warehouse 344–316 - 28.00
Depreciation:
– Warehouse (W-1) 29.55 -
– Vehicle (W-3) 39.04 71.81
– Building (W-4) 6.18 -
Interest expense 200×16%×2÷12 - 5.33
Investment income 200×10%×1÷12+60×10%×1÷12 - 2.17

Mesopotamia Limited
Statement of financial position as on 31 December 2022
2022 2021
------ Rs. in million ------
Non-current assets:
Property, plant and equipment
– Warehouse (W-1) 364.45
– Vehicle (W-3) 150.08 189.12
– Office building (W-4) 488.05
Capital work in progress (W-4) 255.17

Investment property
– Warehouse 344.00

Current liabilities:
Loan – Bank A 200.00
Other payables 100.00

W-1: Warehouse as PPE Rs. in million

01-01-2022 Transferred into PPE 344.00
Development cost 50.00
394.00
31-12-2021 Depreciation for 2022 394×10%×(9÷12) (29.55)
364.45

W-2: Depreciation rate for vehicle

n
= 1 – √R/C
5
= 1 – √72/360
= 27.52%

W-3: Vehicle Rs. in million

01-01-2020 Cost 360.00
31-12-2020 Depreciation for 2020 (360×27.52%)(W-2) (99.07)
260.93
31-12-2021 Depreciation for 2021 260.93×27.52% (71.81)
189.12
31-12-2022 Depreciation for 2022 (189.12–72)÷3 (39.04)
150.08

Page 7 of 8
 Financial Accounting and Reporting-I
Suggested Answer
Certificate in Accounting and Finance – Spring 2023

W-4: Building Rs. in million

2021:
Payment 140.00
Accrual 100.00
Borrowing cost capitalized:
Cost (200×16%)×(7÷12) 18.67
Interest income (60×10%)×(7÷12) (3.50)
255.17
2022:
Further payment 70+160 230.00
Borrowing cost:
 Specific (200×16%)×(2÷12) 5.33
 General (160×14%)×(2÷12) 3.73
494.23
Depreciation 494.23÷20×3÷12 (6.18)
488.05

(THE END)

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