ADVANCED ACCOUNTING & FINANCIAL REPORTING

Suggested Answer
Certified Finance and Accounting Professional Examination – Summer 2023

A.1 Rose Limited

Consolidated statement of financial position
As on 31 December 2022
Rs. in million
Property, plant and equipment 3,400+2,265 5,665
Goodwill (W-1) 448
Investment in joint venture – LL (W-5) 490
Other assets 500+1,020 1,520
8,123

Share capital 1,000+192[(48×2÷5)×10] 1,192

Share premium 1,440(W-1)–192 1,248
Revaluation surplus 650+25(W-5) 675
Contingent shares / Other equity (W-1) 240
Consolidated retained earnings (W-6) 2,483
Fair value reserves 120(W-1)–88 32
Non-controlling interest (W-7) 833
Liabilities 515+905 1,420
8,123

W-1: Goodwill - JL Rs. in million

Fair value of exiting 5% holding 4(80×5%)×30 120
Shares issued 48(80×60%)×30 1,440
Contingent shares (48÷10)×50 240
1,800
Non-controlling interest 2,080(W-2)×35% 728
Fair value of net assets on acquisition (W-2) (2,080)
448

W-2: Net assets of JL Acquisition date Reporting date

--------- Rs. in million ---------
Share capital 800 800
Retained earnings 1,080 1,580
Purchase order backlog 220 -
Right of use asset (90) -
Lease liability 70 -
2,080 2,380

W-3: Gain on disposal of LL Rs. in million

Consideration received (30×30%)×28 252
Fair value of remaining investment (30×50%)×28 420
Non-controlling interest 700(W-3)×20% 140
Net assets 300+210+190 (700)
Unimpaired goodwill 80–50 (30)
82

W-4: Acquisition of LL Rs. in million

Cost 400
Goodwill: (80)
80% of the net asset 320
100% of the net asset 400
Less: Share capital (300)
Revaluation surplus (60)
Retained earnings on acquisition 40
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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answer
Certified Finance and Accounting Professional Examination – Summer 2023

W-5: Investment in joint venture - LL Rs. in million

Fair value of remaining investment (W-3) 420
Share of profits (300–210)×50% 45
Share of revaluation surplus (240–190)×50% 25
490

W-6: Consolidated retained earnings Rs. in million

RL’s 2,223
Post-acquisition – JL 2,380(W-2)–2,080(W-2)×65% 195
Reversal of consideration received (W-3) (252)
Gain on disposal – LL (W-3) 82
Post-acquisition profit – LL [210–40(W-4)]×80% 136
Impairment of goodwill – LL (50)
Share of profit – LL (W-5) 45
Revaluation surplus of LL transferred to retained earnings (190–60)×80% 104
2,483

W-7: Non-controlling interest Rs. in million

On acquisition - JL (W-1) 728
Post-acquisition [2,380(W-2)–2,080(W-2)]×35% 105
833

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answer
Certified Finance and Accounting Professional Examination – Summer 2023

A.2 Matter (i):

The loaned amount would be considered as an investment in debt (Advances to Employees)
instead of prepaid salaries, where the business model is to collect the contractual cash flows. It
would be classified as a financial asset at amortised cost. It should initially be measured at fair
value plus transaction costs (if any).

However, as this is an interest free loan, the cash paid is not equivalent to the initial fair value.
Therefore, the initial fair value is calculated as the present value of future cash flows discounted
at the market interest rate for an equivalent loan.

The difference between cash paid and fair value would be treated as an employee benefit and
would be charged to profit or loss, as the employees have already fulfilled the condition of
being associated for ten years.

Every year, interest income at the market rate on interest would be recognised in profit or loss.

Matter (ii):
The convertible bond is a hybrid contract that contains a host i.e. a bond, which is within the
scope of IFRS 9. In this case, SL would analyse the convertible bond in its entirety since IFRS
9 does not separate embedded derivatives from financial assets. The contractual cash flows of
the bonds are not solely payments of principal and interest on the outstanding principal amount
because they also reflect a return that is inconsistent with a basic lending arrangement i.e. the
return is also linked to the value of the issuer’s equity. Therefore, the investment in the bonds
would be classified as a financial asset subsequently measured at fair value through profit or
loss upon initial recognition.

However, when convertible bond would be converted into shares, the shares represent a new
financial asset to be recognised by SL. SL would then need to determine the classification
category for the new equity investment. If, upon conversion, it becomes an equity investment,
SL may make an irrevocable election to present subsequent changes in the fair value of an
investment in other comprehensive income. Otherwise the equity investment would be
measured at fair value through profit or loss.

Matter (iii):
As SL intends to eliminate the backlog of uncompleted customer orders, the delay in the timing
of the transfer of the facility imposed by SL demonstrates that the facility is not available for
immediate sale. Therefore, the criterion for classification as held for sale would not be met,
and the asset and liabilities of the segment would not be presented as held for sale.

As at 30 June 2023, the segment has neither been disposed of nor is classified as held for sale,
so the revenue and expense of the segment would not be presented as discontinued operations.

However, at 30 June 2024, the segment would have been disposed of. The revenue and
expenses of the segment would be presented as discontinued operation provided this segment
is a separate major line of business or geographical area of operation of SL.

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answer
Certified Finance and Accounting Professional Examination – Summer 2023

A.3 (a) Fair value Equity

No. of Expense for
No. of per share balance at
Year share Period the year
managers option year-end
options
Rs. ---- Rs. in '000 ----
(I) Amounts already recorded
2021 69 × 10,000 × 29 × 1/4 = 5,003 5,003
(76–7)

2022 70 × 10,000 × 29 × 2/4 = 10,150 5,147

(74–4) (10,150–5,003)
(II) Amounts to be recorded under amendment (i)
71 × 10,000 × 29 × 3/4 = 15,443 5,293
(73–2) (15,443–10,150)
2023 71 × 10,000 × 10 × 1/3 = 2,367 2,367
(73–2) (22–12)
17,810 7,660
70 × 10,000 × 29 × 4/4 = 20,300 4,857
(20,300–15,443)
2024 68 × 10,000 × 10 × 2/3 = 4,533 2,166
(70–2) (22–12) (4,533–2,367)
24,833 7,023
Amounts to be recorded under amendment (ii)
71 × 10,000 × 29 × 3/4 = 15,443 5,293
(73–2) (15,443–10,150)
2023 71 × 20,000 × 12 × 1/2 = 8,520 8,520
(73–2) (30,000–10,000)
23,963 13,813
70 × 10,000 × 29 × 4/4 = 20,300 4,857
(20,300–15,443)
2024 70 × 20,000 × 12 × 2/2 = 16,800 8,280
(30,000–10,000) (16,800–8,520)
37,100 13,137
Amounts to be recorded under amendment (iii)
2023 70 × 10,000 × 29 × 4/4 = 20,300 10,150
(74–4) (20,300–10,150)

(b)
Put option

Repurchase price equal to or greater than original selling price?

Yes No

Repurchase price greater than No Customer has significant

expected market value of economic incentive to exercise
asset? the put option?

Yes Yes No

Financing Lease Sale with a

arrangement arrangement right of return

If the option lapses unexercised, CL shall derecognize the liability and recognize
revenue.

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answer
Certified Finance and Accounting Professional Examination – Summer 2023

A.4 Daffodil Limited

Consolidated statement of financial position
As at 31 December 2022
Non-current assets: Rs. in million
Property, plant and equipment (W-5) 2,345.0
Right-of-use assets (W-6) 1,033.6
Investments 1,000.0
Goodwill 1,050.0
Investment in associates (W-4) 750.0
Current assets 2,650–575(2.3×250) 2,075.0
8,253.6

Share capital 950.0

Retained earnings (W-7) 2,596.3
Exchange translation reserves 985–138(230(W-2)×60%)+130.0(W-4) 977.0
Non-controlling interest 1,798–500(W-3) 1,298.0
Lease liabilities (W-8) 937.1
Other liabilities (W-9) 1,495.2
8,253.6

W-1: Bargain purchase - OL USD in million

Rs. in million
@ Rs. 200
Consideration 2.0 400.0
Non-controlling interest 4×40% 1.6 320.0
Net assets at acquisition 1.5+2.5 (4.0) (800.0)
0.4 80.0

W-2: Translation reserve - OL USD in million Rate Rs. in million

Closing net assets at closing rate (1.5+3.5) 5.0 250.0 1,250.0
Net assets at acquisition 4.0 200.0 800.0
Post-acquisition profits (3.5–2.5) 1.0 220.0 220.0
5.0 1,020.0
Exchange difference 230.0

W-3: Non-controlling interest - OL Rs. in million

At acquisition (W-1) 320.0
Post-acquisition 220(W-2)×40% 88.0
Exchange difference 230×40% 92.0
OR 5×40%×250 500.0

W-4: Investment in associates - OL Rs. in million

Cost 2×200 400.0
Share of profit 0.4(4×60%-2)×220 + 0.6(1×60%)×220 220.0
620.0
Bal. fig. 130.0
Closing retranslated at closing rate OR 3.0(2+0.4+0.6)×250 750.0

W-5: Property, plant and equipment Rs. in million

Given 3,247.0
OL’s balance 3.3×250 (825.0)
Remaining balance of building sold 480–400 (80.0)
Depreciation charged on remaining balance of building 80÷20×9÷12 3.0
2,345.0
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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answer
Certified Finance and Accounting Professional Examination – Summer 2023

W-6: Right of use asset Rs. in million

Given 700.0
ROU of building lease back (480÷600)×450.9[250.9(W-8)+200(600–400)] 360.7
Depreciation to be charged 360.7÷10×9÷12 (27.1)
1,033.6

W-7: Retained earnings Rs. in million

Given 2,575.0
Matter (i)
Post-acquisition profit of OL reversed 220(W-2)×60% (132.0)
Bargain purchase of OL reversed (W-1) (80.0)
Share of OL profit as associate (W-4) 220.0
Matter (ii)
Gain on sale and lease back 400+360.7–250.9–480 29.8
Depreciation on ROU (W-6) (27.1)
Depreciation on remaining balance of building (W-5) 3.0
Interest on lease liability (W-8) (28.2)
Matter (iii)
Gain on modification (500–457.4)(W-9) 42.6
Interest on new liability (W-9) (34.3)
Interest on old loan (W-9) 27.5
2,596.3

W-8: Lease liability Rs. in million

Given 658.0
Sale and lease back (Rs. 50 million for 10 years arrears @ 15%) 50×5.0187 250.9
Interest (250.9×15%)×(9÷12) 28.2
937.1

W-9: Other liabilities Rs. in million

Given 1,681.0
OL’s balance 0.6×250 (150.0)
Old loan derecognized (500.0)
Modified loan recognized 920×1.15–5 457.4
Interest on old loan recovered 500×11%×6÷12 (27.5)
Interest on modified loan 457.4×15%×6÷12 34.3
1,495.2

W-10: Modification of loan Rs. in million

Carrying value of loan 500.0
Present value of revised cash flows at original effective rate 24+920×1.11–5 570.0
Substantial/significant modification 14%

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 ADVANCED ACCOUNTING & FINANCIAL REPORTING
Suggested Answer
Certified Finance and Accounting Professional Examination – Summer 2023

A.5 (a) (i) Number of units are not mentioned for redemption of units.
(ii) ‘Total comprehensive income for the year’ should be classified in ‘undistributed
income’ rather than in ‘capital value’. Due to misclassification of comprehensive
income, the ‘undistributed income’ is not correctly computed.
(iii) ‘Total cash distribution’ should be bifurcated into cash and refund of capital with
details of payouts.
(iv) ‘Accounting income available for distribution’ is not correctly computed. It should
be Rs. 690 million (940–250).
(v) ‘Undistributed income carried forward’ is not divided into realized and unrealized
income/loss.
(vi) ‘Net asset value per unit’ is not disclosed at the beginning and end of the year.
(vii) ‘Undistributed income carried forward’ should be reconciled with ‘Net asset at the
end of the year’.
(viii) Comparative figures for corresponding year not presented.

(b) 2022 2021

Assets
Property, plant and equipment Restated Restated
Investment stated at market value Not restated Restated
Inventories Restated Restated
Account receivables Not Restated Restated
Cash and bank Not restated Restated

Liabilities
Long term loans Not restated Restated
Trade and other payables Not restated Restated

(The End)

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