PAC All CAF Mocks With Solutions Compiled by Saboor Ahmad

The Professionals’ Academy of Commerce
Pakistan’s Leading Accountancy Institute

Certificate in Accounting and Finance Stage Mock Examinations
February 23, 2024
3 hours – 100 marks
Additional reading time - 15 minutes
Financial Accounting & Reporting 1

Instructions to examinees:
(i) Answer all NINE questions.
(ii) Answer in black pen only.
(iii) Multiple Choice Questions must be answered in answer script only.
Q-1
Following information pertains to investment property of Yellow Rose Limited (YRL):
1. A warehouse owned by YRL was given out for rent on 1st January 2023. Previously the warehouse was in use
of YRL. The warehouse was acquired by YRL on 1st July 2020 at a cost of Rs. 400 million and is being
depreciated @ 10% per annum on reducing balance method. Fair values of the warehouse on various dates are
as follows:
1st January 2023: Rs. 412 million
30th June 2023: Rs. 428 million
Rentals earned for the year ended 30th June 2023 amounted to Rs. 32 million.
2. YRL acquired a property at a total cost of Rs. 1200 million on 1st October 2022. 30% of the total cost of
property is attributable to the value of land. The property has a useful life of 40 years with a residual value of
Rs. 450 million. On 1st March 2023, the property was given on annual rent of Rs. 96 million. The fair value of
the property as at 30th June 2023 was Rs. 1280 million.
Additional information:
The fair value model is used for subsequent measurement of all investment properties.
Required:
Prepare note on “Investment property” for inclusion in YRL’s financial statements for the year ended 30th June 2023 in
accordance with International Financial Reporting Standards. (Note: Comparative figures are not required) (08)
Q-2
Black Rose Limited (BRL) is a manufacturing business of electric appliances. Because of a major breakdown of one
of its production plants on December 31, 2023, its production capacity was reduced significantly. The plant was
imported at a price of Rs. 400 million. The payment was made at the time of shipment on July 1, 2015. Other charges
including import taxes and installation cost amounted to Rs. 70 million. Installation of the plant was completed, and
the plant was available for use on December 31, 2015, but commercial production commenced from April 1, 2016.
1. The company uses straight line method of deprecation. Initially, the useful life of the plant was estimated at 15
years whereas the residual value was estimated at Rs. 20 million.
2. The residual value estimate, because of breakdown, is now reduced to Rs. 15 million. It is expected to remain
the same at the time of disposal.
After the breakdown the company’s engineers advised that the plant could be used at reduced production level for 3
years only. Operating cash flows from the plant for the next three years are estimated as under:
Regards: Saboor Ahmad, Senior Tax Advisor - BDO Riyadh KSA (0302-9114479)
Inflows Outflows
Year ending December 31, 2024 Rs. 150 million Rs. 80 million
Following information relates to above operating cashflows:
• Annual depreciation, using the cost model under old estimates, is included in outflows.
• Plant maintenance cost after breakdown amounting to Rs. 10 million per annum is not yet included in the
outflows.
• Residual value at end of useful life is not included in inflows.
• Applicable discount rates are 10% (pre-tax) and 7% (post-tax).
Required:
Compute the impairment loss of the plant (if any) as at 31st December, 2023 and prepare accounting entry of the
impairment loss. Also show all the necessary calculations. (08)
Q-3
Following information is available regarding two companies:
Sportage Pakistan Limited (SPL) Haval Pakistan Limited (HPL)
Rs.’000’ Rs. ‘000’
As at 31st December, 2023
Current assets:
Stock in trade 2400 1400
Trade Receivables 3000 1800
Cash & Bank Balance 1200 650
Current liabilities:
Trade & other payables 2000 2500
For the year ended December 31, 2023
Sales 60500 39600
Cost of Sales 29000 22400
Other information:
1. The credit sales of SPL represent 80% of total sales, whereas cash sales of HPL represent 10% of credit sales.
2. Cost of sales of SPL includes depreciation for the year amounting to Rs. 500,000, whereas the cost of sales of
HPL includes a depreciation of Rs. 450,000.
3. Closing inventory of SPL is 25% higher than opening inventory whereas closing inventory of HPL is 20% less
than opening stock.
4. Trade payables of SPL as at December 31, 2022 were Rs. 2.4 million whereas trade payables of HPL as at
December 31, 2022 were Rs. 2 million.
5. Trade & other payables of SPL as at December 31, 2023 include Rs. 200,000 interest payable and trade and
other payables of HPL as at December 31, 2023 include interest payable of Rs. 300,000.
6. Trade debts of SPL were reduced by Rs. 200,000 this year whereas Trade debts of HPL were increased by Rs.
300,000 this year.
Required:
Calculate following ratios for 2023 for both companies assuming 360 days in a year:
a. Inventory holding period.
b. Trade receivable collection period.
c. Trade payable payment period.
d. Working capital cycle. (10)
Q-4
Purple Rose Limited (PRL) has the following structure of shares and dilutive securities:
1. Shareholders equity as on 1st January 2023 comprised of:
a. 8 million ordinary shares of Rs. 10 each, having a market value of Rs. 40 each.
b. 10% 50,000 convertible preference shares of Rs.100 each. Each preference share is convertible into 5
ordinary shares.
c. Rs.20 million of 6% bonds convertible into 2 shares against Rs. 100 bonds.
d. 500,000 shares with an exercise price of Rs. 45 each (Average market price of the company shares
during the year was Rs. 50 per share.
2. On 31st March 2023 PRL announced 2 for 5 right shares to its ordinary shareholders at Rs. 35 per share. The
entitlement date of right shares was 31st May 2023. The market price per share immediately before the
announcement date and entitlement date was Rs. 45 and Rs. 42 respectively.
3. On October 1, 2023, 50% Convertible bonds were converted into ordinary shares.
4. Profit for year ended December 31, 2023, was as follows:
Rs. ‘000’
Profit before tax 35,000
Tax @ 30% (10,500)
Profit after tax 24,500
Required:
Calculate Basic and diluted earnings per share of PRL for the year ended December 31, 2023, for inclusion in PRL’s
financial statements. Show all relevant calculations. (10)
Q-5
Orange Rose Ltd (ORL) owns a machine which it acquired with the following initial details:
Date of acquisition 1st January, 2019
Cost of machine Rs. 80 million
Estimated useful life 10 years
Estimated residual value Rs. 10 million
Depreciation method Straight line
• The annual cash flows from the existing machine during remaining life are estimated as follows:
Year 1 – 2 Rs. 20 million
Year 3 – 4 Rs. 15 million
Year 5 Rs. 10 million
The relevant discount rate is 12%.
• On 31st December 2023, the machine could be sold in the market for Rs. 60 million and the cost of disposal
would be Rs. 500,000.
• To replace the existing machine with a new version of machine would cost today Rs. 95 million with the
residual value of Rs. 15 million.
Required:
Measure the value of machine as at 31st December, 2023 using the following measurement basis:
a. Historic cost.
b. Fair value.
c. Value in use / (Present value).
d. Current cost / (Replacement cost). (06)
Q-6
Select the most appropriate answer from the options available for each of the following Multiple-Choice Questions.
1. A company with healthy profits is facing a cash shortage. Which of the following events could account for
this?
a. Delaying payments to creditors.
b. The shortening of the credit period granted to debtors.
c. The recent acquisition of machinery.
d. An increase in dividends proposed by the directors. (01)
2. The cost of sales for Shah Textile Limited during the year was Rs.100 million. Opening inventory was Rs.20
million and closing inventory was Rs. 28 million. Opening trade payables were Rs.5 million and closing trade
payables were Rs.9 million. What amount of cash was paid to suppliers?
a. Rs.102 million.
b. Rs.104 million.
c. Rs.108 million.
d. Rs.110 million. (02)
3. Amplifier Limited had sales of Rs.120 million during the year. Trade and other receivables increased from
Rs.12 million to Rs.16 million. What amount of cash was received from customers during the year?
a. Rs.124 million.
b. Rs.116 million.
c. Rs.120 million.
d. None of these. (01)
4. Capitalization of borrowing costs should be suspended:
a. When substantially all the activities necessary to prepare a qualifying asset for its intended use or sale
are complete.
b. During a temporary delay which is a necessary part of the process of getting an asset ready for its
intended use or sale.
c. During extended periods in which active development of a qualifying asset is interrupted.
d. All of the above (01)
5. Which of the following is not a correct treatment of government grants related to an asset?
a. Deferred income.
b. Credit to income in period received.
c. Deducting the grant from the carrying amount of the asset.
d. None of the above (01)
6. An entity purchased an investment property on 1 January 2013 for a cost of Rs. 35m. The property had an
estimated useful life of 50 years, with no residual value, and at 31 December 2015 had a fair value of Rs. 42m.
On 1 January 2016 the property was sold for net proceeds of Rs. 40m. Calculate the profit or (loss) on
disposal under both the cost and fair value (FV) model.
a. Cost model: Rs. 7.1 m and FV model: (Rs. 2.0 m).
b. Cost model: Rs. 2.0 m and FV model: Rs. 2.0 m.
c. Cost model: Rs. 5.0 m and FV model: (Rs. 2.0 m).
d. Cost model: Rs. 7.1 m and FV model: Rs. 5.0 m (02)
7. Shine Limited (SL) had the following bank loans outstanding during the whole of 2018:
Rs. million
9% loan repayable 2019 15
11% loan repayable 2022 24
SL began construction of a qualifying asset on 1 April 2018 and withdrew funds of Rs. 6 million on that date
to fund construction. On 1 August 2018 an additional Rs. 2 million was withdrawn for the same purpose.
Calculate the borrowing costs which can be capitalized in respect of this project for the year ended 31
December 2018.
a. Rs. 545,600.
b. Rs. 472,350.
c. Rs. 750,600.
Regards: Saboor Ahmad, Senior Tax Advisor - BDO Riyadh KSA (0302-9114479) (02)
d. Rs. 350,350.
Q-7
Following information relates to Pink Rose Limited (PRL):
1. Profits for the years ended December 31, 2022 and 2023 are as follows:
2023 2022
Rs. (000)
Profit for the year 31,400 29,350
Revaluation gain/(Loss) 800 (550)
2. During 2023, it has been discovered that certain major parts replacement in plant and machinery, carried out
on July 1, 2021 for Rs. 2.5 million was charged to repairs.
3. During the year ended December 31, 2023 it was observed that machinery purchased on 1st January, 2023 for
Rs. 35 million was erroneously debited to stock in trade instead of property, plant & equipment. No
adjustment has been made in respect of this error. (Company follows perpetual inventory system)
4. PRL depreciates its plant and machinery @ 20% on reducing balance method.
5. PRL follows revaluation model for land and buildings. Accounting depreciation on these assets as well as
depreciation based on historical costs are as follows:
2023 2022
Actual Cost based
Rs. (000)
Year ended December 31, 2022 2,800 2,000
Year ended December 31, 2023 3,000 2,100
6. Cash/Bonus dividends for last three years are as follows:

Cash Bonus
Interim Final Interim Final
Year ended
December 31, 2021 - 5% - 5%
December 31, 2022 10% 5% 10%
December 31, 2023 20% 10% - 10%
7. During December 2022 PRL made a right issue of one for five shares at a premium of Rs. 4 per share. Share
capital and reserves as at December 31, 2021 were as follows:
Rs. (000)
Share capital (Rs. 10 each) 50,000
Share premium 7,500
Revaluation reserve 2,550
Retained earnings 63,450
Required:
Prepare statement of changes in equity for the year ended December 31, 2023 (with comparatives) in accordance with
the requirements of International Financial Reporting Standards. (Column for total not required.) (15)
Q-8
Following is the Income & Expenditure Account of Professionals' Sports Club (PSC) for the year ended 31st March,
2024:
Rs. ‘000’ Rs. ‘000’

Income
Subscriptions 7200
Admission fee 800
Contributions (unrestricted) 510
Profit on sale of sports equipment 120
Interest on 5% Investments 60
Surplus on publication of club magazine 450
Other income 23 9,163
Less: Expenditures
Salaries 2400
Rent 1080
Rates 60
Communication charges 72
Affiliation fee to Tennis Association 120
Sports material used 1575
Electricity charges 120
Repairs & maintenance 960
Depreciation @ 10% on WDV at year end 480 (6,867)
Surplus 2,296
1. Book value of sports equipment sold during the year was Rs.400,000 as on 31st March, 2023.
2. Cash Prizes fund is maintained separately. All contributions (externally restricted) are being credited to it and
all payments were met out of the fund. During the year contributions received amounted to Rs. 280,000.
3. Interest received during the year was only for two quarters.
4. The club was admitted as member of Tennis Association on 1st October, 2023 when it paid subscription for
the year upto 30th September, 2024.
5. Advertising charges in club magazine yet to be received Rs. 45,000.
6. A fixed deposit of Rs. 2.5 million was made on 31st March, 2024.
7. Following data is also available:
31st March
2023 2024
Rs.(000) Rs.(000)
Sports equipment 4,000 ?
Sports material 400 650
Bank balance 480 ?
Subscription in arrears 475 350
Subscription received in advance 140 260
5% Investments 1,200 1,200
Cash Prizes fund (Externally restricted) 460 325
Expenses outstanding:
Salaries 60 120
Rent 90 180
Rates - 60
Tennis court maintenance 78 32
Payable for purchase of sports materials 140 295
Required:
Prepare Receipts & Payments Account of Professionals' Sports Club for the year ended 31st March, 2024 and the
Statement of Financial Position as on that date. (18)
Q-9
Following information pertains to non – current assets of White Rose Limited (WRL):
Cost Accumulated Depreciation

Property, plant & Equipment as at 1 July 2021:
st
Rs. (000) Rs. (000)
Building 30,000 7,500
Plant & Machinery 10,500 3,250
Motor Vehicles 5,000 1,694
Following transactions were incurred during the year ended 30th June, 2022 and 2023.
1. The setting up of a new plant was commenced 1st July 2021 and substantially completed on 28th February
2022. The plant was available for use on 1st April, 2022 and immediately put into use. Details of cost incurred
are as follows:
Payment date Rs. (000)

1st August 2021 1,200
1st October 2021 4,800
28th February 2022 4,800
31st July 2022 1,200
12,000
The cost of the plant was financed as follows:

Rs. 1 million realized from sale of short-term investments. Rs. 1 million received from Government grant and
balance amount from a bank loan obtained on 1st October 2021. The loan carries a markup of 15% payable
annually. The surplus funds available from the loan were invested in a saving account and earned Rs. 0.125
million during capitalization period.
2. On 30th April 2023 a vehicle bought on 1st October 2020 at a cost of Rs. 1,500,000 was traded in with a new
vehicle. Fair value of old vehicle was mutually agreed at Rs. 750,000. The list price of the new vehicle was
2,100,000. Cash paid along with old vehicle amounting to Rs. 1,250,000.
3. The building was revalued by an independent valuer M/s Marigold Valuation Company on 1st July 2021 at a
fair value of Rs. 27 million with nil residual value. Fair value was determined based on active market prices.
The original total life of the building was estimated at 20 years, which remained the same at the time of
revaluation.
4. Additional information:
a. Company charges depreciation as follows:
i. Plant and machinery @ 10% per annum on straight line method.
ii. Motor vehicles @ 20% per annum on reducing balance method.
iii. Building on straight line method.
b. Depreciation on additions and disposals is provided in proportion to the period of use.
c. The maximum possible amount is transferred from the revaluation surplus to retained earnings on an
annual basis.
d. Government grants are recorded as deferred income and a part of it is transferred to income each year.
Required:
Prepare relevant extracts (including comparative figures) from WRL’s Statement of comprehensive income for the
year ended June 30th, 2023, and statement of financial position as on that date. (Notes to the financial statements are
not required. Borrowing costs are to be calculated based on number of months) (15)
THE END
Suggested Solution - 1
Yellow Rose Limited

Notes to the accounts
For the year ended 30th June, 2023 Marking
Scheme
5. Investment property Rs.(million)
Fair value as at 1st July 2022 -

Transfer - Warehouse 412 1.00
Addition - Property 1200 1.00
Fair value gain [428 - 412] 16 1.00
[1280 - 1200] 80 1.00
Fair value as at June 30, 2023 1708 1.00
5.1 Total rental income earned for the year ended 30th June 2023 is:
Rs.(million)
Warehouse 32 1.00
Property - [96 x 4/12] 32 1.00
64
5.2 Both investment properties are measured at fair value model. 1.00
8.00
Calculation of Impairment Loss

Marking
Carrying amount Rs. (million) Rs. (million) Scheme
Cost of Machine (400+70) 470 1.00
Less :Accumulated Depreciation [(470-20)x8/15] (240) 1.00
230
Less: Recoverable amount
Fair value less cost to sell -
Value in use w-1 204.22 3.00
Higher of Fair value and value in use (204.22)
Impairment loss 25.78 1.00
Journal Entry Rs. (m) Rs. (m)

Dr Impairment loss 25.78 1.00
Cr Accumulated impairment loss 25.78 1.00
To record impairment loss as at year end 8.00
w-1 Value in use

Year - 1 Year - 2 Year - 3 Total
Cash inflows 150 120 90
Less: Cash outflow (80) (60) (50)
Add: Depreciation
[(470-20)/15] 30 30 30
Less: Maintenance cost (10) (10) (10)
Add: Residual value 15
90 80 75
Discount factor @ 10% 0.909 0.826 0.751
81.81 66.08 56.33 ###
Suggested solution - 3
Calculation of ratios
SPL HPL
(a) Inventory holding period
Average inventory Opening inventory Opening inventory
[2400/1.25] 1920 [1400/0.8] 1750
Closing inventory 2400 Closing inventory 1400
4320 3150
Average inventory 2160 Average inventory 1575
Cost of sales Cost of sale as given 29000 Cost of sale as given 22400
Less: Depreciation (500) Less: Depreciation (450)
28500 21950
Inventory period =[2160*360/28500] 27.28 =[1575*360/21950] 25.83

Days Days
(b) Receivable collection period

Average receivables Opening receivables Opening receivables
[3000 +200] 3200 [1800 -300] 1500
Closing receivables 3000 Closing receivables 1800
6200 3300
Average receivables 3100 Average receivables 1650
Annual credit sales =60500 x 80% 48400 Total sales 39600

Less: Cash sales (3,600)
=39600x0.1/1.1)
36000
Receivable period =[3100*360/48400] 23.06 =[1650*360/36000] 16.50

Days Days
'(c ) Payable payment period

Average payables Opening payables 2400 Opening payables 2000
Closing payables Closing payables
[2000-200] 1800 [2500-300] 2200
4200 4200
Average receivables 2100 Average receivables 2100
Annual Credit purchases Cost of sales 28500 Cost of sale 21950

Add: Closing inventory 2,400 Add: Closing inventory 1,400
Less: Opening inventory (1,920) Less: Opening inventory (1,750)
28980 21600
Payable period =[2100*360/28980] 26.09 =[2100*360/21600] 35.00

Days Days
(d) Working capital cycle Days Days

Inventory period 27.28 Inventory period 25.83
Receivable period 23.06 Receivable period 16.50
Less: payable period (26.09) Less: payable period (35.00)
24.26 7.33
Purple Rose Limited Marking

Calculation of Basic and diluted earning per share (EPS) Scheme
Basic EPS = 24,000,000 w-1 2.38 Rs. /share 1.00

10,083,333 w-2
W-1 Earnings attributable to ordinary shareholders

Rs.
Profit after tax 24,500,000
Less: Preferance dividend
[50000 x 100 x 10%] (500,000)
24,000,000 1.00
w-2
Weighted Average Shares
Date No. of shares Time factor Fraction Weighted
Average
1/1/23 Opening Balance 8,000,000 5/12 42/40 3,500,000
31/5/23 Right issue (2/5) 3,200,000

11,200,000 4/12 - 3,733,333
1/10/23 Convertible shares
[2000000 x 50% x 2/100] 200,000
11,400,000 3/12 2,850,000
Right issue fraction 10,083,333 2.00
=42/40
TERP (5x42)+(2x35) 40.00 Rs./share

(5 +2)
Ranking of dilution
Share options 500,000 shares
Free Shares (50 - 45)

x 500000 =
50 50,000 1st 1.00
Convertible preferance shares
Incremental EPS = (50000x100)x10%

(50000 x 5)
= 500,000 2.00 Rs./share 2nd 1.00

250,000
Convertible bonds
Incremental earings '=20000000 x 6% x 9/12 900,000

'=20000000 x 50%x 6% x 3/12 150,000
1,050,000
Less: Tax @ 30% (315,000)
735,000 1.00
Weighted average shares '=20000000 x 2/100 x 9/12 300,000

'=20000000 x 50%x2/12 x 3/12 50,000
350,000 1.00
Incremental EPS = 735,000

350,000 2.10 Rs./share 3rd 0.50
Diluted EPS Earnings Weighted EPS

Rs. Shares Rs.
Basic EPS 24,000,000 10,083,333 2.380 per share
Share options - 50,000

24,000,000 10,133,333 2.368 per share Dilutive 0.50
10% Convertible preference share 250,000 500,000

6% Convertible bonds 350,000 735,000

Total 10.00
Orange Rose Limited

Measurment of machine Marking
Scheme
(i) Historic cost Rs.(million)
Plant (at cost) 80

Less: Accumulated Depreciation
, = (80-10)/10 x 5 (35)
45 1.50
(ii) Fair value Rs.(million)
Plant (At fair value) 60 0.50
Note: At fair value basis, disposal cost would not be deducted.
(iii) Value in use /(Present value)
Years Cash flows DF @12% Present value

Rs.(million) Rs.(million)
1 20 0.893 17.86
2 20 0.797 15.94
3 15 0.712 10.68
4 15 0.636 9.54
5 10 0.567 5.67
59.69 2.50
(iv) Curent cost/Replacement cost Rs.(million)
Cost of new plant 95

Less: Accumulated Depreciation
= (95-15)/10 x 5 (40)
55 1.50
6.00
Suggesetd Solution - 6
1 C
2 B
3 B
4 C
5 B
6 A
7 A
Pink Rose Limited Marking
Statement of changes in equity Scheme
Share Revaluation Retained

Share Capital
premium Reserve Earnings
-------------------------------------------------------Rs. (000) -------------------------------------------------
Balance as at 1 - 1 - 2022 50,000 7,500 2,550 63,450 0.50
Effect of prior period error (w -1) 2,250 2.00
Adjusted balance as at 1 -1 - 2022 (Restated) 50,000 7,500 2,550 65,700 1.00
Final Cash dividend [2021] @ 5% (2,500) 0.50
Final bonus dividend [2021] @ 5% 2,500 (2,500) 1.00
Interim bonus dividend @ 5%
[50000+2500] x 5% 2,625 (2,625) 1.00
Right issue
[50000+2500+2625] x 1/5 11,025 4,410 1.00
]11025 x 4 /10]
Total comprehensive income:
Net profit for the year [29350 - 450] 28,900 1.50
Revaluation (loss) (550) 0.50
Incremental Depreciation [2800 - 2000] (800) 800 0.50

Balance as at 31 - 12 - 2022 (Restated) 66,150 11,910 1,200 87,775
Final Cash dividend [2022] @ 10% (6,615) 0.50
Final bonus dividend [2022] @ 10% 6,615 (6,615) 1.00
Interim cash dividend @ 20%
[66150+6615] x 20% (14,553) 1.00
Total comprehensive income:

Net profit for the year [31400 - 360-7000] 24,040 2.00
Revaluation (loss) 800 0.50
Incremental Depreciation [3000 - 2100] (900) 900 0.50
Balance as at 31 - 12 - 2023 72,765 11,910 1,100 84,932 15.00
W-1
Calculation of effect of prior period error
2021 2022 2023
--------------------------------Rs. (000)------------------------------
Reversal of repair expense 2,500
Depreciation (2500 x 20% x 6/12) (250)
(2500-250)x 20%, [450 x 80%) (450) (360)
2,250 (450) (360)
W-2
Calculation of effect of correction of error
Rs. (000)
Depreciation on plant & machinery [35000 x 20%] 7,000
7,000
Suggested Solution 8
Professionals' Sports Club Marking
Receipts & Payments Account for the year ended 31st March, 2024 Scheme
Receipts Rs.(000) Payments Rs.(000)
Balance b/d 480 Salaries - (w - 2) 2,340 - 1.00
Subscriptions - (w - 1) 7,445 Rent (W - 3) 990 2.00 1.00
Rates (60000 - 60000) - -
Admission fee 800 Communications 72 0.50 0.50
Surplus on publication of club magazines Affiliation fee to Tennis -
(450000 - 45000) 405 Association (120,000 + 120,000) 240 1.00 0.50
Sale of sports equipment (w - 7) 520 Electricity charges 120 1.00 0.50
Interest on 5% Investments 30 Repairs & maintenance (w - 4) 1,006 0.50 0.50
Other income 23 Payment for sports material (w - 8) 1,670 0.50 0.50
Price fund contributions 280 Prize awards (w - 5) 415 0.50 0.50
Unrestricted contributions 510 Fixed deposits 2,500 0.50 0.50
Balance c/d 1,140 0.50
10,493 10,493 6.50 6.00
Professionals' Sports Club

Statement of financial position as at 31st March, 2024
Assets Rs.(000)
Non - Current Assets
Sports equipment (w - 6) 3,120 0.50
Fixed deposits 2,500 0.25
5% Investments 1,200 0.25
6,820
Current Assets
Sports material inventory 650
Interest accrued 30 0.50
Membership fee paid in advance 120 0.50
Advertisement charges receivable 45 0.50
Subscription in arrear 350 0.25
Bank 1,140 0.25
2,335
Total Assets 9,155 3.00
Net Assets & Liabilities

Net Assets
Unrestricted Fund
Opening balance (w -10) 5,587 0.25
Add: Surplus 2,296 0.25
Cash Prize fund (Restricted) 325 0.50
8,208
Current Liabilities
Subscriptions received in advance 260 0.25
Outstanding expenses:
Salaries 120 0.25
Rent 180 0.25
Rates 60 0.25
Repair & maintenance 32 0.25
Sports material payable 295 0.25
9,155 2.50
18.00
W-1 (All figures are in Rs. (000)

Subscriptions
Rs. Rs.
Subscription in arrear b/d 475 Advance b/d 140
Income & expenditure 7,200
Advance c/d 260 Receipts & Payments (Balance fig.) 7,445
Subscription in arrear c/d 350
7,935 7,935
W-2
Salaries
Rs. Rs.
Balance b/d 60
Receipt & payment (Balancing fig.) 2,340 Income & Expenditure 2,400
Balance c/d 120

2,460 2,460
W-3
Rent
Rs. Rs.
Balance b/d 90
Receipts & payments (Balancing fig.) 990 Income & expenditure 1,080
Balance c/d 180

1,170 1,170
W-4
Repairs & maintenance
Rs. Rs.
Receipt & payment (Balancing fig.) 1,006 Balance b/d 78
Income & expenditure 960
Balance c/d 32
1,038 1,038
W-5
Cash Prize fund
Rs. Rs.
Balance b/d 460
Bank (prize awarded) (Balancing fig.) 415
Bank 280
Balance c/d 325
740
W-6
Sports equipment
Rs. Rs.
Balance b/d 4,000 Disposal of sports equipment 400
Depreciation 480
Balance c/d 3,120

4,000 4,000
W-7
Disposal of equipment
Rs. Rs.
Sports equipment 400
Profit on sale of equipment 120 Bank (Balancing figure) 520
520 520
W-8
Sports material payable
Rs. Rs.
Bank (Balancing fig.) 1,670 Balance b/d 140
Purchases of sports material 1,825
Balance c/d 295 (w - 9)
1,965 1,965
W-9
Sports material
Rs. Rs.
Balance b/d 400 Sports material used 1,575
Payable (Balancing figure) 1,825
Balance c/d 650
2,225 2,225
W - 10
Statement of financial position as at 1st April, 2023

Capital Fund & Liabilities Rs(000) Assets Rs.(000)
Unrestricted Fund 5,587 Sports Equipment 4,000
(Balancing figure) 5% Investments 1,200
Bank 480
Prize fund (Restricted) 460 Subscription in arrear 475
Sports material 400
Subscriptions received in advance 140
Outstanding expenses:
Salaries 60
Rent 90
Repair & maintenance 78

Sports material payable 140
6,555 6,555
Suggested solution - 9
White Rose Limited

Statement of comprehensive income (Extracts)
For the year ended 30th June, 2023 Marking
2023 2022 Scheme
Rs. (000) Rs. (000)
Statement of profit or loss
Depreciation Expense (w - 1) 4,662 3928 3.5
Gain on disposal (w - 6) (100) 1
Income from grant 100 33
Finance cost [10000 x 15%,] (10000 x 15% x 4/12) (1,500) (500) 1
Statement of other comprehensive income

Revaluation gain - 4,500 1.5
White Rose Limited

Statement of financial position (Extracts)
As at 30 June, 2023 2023 2022
Rs. (000) Rs. (000)
Non - Current Assets
Property, plant & equipment (w - 1) 42,666 46,178 3
Equity
Revaluation Surplus (w - 5) 3,900 4,200 1
Liabilities
Non current Liabilities
Bank Loan 10,000 10000 0.5
Government Grant [867-100], [1000-33-100] 767 867 1
Current Liabilities
Other Paybles - 1200 0.5
Interest payable [10000 x 15% x9/12] 1125 1125 1
Government Grant 100 100 1
15
Q-9 Working-1
W-1
Property, plant & equipment
2022 Building Plant Motor Vehicle Total

------Rupees in (000)------
At the start of the year 30,000 10,500 5,000 45,500
Additions 12,550 12,550
Disposals - -
Reversal of acc. dep. (7,500) (7,500)
Revaluation Surplus -
=(27000-(30000-7500) 4,500 4,500
At the end of the year 27,000 23,050 5,000 55,050
Accumulated Depreciation
Depreciation expense 1,800 1,467 661 3,928
Reversal of Acc. dep on Building (7,500) (7,500)
- -
Net Carrying amount

2023 Building Plant Motor Vehicle Total

------Rupees in (000)------
Additions - 2,000 2,000
Disposals (1,500) (1,500)
Accumulated Depreciation
Depreciation expense 1,800 2,300 562 4,662
Accumulated Dep of disposal (650) (650)
- -
Net Carrying amount

W-2 Depreciation for the Year 2023 2022
Building (27000/15) 1,800 1,800
Plant =10500 X 10% 1,050 1,050

=[12500 X 10%], [12500 X 10%X 4/12] 1,250 417
2,300 1,467
Motor vehicles
On opening balance [5000 - 1694] x 20% 661
(5000 - 2355-1020) x 20% 325
Depreciation on addition
=(2000x20%*2/12) 67
Depreciation on disposal (w - 3) 170
562 661
Total Depreciation for the year 4,662 3,928
W-3 Disposal of old vehicle

Opening NBV [1500 x (1 - 0.2 x 9/12) x0.8] 1,020
Depreciation on disposal for the year [1020 x 20% x 10/12] 170
Accumulated Depreciation on disposal (1500 - 1020) +170 650
W-4 Cost of new plant

Cost of construction 12,000
Add: Borrowing cost

=10000 x 15% x 5/12) 625
Less: Interest income (125)
12,500
W-5 Revaluation surplus
Opening balance 4,200 -
Revaluation surplus for the year - 4,500
Less: Transferred to retained earnings (4500/15) (300) (300)
3,900 4,200
W-6 Gain or (loss) on disposal

FV of old vehicle 750
Less: Carrying amount [1500 - 650] (850)
(100)
W-7 Government grant

Opening balance 967 -
Grant received during the year - 1,000
Less: Transferred to iincome [1000 x 10%], [1000*10% 4/12] (100) (33)
867 967
Certificate in Accounting and Finance Stage Examinations
21 February 2024
Tax Practices
(i) Answer all EIGHT questions.
(iii) Tax rates are given on the last page.
Q.1 Miss. Ayesha, Bareeha and Uswa formed association of persons and started business as on 1st January 2022
with the name of "ABU Styles" that is primarily engaged in the manufacturing of ready-made garments.
"ABU Styles" has manufacturing facility in the industrial area of Lahore while it has various retail outlets
across Pakistan. Following information has been extracted from the records of "ABU Styles" for the year
ended 30 June 2024:
Rs. In Million
Sales 1,050
Cost of sales (810)
Gross profit 240
Admin and selling expenses (125)
Financial charges (15)
Other charges (25)
Profit before tax 75
1. Cost of sales included:
• Purchase of various raw materials worth Rs. 10 million on which no withholding tax was deducted
at the time of payment whereas total raw material purchased during the year was Rs. 200 million.
• Contribution towards approved provident fund (established for the benefit of factory employees) Rs.
12 million, that is 60% of the total contribution amount i.e. Rs. 20 million.
• Closing stock Rs. 12.50 million have been determined using absorption cost method whereas it
could fetch only Rs. 10 million on subsequent sales due to low quality.
• Education cess paid to local authority amounting Rs. 2 million.
• Salaries to factory employees that are paid in cash Rs. 40 million break up of which is as follows:
Salaries to employees having per month salary over Rs. 50,000 amounted to Rs. 5 million
Salaries to employees having per month salary over Rs.32,000 amounted to Rs. 4 million
Salaries to employees having per month salary less than Rs.32,000 amounted to Rs. 31 million.
• Security deposit of Rs. 2 million paid for the new electricity connection in the factory area.
• Rs. 3 million expended on fence in various factory area.
• Rs. 1 million expended on the installation of new machine that was imported in June 2023 for Rs. 9
million. Commercial production from this machine was started in January 2024.
• Accounting depreciation amounting to Rs. 25 million.
2. Admin and selling expenses included:
• Rs. 1.5 million paid to Miss. Ayesha as commission for introducing new clients.
• Rs. 1 million for amortization of pre commencement expenditure incurred in Tax Year 2022 at the
time of inception of business. The total amount of such expenditure was Rs. 10 million.
• Rs. 4 million paid for upgradation of existing software whose useful life is not ascertainable.
3. Other information is as follows:
• The above figure for sales is inclusive of sales tax Rs. 45 million and federal excise duty Rs. 5
million.
Tax Practices | Page 2 of 7
• The other charges are net of cash prize Rs. 3 million received from the president of Pakistan.
• Tax depreciation and tax amortization on depreciable and intangible assets is Rs. 26 million and 2.5
million respectively. (It does not include the impact of tax depreciation and tax amortization
pertaining to transactions/adjustments given above, if any)
• The excess of minimum tax over tax liability brought forward from tax year 2022 and 2023
amounting Rs. 6 million and 4 million respectively.
• The unabsorbed depreciation and amortization brought forward from tax year 2022 amounting Rs.
48 million.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made there under, compute the total
income, the taxable income and tax liability of "ABU Styles" for the tax year 2024.
Note: Show all the relevant working notes, exemptions, exclusions and disallowances. Also compute
minimum tax u/s 113 and amount of tax carried forward u/s 113. Also compute the amount of
unabsorbed tax depreciation and amortization carried forward to the next tax year, if applicable. (19)
Q.2
(a) Mr. Hashir is an Associate Professor of "Anatomy" at Rashid Latif Medical College (RLMC) that is
duly approved by the Higher Education Commission. The detail of his emoluments for the tax year
ended on June 30, 2024, is given below:
Rupees
Basic Salary (per month) 450,000
Medical allowance (per month) 50,000
Travelling allowance (per month)
45,000
25% incurred for official purpose
(b) Other information is as follows:
(i) During the current year, his son, Mr. Shayan took admission in MBBS in RLMC. The usual
annual fee is Rs.2,500,000. However, RLMC charged only Rs. 500,000 from him.
(ii) Mr. Hashir and his family is allowed free medical treatment at approved hospitals under the
group health insurance policy of RLMC. The insurance premium paid by RLMC Rs. 200,000.
(iii) Mr. Hashir was provided an option to acquire 10,000 shares of RLMC at a price of Rs. 98 per
share under an employee share scheme. The option was granted on 1 February 2024 when the
FMV of the shares was Rs. 104 per share. He exercised the option on 1 March 2023 when the
FMV was Rs. 110 per share.
(iv) On July 01, 2023, Mr. Hashir obtained the loan of Rs. 10,000,000 from RLMC for establishing
a “Skin Care Clinic" for his wife near his residence. The loan is to be repaid in 10 equal half
yearly installments and carried the interest rate @ 5%. The first installment started from
January 01, 2024.
(v) On July 20, 2023, Mr. Hashir received a bungalow in Bahria Town as share of inheritance from
his father. At the time of inheritance, Fair market value of the bungalow was Rs. 50,000,000.
His father purchased this house two years back for Rs. 30,000,000. He entered into an
agreement with Mr. Muaz to sale that bungalow on August 01, 2023, for Rs. 50,000,000 and
received a deposit of Rs. 1,000,000 from him. The remaining amount was payable within 3
months of the agreement. Due to financial loss in the business, Mr. Muaz did not execute the
contract and as a result, Mr. Hashir forfeited the token money.
(vi) Mr. Hashir gave the bungalow on rent to RLMC on December 01, 2023, at a monthly rent of
Rs. 150,000. RLMC given the same bungalow to Mr. Hashir as accommodation on the same
date. The fair market rent of the same bungalow was Rs. 180,000 per month.
(vii) On January 14, 2024, Mr. Hashir received the gift Rs. 250,000 on his birthday in cash from his
mother, who is on the list of "Active Taxpayer" as issued by the "Federal Board of Revenue
(FBR).
(viii) During the month of Ramadan, Mr. Hashir arranged an iftar party for his family and friends at
"Pearl Continental Hotel, Lahore". The bill amounting to Rs. 150,000 was paid by the "Haidari
Beverages (Private) Limited (HBPL)" at the instruction of Mr. Hashir. HBPL is a private
company registered under the Companies Act, 2017 and Mr. Hashir holds 10% shares of HBPL.
(ix) Mr. Hashir was tired of his habit of collecting postage stamps of different countries. He sold
those postage stamps in an auction on June 01, 2024, for Rs. 800,000. He collected those
postage stamps over a period of over 3 years at a cost of Rs. 900,000.
(x) During the year, Mr. Hashir received the royalty Rs. 900,000 from a publishing company
against his book "Human Anatomy for Artists" which he completed in an aggregate time period
of 20 months.
(xi) During the year, Mr. Hashir paid the school fee of his two children Rs. 840,000 who are
studying in "Beaconhouse School, Lahore".
(xii) Mr. Hashir earned the net income of Rs. 600,000 from his private medical practice
(xiii) During the year, Mr. Hashir donated his vehicle to an approved non-profit organization,
"LABARD". He purchased the aforesaid vehicle 7 years back for Rs. 2,000,000.
Required:
Compute the amount of total income and taxable income under the correct head of income along with tax
liability for the tax year 2024.
Note: Show all exemptions, exclusions and disallowances where relevant. (19)
Q.3 Mr. Farhan has been recently appointed as Assistant Manager Taxation in a reputable Chartered Accountant
Firm. He has been given the task of computing taxable income of an individual. Few abstracts from the
computation are as follows:
Rs.
Income from business 5,000,000
Capital gains 950,000
Other relevant information is as follows:
Income From Business:
The above figure of income from business arrived after incorporating following adjustments by Mr. Farhan.
(i) Accounting depreciation amounting to Rs. 450,000 and financial charges Rs. 150,000 in respect of
leased vehicle (lease commencing date July 01, 2023) were added back in the business income being
inadmissible expense and gross lease rental of Rs. 800,000 was deducted while computing taxable
business income. The fair market value of the leased vehicle was Rs. 3,000,000 at the time of
commencement of lease.
(ii) Following liabilities outstanding for more than three years were added back while computing taxable
business income:
Rs.
Liability against purchases 200,000
Bank loan 1,200,000
Interest on above bank loan 120,000
Advances from customers 150,000
1,670,000
(iii) Accounting gain Rs. 800,000 on disposal of building was deducted while computing taxable business
income and tax gain of Rs. 1,000,000 (being the differential amount of consideration received Rs.
2,500,000 and tax written value Rs. 1,500,000) was added to the taxable business income. The original
cost of the building at the time of acquisition was Rs. 2,000,000.
Capital Gains:
The above figure for capital gains was arrived after incorporating following adjustment by Mr. Farhan.
Insurance claim Rs. 1,200,000 was received in respect of one sculpture and one painting (that were stolen in a
robbery) on December 31, 2023, when the fair market value of sculpture and painting was Rs. 1,200,000 and
300,000 respectively. The sculpture and painting were purchased 2 years ago at a cost of Rs. 600,000 and Rs.
300,000 respectively. Capital gains Rs. 300,000 (being the differential amount of insurance claim Rs.
1,200,000 and combined cost of sculpture and painting Rs. 900,000) have been included in the above taxable
income under the head capital gains.
Required:
You are the senior manager of taxation of the firm. As senior manager, identify the errors/shortcomings in the
above computation of income(s) and guide him about the correct adjustments to be made under the relevant
provisions of the Income Tax Ordinance, 2001 and Rules made there under. (Compute revised calculations,
where needed) (10)
Q.4 (a) Mr. Abdullah Riaz provided the following information for his accounting year ended 30.6.2024:
1. On 1.6.2024, Abdullah Riaz sold 5,000 shares in XYZ (Private) Ltd for Rs.100,000. The shares had
become his property on 1.7.2022 under the will of his father when the FMV of share was Rs. 50 per
share. His father originally purchased these shares for Rs. 10 per share.
2. On 1.6.2024, Abdullah Riaz transferred 10,000 shares in Z (Private) Ltd to his wife Aleezay under an
agreement to live apart. Aleezay is an employee of the Government of Pakistan and was posted to
Bangladesh during the tax year 2024. In the tax year 2024 Aleezay was present in Pakistan for 30
days when she was on leave from her foreign posting.
3. On 1.5.2024, Abdullah Riaz incurred loss of Rs. 600,000 on disposal of 50,000 shares of Dandot
Cement Limited (a company listed on Pakistan Stock Exchange). On 15.5.2024, Abdullah Riaz
repurchased the 50,000 shares of Dandot Cement Limited to maintain his investment portfolio.
Abdullah Riaz is of the view that:

• Rs.100,000 representing the sale consideration of 5,000 shares in XYZ (Private) Ltd is his income
taxable under the head ‘Capital gains’ since he had not paid anything to acquire the shares and the
shares were not held for more than one year since their acquisition.
• The shares transferred to his wife Aleezay under an agreement to live apart would be treated as a
disposal of a capital asset and Rs.80,000 representing the difference between FMV and the cost of
shares would be taxable capital gains.
• The loss incurred on the disposal of shares of Dandot Cement Limited shall be carried forward to the
next tax year under the provisions of section 37A of the Income Tax Ordinance, 2001.
Required:
State with reasons, whether or not you are in agreement with each of the three views expressed by Mr.
Abdullah Riaz. If you are not in agreement with any of his views, explain the correct treatment to be adopted
for the determination of the income, if any, chargeable under the correct head(s) of income for the tax year
2024. (06)
(b) Respond to the following independent scenarios under the Income Tax Ordinance, 2001 and Rules
made thereunder:
(i) The production of an assessment order or its certified copy shall be conclusive evidence of due
making of assessment. You are required to identify the situations when such assessment order shall
be considered quashed or void U/S 126. (02)
(ii) Identify the time limit within which the new assessment order has to be made by commissioner in
case of following decisions made by appellate authority:
a) Direct relief provided to taxpayer (01)
b) Assessment order wholly or partly set aside (01)
Q.5 (a) Mr. Shahid worked as Marketing Manager for PAC (Private) Limited for many years. He received a lump sum
salary of Rs. 2,000,000 from PAC where he worked till November 29, 2023. On November 30, 2023, he
travelled to Dubai to join the branch of PAC in Dubai where he worked till 31st March 2024 at a monthly
remuneration of 6,000 USD. From April 01, 2024, He joined PAC KSA (Kingdom of Saudia Arabia) at a
monthly remuneration of 6,500 USD. He did not come back to Pakistan during the Tax Year 2024. He was
considered nonresident in Dubai and KSA for Tax Year 2024.The average rate of US Dollar during the tax
year was 1 US Dollar = Rs. 250.
Required:
Under the Income Tax Ordinance, 2001:
(i) State the residential status of Mr. Shahid for the tax year 20204. (1.5)
(ii) State the taxability of salary earned from PAC Dubai and PAC KSA. (1.5)
(iii) Explain whether Mr. Shahid will be required to file foreign income and asset statement U/S116A. (01)
(b) Identify the impact ("Increase", "Decrees" or "Neutral i.e. no effect”) of following transaction on "Wealth
Reconciliation Statement" under the provisions of the Income Tax Ordinance, 2001 and Rules made
thereunder. (03)
(i) Income amounting Rs. 3,000,000 from the sale of wheat and cotton (harvested on agriculture land
situated in Pakistan).
(ii) Purchase of immovable property having fair market value of Rs. 10 million. Payment made through
banking channel.
(iii) Drawings amounting to Rs. 800,000 from the business (firm) during the year.
(iv) Donation amounting Rs. 1,200,000 to approved charitable institutions. However, payment was made in
cash.
(v) Gain amounting Rs. 700,000 on sale of personal vehicle of an individual.
(vi) Income tax amounting Rs. 600,000 paid in cash.
Q.6 (a) Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, briefly describe the following:
(i) Information and documents which are required to be uploaded by the applicant (who intends to get itself
registered and having NTN or income tax registration) using his login credentials, at the time of filing of
registration application. (03)
(ii) Rights and obligations of a person holding temporary registration as regards to:
• filing of sales tax return
• sales tax invoice and
• carry forward/refund of input tax. (02)
(b) Under the Sales Tax Act 1990, an authorized officer of Inland Revenue, if consider it necessary, may take a
sample of any goods or raw materials, you are required to explain:
(i) The purpose of taking sample. (02)
(ii) The procedure that should be followed by the officer of Inland Revenue while taking samples. (03)
Q.7 Ali Associates (AA) is registered under the Sales Tax Act, 1990, as manufacturer-cum-distributor -cum-
retailer. Following information has been extracted from its records for the month of January 2024:
Rs in million
Supplies:
Taxable goods to registered persons 40.00
Taxable goods to unregistered persons 18.00
Exempt goods to registered persons 12.00
Purchases:
Taxable goods from registered suppliers 38.00
Taxable goods from unregistered suppliers 1.50
Exempt goods from registered suppliers 2.50
Fixed assets from registered supplier 6.50
The following additional information is available for January 2024:
(i) Supply of taxable goods to registered persons include the following:
• Raw material amounting to Rs. 5.00 million supplied to a manufacturer in Risalpur Export
Processing Zone.
• Consumable items amounting to Rs. 5.00 million supplied to different ships proceeding to Middle
East Countries.
• Goods amounting to Rs. 2.00 million supplied to Aflatoon Associates under hire purchase
agreement. The said agreement was entered into on December 26, 2023.
(ii) Taxable goods supplied to unregistered persons contained goods amounting to Rs. 14 million to Meesna
Associate (unregistered manufacturer other than cottage industry) and goods amounting Rs. 2.00
million to Mr. Bambo (unregistered distributor and invoice did not contain NTN/CNIC of the recipient).
The rest of the goods were supplied to end consumers.
(iii) Taxable goods purchased from registered suppliers include:
• Paint, distemper and related material amounting to Rs. 1.50 million purchased for the paint of
manufacturing area.
• material worth Rs. 3.5 million, the payment of which was made by depositing cash directly in the
business bank account of the supplier.
• The amount of Rs. 1.80 million paid for purchase of raw material. However, only 40% of the
goods were supplied during January 2024.
• Raw materials of Rs. 3.00 million were destroyed due to a fire incident at the factory store. No
insurance claim was received in this regard.
(iv) Fixed assets purchased from registered suppliers include:
• Fiscal electronic cash register and prefabricated building from a corporate supplier at a price of Rs.
0.50 million and Rs. 3.00 million respectively.
• Delivery van worth Rs. 3.00 million were purchased for timely distribution of goods to customers.
(v) Goods worth Rs. 2.5 million were supplied to a creditor against the final settlement of his debt of Rs.
2.2 million.
(vi) Different third schedule items (chocolates, shampoos, carbonated drinks and etc.) were supplied to
different customers free of cost against gift vouchers issued in different months. The manufacturing cost
of such goods was Rs. 1.2 million whereas the retail price of such goods was Rs. 2.00 million.
(vii) Goods amounting to Rs. 4.00 million returned by Moye Moye Associates as on January 31, 2024.
However, debit note was raised on February 06, 2024, in this regard.
(viii) During the month, AA paid Sindh Sales Tax worth Rs. 0.09 million on franchise services. Under the
SindhSales Tax Laws, such tax is not an admissible credit.
(ix) AA is required to pay a penalty of Rs. 0.3 million under the Income Tax Ordinance, 2001 on account of
certain defects in the maintenance of records.
(x) All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at the rate of
18%.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made there under, compute the amount of sales tax
payable by or refundable to AA and the amount of sales tax to be carried forward, if any, for the tax period
January 2024.
Note: Show all exemptions, exclusions, disallowances and give explanatory notes where relevant. (20)
Q.8 Briefly explain the following:

(i) Tax evasion.
(ii) Tax avoidance.
(iii) Professional competence and due care for tax practitioners (05)
(THE END)
Solution Q # 01
ABU Styles
Computation of Total Income, Taxable Income And Tax Liability
Tax Year 2024
Marks
Rs in million
Notes Alloc.
Profit before tax 75.00 0.25
Add:
Raw material- Tax is not withheld 10.00 0.75
Disallowed amount shall not exceed 20% of total raw material amount i.e.
20%*200=40 million
Contribution to Approved Provident Fund-Allowed upto 50% of total contribution:
12-(20*50%) 2.00 1
Education cess 2.00 0.75
Salary in cash 5+4 9.00 1
Security deposit for electricity connection 2.00 0.5
Amount expended on fence 3.00 0.5
Machine installation 1.00 0.75
Accounting depreciation 25.00 0.25
Commission to Ayesha 1.50 0.5
Amortisation of pre commencement expenditure 1.00 0.5
Software up gradation 4.00 0.5
Less:
Sales tax and FED 45+5 (50.00) 0.75
Cash prize from president (Exempt income) (3.00) 0.5
Closing stock (Lower of cost or NRV): 10-12.5 (2.50) 0.75
Tax dep and amortisation 26+2.5 (28.50) 0.25
Tax depreciation on fence 3*10% (0.30) 0.75
Tax depreciation on machine installed in current year 1
Initial allowance (9+1)*25%=2.5 (2.50)
Normal depreciation (10-2.5)*15%= 1.3 (1.13)
Amortization-Software up gradation 4/25 (0.16) 0.75
Amortisation-Pre commencement expenditure 10*20% (2.00) 0.5
Income before unabsorbed tax depreciation and amortisation 45.42 0.25

Less: Unabsorbed tax depreciation and amortisation 50%*45.42 (22.71) 1
22.71
Exempt Income
Cash prize from president 3.00 0.5
Total income 25.71 0.25

Less: Exempt income (3.00)
Taxable income-NTR 22.71 0.25
Tax liability (Higher of A or B) 12.50
A- Normal Tax Liability (Non Salaried)

0.765+35%*(22.71-4.00) 7.31 0.5
Less: Tax credit for Woman enterprise
25%*7.31 (1.83) 1
5.48
B- Minimum tax u/s 113

(1,050-45-5)*1.25% 12.50 0.75
Total tax liability 12.50
Tax U/S 113 carried forward to next year: 1
Rs. In million
Tax Year-2022 6.00
Tax Year-2023 4.00
Tax Year-2024 12.50-5.48 7.02
Unabsorbed tax depreciation and amrtisation carried forward: 1
Rs. In million
Unabsorbed tax dep-TY 2022 48.00
Less: Adjusted during the year (22.71)
25.29
19
Solution Q # 02
Mr. Hashir
Computation of Total Income, Taxable Income And Tax Liability
Tax Year 2024
Marks
Notes Rupees Alloc.
Income From Salary:
Salary 450,000*12 5,400,000 0.5

Medical allowance 50,000*12 600,000 0.75
Travelling allowance 45,000*12 540,000 0.75
Concessional fee of son N-1 - 1
Medical facility N-2 - 1
Employee share scheme (110-98)*10,000 120,000 1
Concessional rate loan N-3 475,000 1
Free accommodation- Higher of 1,417,500 1
Fair market rent 180,000*7 1,260,000
45% of basic salary 45%*450,000*7 1,417,500
Total taxable salary 8,552,500
Income From Property:

Forfeited deposit 1,000,000 0.75
Rent-Actual amount 150,000*7 1,050,000 0.75
2,050,000
Less: Repair allowance 2,050,000*20% (410,000) 0.75
1,640,000
Income From Other Business:
Net income from private medical practice 600,000 0.75
Capital Gains:
Loss on postage stamps 800,000-900,000 N-4 - 1
Income From Other Source:

Gift in cash from mother 250,000 0.75
Bungalow inherited from father N-5 - 0.75
Royalty against book 900,000 0.75
Dividend (Amount expended by HBPL for Hashir)-FTR 150,000 1
1,300,000
Total income 12,092,500 0.25

Less: Dividend-FTR (150,000)
Taxable income-NTR 11,942,500 0.5
Less: Deduction for education expense N-6 - 0.75
11,942,500
Tax liability (Non-Salaried person case): 3,544,875 0.5

765,000+35%*(11,942,500-4,000,000)
Less: Tax credit on donation:
Eligible amount-Lower of:
Car value 2,000,000*50% or 1,000,000

30% of taxable income 11,942,500*30% 3,582,750
Tax credit 3,544,875/11,942,500*1,000,000 (296,829) 1.5
Less: Full time teacher allowance N-7 - 1
Tax on dividend 150,000*15% 22,500 0.25

Total tax liability 3,270,546
19
N-1
The following perquisites received by an employee by virtue of his employment are
exempt from tax.
a) Free or subsidized education provided by an educational institution to the children
of employees
N-2
Medical facility provided by employer is exempt from tax if following available:
1-NTN/CNIC of medical practitioner
2-Employer attestation.
Furthermore, Insurance premium paid by the employer in this regard does not
become part of salary of employees.
N-3
July to December 10,000,000*(10%-5%)*6/12 250,000
January to June 10,000,000-1,000,000*(10%-5%)*6/12 225,000
475,000
N-4
Loss from sales of postage stamps is not allowed to be recognized.
N-5
Bungalow inherited from father is capital receipt and it is not taxable.
N-6
Every individual shall be entitled to a deductible allowance in respect of tuition fee
paid by the individual in a tax year provided that the taxable income of the
individual is less than Rs.1,500,000. As the taxable income is more than 1,500,000,
therefore, no deduction is allowed.
N-7
Full time teacher allowance shall not apply to teachers of medical profession who
derive income from private medical practice.
Solution Q # 03
Marks
Alloc.
Income from business:
Point (i)
In case of vehicle acquired on lease, gross lease rentals (principal + mark up) shall be allowed as deduction
against business income provided that for the purpose of determining the deduction on account of lease rentals the
cost of a passenger transport vehicle not plying for hire to the extent of principal amount shall not exceed two and a
1
half million rupees;
As the fmv of leased vehicle at the time of commencement of lease was in excess of Rs. 2.5 million, therefore,
gross lease rentals computed as follows shall be allowable deduction:
Financial charges 150,000

Actual Principal amount paid 800,000-150,000=650,000
1.5
Adjusted Principal amount 2,500,000/3,000,000*650,000 541,667
Lease rentals allowed as deduction 691,667
Point (ii)
If the liability or a part of the liability for which the deduction claimed is not paid within three years from the
end of the tax year in which the deduction was allowed, the unpaid amount of the liability shall be chargeable to
tax under the head “Income from Business” in the first tax year following the end of the three years.
1.5
As the deductions were not claimed against business income in respect of bank loan Rs. 1,200,000 and advances
from customers Rs. 150,000, therefore, only liability against purchases Rs. 200,000 and interest on bank loan Rs.
120,000 shall be chargable to tax under the head "Income from Busines".
Point (iii)
For computing gain on disposal of immoveable property, the consideration received shall be treated as the cost
of the property if the consideration exceeds its cost (Gain on disposal shall be equal to the depreciation previously
allowed). 1
As consideration received on disposal of building Rs. 2,500,000 is more than cost of building Rs. 2,000,000,
therefore, tax gain on disposal of building shall be computed as follows:
Rupees
Consideration received 2,500,000

Less: Tax WDV of asset 2,500,000-500,000 2,000,000 1
Taxable gain 500,000
Capital Gains:
Point (i)
Where asset has been lost or destroyed, then insurance claim received shall be considered consideration
received. Further, Where two or more assets are disposed of by a person in a single transaction and the
consideration received for each asset is not specified, the total consideration received by the person shall be
apportioned among the assets disposed of in proportion to their respective fair market values determined at the 1
time of the transaction.
As consideration received i.e. insurance claim is not specified for each asset, therefore consideration received and
gain on each sset shall be computed as follows:
Rupees
Sculpture Painting Total
FMV on December 31, 2023 1,200,000 300,000 1,500,000
Consideration received: 960,000 240,000 1,200,000 1

Sculpture 1,200,000*1,200,000/(1,500,000)
Painting 1,200,000*300,000/(1500,000)
Less: cost of asset (600,000) (300,000) 0.75
Capital gain 360,000 (60,000) 0.75
* Taxable gain sculpture 360,000
* Tax loss on painting shall not be recognized. 0.5
10
Solution Q # 04
Part A
Marks
Alloc.
Disposal of 50,00 shares:
Where a capital asset becomes the property of a person under a will , the cost in the hands of
transferor shall be treated as the cost for recipient.
In the circumstances, Abdullah Riaz’s view that the sale consideration is taxable as capital
gain is NOT CORRECT.
The capital gain or loss on the sale of shares would be the difference between the
2
consideration received and the deemed cost of assets which in this case would be the Rs. 10
per share.
Consideration received = 100,000
Less: Cost (5000*10) = 50,000
Capital gain = 50,000
Transfer of shares to his wife:
Mr. Abdullah Riaz’s view is NOT CORRECT as under the non-recognition rules, no gain or
loss arises on the disposal of an asset inter alia, under an agreement between spouses to live
2
a part .
Accordingly, under the non-recognition rules, this transaction is not taxable.
Loss incurred on disposal of shares of Dandot Cement Limited:
Mr. Abdullah Riaz’s view is NOT CORRECT as this transaction refers to wash sale i.e. capital
loss realized on disposal of a specific security by an investor is followed in one month's
period by purchase of the same security by the same investor, thus maintain his portfolio. 2
Such loss shall not be recognized.
Accordingly, such loss shall not be carried forward.
6
Part B
Part (i) Marks

Alloc.
An assessment order shall be quashed or void:

(i) if it is in substance and effect, not in conformity with Income Tax Ordinance, 2001; or 1 marks for
(ii) the person assessed or intended to be assessed or effected by the document is not each point
designated in it according to common understanding.
Part (ii) Marks
Alloc.
Decision of Time within which the new assessment order has to be made
appellate authority
Direct relief provided Two months from the date the order is served on the commissioner.
1 marks for
to taxpayer.
each point
Assessment order One year from the end of the financial year in which the commissioner
is served with the order provided no further appeal or reference is
wholly or partly set
preferred against the order of the appellate authority either by the
aside. commissioner or the taxpayer.
Solution Q # 05
Part A
Marks
(i) Alloc.
individual shall be a resident individual for a tax year if the individual is present in
Pakistan for a period of, or periods amounting in aggregate to, one hundred and eighty three 1 marks for
days or more in the tax year or , a citizen of Pakistan who is not present in any other country relevent
provision.
for more than 182 days during the tax year or who is not a resident taxpayer of any other
0.5 marks
country. for
As the Mr. Shahid was not resident for anyother country, therefore, he shall be considered conclusion
resident person for Pakistan.
Marks
(ii) Alloc.
Taxability of salary earned from PAC Dubai and PAC KSA.:

Section 51 of the Income Tax Ordinance, 2001 states that: 1 marks for
If a citizen of Pakistan leaves Pakistan during a tax year and remains abroad during that relevent
tax year, any foreign source salary earned by him outside Pakistan during that tax year shall provision.
be exempt from tax. 0.5 marks
As the Mr. Shahid did not come to Pakistan during the tax year 2024, therefore, salary for
earned from PAC Dubai and KSA shall be exempt from tax. conclusion
Marks
(iii) Alloc.
Foreign Income and Assets Statement:

0.5 marks
thousand United States dollars or having foreign assets with a value of not less than one
for relevent
hundred thousand United States dollars shall furnish a statement, hereinafter referred to as
provision.
the foreign income and assets statement, in the prescribed form and verified in the
0.5 marks
prescribed manner.
for
As the Mr. Shahid earned more than 10,000 US Dollar i.e. (6,000*4+6,500*3=43,500 USD)
conclusion
from PAC Dubai and KSA during the Tax Year 2024, so he will be required to file foreign
income and asset statement.
Part B
(i) Increase in wealth

(ii) Neutral, no effect on wealth statement
0.5 marks
(iii) Neutral, no effect on wealth statement
for each
(iv) decrease in wealth
point
(v) Increase in wealth
(vi) decrease in wealth
Solution Q # 06
Part (a)
Marks
(i) Alloc.
The applicant having NTN or income tax registration shall, using his login credentials,
upload following information and documents:
(a) bank account certificate issued by the bank in the name of the business;
(b) registration or consumer number with the gas and electricity supplier; 0.60 marks
(c) particulars of all branches in case of multiple branches at various locations; for each
(d) GPS tagged photographs of the business premises; and point
(e) in case of manufacturer, also the GPS tagged photographs of machinery and industrial
electricity or gas meter installed.
Marks
(ii) Alloc.
He shall not issue a sales tax invoice and if such invoice is issued, no input tax credit shall
0.67 marks
be admissible against such invoice.
for each
point
No sales tax refund shall be paid to the person during the period of temporary registration
and the amount of input tax may be carried forward to his returns for subsequent tax
periods.
Part (b)
Marks
(i) Alloc.
An authorized officer of Inland Revenue, if consider it necessary, may take a sample of any
goods or raw materials, for the purpose of: 0.67 marks
(i) determining the liability to sales tax of a registered person; or for each
(ii) for the purpose of establishing value of goods; or point
(iii) for any other reason.
Marks
(ii) Alloc.
The sample drawn shall be a minimum quantity of goods or raw materials sufficient to
enable a proper examination or analysis to be made.
At the time of taking the sample the person in possession of the goods shall be informed
and given the opportunity to sign the representative samples, so drawn, and take 1 marks for
corresponding sample for his own record. each point.
Any sample taken as above shall be taken against a proper receipt a copy each of which
shall be kept in the record by the registered person and the large Tax payers unit or Regional
Tax Officer, as the case may be.
Q-7 Ali Associates (AA)
Computation of Net Sales Tax Liability
For the Tax Period January 2024
Sales tax liability:

Value of Sales Tax
Output Tax
Output tax supplies Rate Marks
Rs. in million Rs. in million
Total taxable supplies 44.5+6 N-2 50.50 18% 9.09 0.25

Exempt supplies N-2 12.00 Exempt - 0.25
Zero rated supplies N-2 10.00 0% - 0.25
Less: Input tax or 90% of output-whichever is lower
Actual input tax

Input for the month N-2 3.20 0.25
90% of output 9.09*90% 8.18 (3.20) 0.25

5.89
Less: Input tax on fixed assets N-2 (0.39) 0.25
5.51
Add: further tax @ 4% on supplies to unregistered
Meesna Associate 14*4% 0.56 0.25
Mr. Bambo 2*4% 0.08 0.25
End consmers- Not applicable - 0.25
Sales tax payable 6.15 0.25
Sales tax refundable on account of zero rated supplies:

Goods purchased N-2 0.72
Fixed asset N-2 0.09
0.80
Less: Penalty payable under the Income Tax Ordinance, 2001 (0.30) 0.50
0.50 0.20
Input tax inadmissible- Exempt supplies 0.86+0.10 N-2 0.97 0.20
Input tax inadmissible- supplies to unregistered persons 0.43+0.05 - 0.48 0.20
N-1
Sales Tax
Residual Input Tax: Taxable Value Rate Sales Tax
Rs. in million Rs. in million
Taxable goods from registered suppliers 38.00
Paint, distemper (input tax inadmissible) (1.50) 0.65
Payment made in cash(input tax inadmissible) (3.50) 0.65
40% goods received 1.80*60% (1.08) 0.50
Raw material destroyed by fire- Input tax is admissible (3.00) 0.60
28.92 18% 5.21 0.20
Taxable goods-Un-Registered persons 1.50 Inadmissible - 0.20
Exempt goods from registered suppliers 2.50 Exempt - 0.20
Provincial (Sindh) sales tax - Input tax is admissible - Inadmissible - 0.50
Residual input tax (for apportionment) 5.21 0.25
Fixed Assets:
Fixed assets from registered supplier 6.50

Fiscal electronic cash register- Input tax is admissible - 0.50
Pre-fabricated building- Input tax is admissible - 0.50
Delivery trucks (input tax inadmissible) (3.00) 0.40
3.50 18% 0.63 0.25
0.63
N-2
Apportionment of Residual Input Tax:
Value of Fixed Asset-

Input tax
Taxable Supplies-Local: supplies Input tax
Taxable goods-Registered persons 40.00
Raw material in EPZ for further manufacturing -Zero rated supplies (5.00) 0.50
Consumable items to ships -Zero rated supplies (5.00) 0.50
Goods to Aflatoon Associates under hire purchase-Time of supply is Dec, 2023 (2.00) 0.75
Settlement deal with Ceditor 2.50 0.75
3rd schedule items-free of cost agains gift vouchers 2.00 0.75
Taxable goods-Un Registered persons (on which input tax is admissibe)
Meesna Associates 14-4 N-3 10.00 0.75
Mr. Bambo-NTN/CNIC not mentioned (input tx is inadmissible N-4 - 0.75
End consumers 18-14-2 2.00 0.25
Sub total of local supplies (on which input tax is admissible) 44.50
Goods returned by Moye Moye Associates N-5 - 1.00
44.50/72.50*5.21 3.20
44.50/72.50*0.63 44.50 0.39 1.00
Taxable goods-Un Registered persons (on which input tax is inadmissible)

Meesna Associates 14-10 N-3 4.00 0.50
Mr. Bambo-NTN/CNIC not mentioned (input tx is inadmissible) 2.00 0.50
6.00/72.50*5.21 0.43
1.00
6.00/72.50*0.63 6.00 0.05
Zero Rated Supplies:
Raw material in EPZ for further manufacturing 5.00
Consumable items to ships 5.00
10/72.50*5.21 0.72
1.00
10/72.50*0.63 10.00 0.09
Exempt Supplies:
To regitered persons 12.00
12/72.50*5.21 0.86
1.00
12/72.50*0.63 12.00 0.10
72.50 5.21 0.63
20.00
N-3
Taxable supplies to Meesna Associates:
A registered person shall not supply goods to unregistered person in excess of Rs. 10 million in a tax period. In case of non-
compliance the supplier shall not be entitled to claim input tax attributable to such excess supplies to unregistered persons.
Consequently, AA shall not be allowed input tax on excess supplies i.e. 14-10=4 million
N-4
Taxable supplies to Mr. Bambo:
Any tax invoice issued shall bear the CNIC/NTN number in case supplies are made by manufacturer or importer to unregistered
distributor. In case of non-compliance:
(a) input tax attributable to supplies made to unregistered distributor on pro-rata basis is disallowed.
N-5
Where the supplier has already accounted for the output tax in the sales tax return for the supplies against which Debit Note was
issued subsequently, he may increase or reduce the amount of output tax by the corresponding amount as mentioned in the Debit
Note, in the return for the period in which the respective note was issued. As the debit not was issued in next tax period i.e. February
2024, therefore, its adjustment shall be made in next period.
Solution Q # 08
Marks
Alloc.
(i)
Tax evasion is the general term for efforts by individuals, firms, trusts and other entities to
evade the payment of taxes by illegal means. Tax evasion usually entails taxpayers
deliberately misrepresenting or concealing the true state of their affairs to the tax authorities 1.67 marks
to reduce their tax liability, and includes, in particular, dishonest tax reporting
(such as under declaring income, profits or gains; or overstating deductions.
(ii)
Tax avoidance is generally the legal exploitation of the tax regime to one's own advantage, to
attempt to reduce the amount of tax that is payable by means that are within the law whilst
making a full disclosure of the material information to the tax authorities. Examples of tax 1.67 marks
avoidance involve using tax deductions, changing one's business structure through
incorporation or establishing an offshore company in a tax haven.
(iii)
Professional competence and due care:

Tax Practitioners have a duty to maintain their professional knowledge and skill at such a
level that a client or employer receives competent service, based on current developments in 1.67 marks
practice, legislation and techniques. Tax practitioners should act diligently and in accordance
with applicable technical and professional standards.
February 19, 2024
Cost & Management Accounting

Section A
Question # 1:
Olive Limited (OL) deals in a single product. For 2023, the sales were projected at 3,600 units. OL followed a policy
of maintaining safety stock of 45 units and placed orders based on Economic Order Quantity (EOQ). The total annual
holding costs amounted to Rs. 562,500 whereas the holding cost per unit per annum was Rs. 2,500. The projections
for 2024 are as follows:
• Annual sales would be 4,752 units.

• The expected sale price of the product is Rs. 30,000 per unit and the expected contribution margin is 5% of
sales.
• The carrying cost per unit is expected to increase by 20%.
• Fixed costs of the ordering department would increase by 12% over last year whereas variable costs
associated with processing an order would increase by 10%.
• There would be no change in the policy for maintenance of safety stock.
Required:
(a) Compute Economic Order Quantity for the year 2024. (05)
(b) Suggest whether re-order level of 450 units or 405 units is feasible for OL, based on the assumption that
demand during lead time and the related probabilities are as follows: (05)
Units Probability
450 20%
405 45%
360 35%
Question # 2:
Brave Private Limited (BPL) manufactures a single product in batches. Relevant details for the current financial year
are as under:
Raw materials Standard usage per unit
A 20 kg @ Rs. 29 per Kg
B 15 kg @ Rs. 40 per Kg
G 12 kg @ Rs. 45 per Kg
Other information is as following:
(i) Actual material used during the period is given below:
A: 5,933,750 kgs@ Rs 25 per kg
B: 4,279,875 kgs @ Rs. 43 per kg
G: 3,598,125 kgs @ Rs. 51 per kg
(ii) The actual output was 252,500 units.
Required:
Calculate the following material variances component wise:
(a) Price Material Variance.
(b) Mix Material Variance.
(c) Yield Material Variance. (09)
Question # 3:
Perfect Limited (PL) is engaged in manufacturing a single type of product which passes through two processes.
Following information relating to process B is extracted from PL’s records for the month of January 2024:
Rs. in '000
Opening work in process 14,500
Transferred from process A - 950,000 litres 119,000
Material - 750,000 litres 49,000
Direct Labor 39,500
Overheads 18,500
(i) Material is added at 40% completion of process B and conversion costs are incurred evenly throughout the
process.
(ii) Inspection is carried out when process B is 45 % complete and normal loss is estimated at 4% of the inspected
units.
(iii) During the month 1,540,000 Litres were transferred to finished goods.
(iv) PL uses the FIFO method for inventory valuation.
(v) Information related to opening and closing work in process are as follows:
Opening work in process Closing work in process
Litres Completion % Litres Completion %
140,000 25% 190,000 55%
Required:
Calculate the following for process B for the month of January-2024:
(a) Statement of equivalent production units and cost per unit. (07)
(b) Cost of finished goods. (03)
Question # 4:
Alpha Limited (AL) deals in the manufacturing of laptops and mobiles. The profit and loss account of AL for the year
ended 31st January 2024 is as follows:
Rs in ‘000’
Sales 243,000
Cost of goods sold (211,500)
Gross Profit 31,500
Operating expenses (57,300)
Net loss before tax (25,800)
Taxation @ 34% -
Net loss after tax (25,800)
(i) The selling price per laptop and mobile is Rs. 22,000 and Rs. 8,000 per unit having contribution margin of
35% and 30% respectively. Laptops and mobiles are sold in the ratio of 1:4.
(ii) 80% of the operating expenses are fixed while the remaining expenses are directly attributable to the number
of units sold.
(iii) The share capital of the AL is Rs. 150 million and AL wants to pay a dividend of 12%.
Required:
(a) Determine the break-even sales revenue. (06)
(b) Determine the number of laptops and mobiles that need to be sold if AL wants to retain profit for the year of
Rs. 22 million. (04)
Question # 5:
Moye Limited (ML) has received an order for the supply of 6,000 units. The planning department has estimated that
for the first batch of 500 units, the per unit revenue/costs would be as follows:
Selling Price Rs.1,000

Direct Material * 1 kg @ Rs. 180 per kg.
Direct labor 4 labor hours @ Rs. 50 per hour
Variable production overheads 25% of direct labor costs
Fixed production overheads Rs. 30
Variable Selling expenses Rs. 20
*Including loss of 10% on input
(i) After completion of 7 batches the material losses would reduce from 10% to 6%.
(ii) ML has a learning curve of 80% for all products. The units are produced in batches of 500 units and the
learning effect applies to the first 8 batches only.
(iii) Log 0.8 / Log 2 = –0.322.
Required:
Calculate total contribution for supply of 6000 units. (08)
Section B
Question # 6:
Mehanti Limited (ML) manufactures and sells a single product Hunar-1. Following information is available:
• During the year ended 31 December 2023, ML sold 16,500 units at Rs. 48,000 per unit.
• The opening work in progress comprised of 1,200 units which were complete as regards material but only
70% complete as to conversion cost.
• The closing work in progress comprised of 2,400 units which were also complete as regards material but only
50% complete as to conversion cost.
• The finished goods inventory was 1,800 units at the beginning of the year and 2,700 units at the year end.
• ML uses the FIFO method for valuation of its inventories.
• Effective from 1 January 2023, direct material price and conversion costs were increased by 6% and 10%
respectively.
• The work in process account had been debited during the year with the following costs:
o Direct Material: Rs. 394,320,000
o Conversion cost (including fixed overheads of Rs. 97.68 million): Rs. 214,896,000
• Variable operating costs amounted to Rs. 750 per unit whereas fixed operating costs for the year were Rs.
33,750,000.
Required:
(a) Prepare statements of equivalent units and cost per equivalent unit. (07)
(b) Prepare profit statements based on:
(i) Marginal Costing. (06)
(ii) Absorption Costing. (06)
Question # 7:
a) Perfect Screen Limited (PSL) manufactures heavy tools for the auto industry. Due to slack business
conditions, approximately 30,000 labor hours remain idle each month. Due to the highly technical nature of
this job additional labor is not available. Moreover, since the company does not want to lose the existing
workers, idles hours are paid at 50% of the normal wage rate of Rs. 100 per hour. Overheads are estimated at
Rs. 150 per labor hour which includes variable as well as fixed overheads. Fixed overheads rate is Rs 30 per
labor hour. PSL is considering an offer for supply of 10,000 units of tool Zee. In this respect, the following
information is available:
(i) Each unit of Zee would require 2 kg of material Alpha which is available in the market at Rs. 1,100 per
kg. Alternatively, PSL could use 2.5 kg of a substitute material Beta which can be produced internally.
Production of each kg of Beta would require raw materials costing Rs. 520 and 1.25 labor hours.
Processing Beta would also require special equipment which is available at a rent of Rs. 188,000 per
month.
(ii) To improve productivity, PSL plans to pay wages of Rs. 210 per unit of Zee or Rs. 100 per hour,
whichever is higher. It is estimated that production of Zee at various efficiency levels would be as
follows:
• 50% units in 2.2 hours per unit,
• 30% units in 2.0 hours per unit, and
• Remaining units in 1.8 hours per unit.
Required:
Compute selling price which PSL may offer for supply of Zee, if PSL requires a margin of 30% above the relevant
costs. (10)
b) PDM Limited (PDML) manufactures three furniture products – chairs, benches, and tables. The budgeted unit
cost and resource requirements of each of these items is detailed below:
Chair Bench Table
Rs. Rs. Rs.
Timber cost 50.00 150.00 100.00
Direct labor cost 40.00 100.00 80.00
Variable overhead cost 30.00 70.50 60.00
Fixed overhead cost 40.50 110.25 90.00
160.50 430.75 330.00
Annual Demand (Units) 4000 2000 1500
(i) The fixed overhead costs are attributed to the three products based on direct labor hours.
(ii) The labor rate is Rs.40.00 per hour.
(iii) The products are made from a specialist timber and cost of timber is Rs.20.00 per square metre.
(iv) The specialist timber is limited in supply and only 20,000 square metres per annum are available.
(v) The sales director has already accepted an order for 500 chairs, 100 benches and 150 tables, which if not
supplied would incur a financial penalty.
(vi) To meet the demand, PDML is considering purchasing chair, bench and table from supplier at Rs.140,
Rs.350 and Rs.255 per unit respectively.
Required:
Determine the quantities of each product that should be produced internally and bought externally by PDML to
maximize the profit. (08)
Question # 8:
Election Limited (EL) produces three Products X, Y & Z and presently uses a single plant wide factory overhead rate
for allocating factory overheads to products, based on direct labor hours. A break-up of factory overheads is as
follows:
• Production Support: Rs. 1,225,000

• Others: Rs. 175,000
• Total Cost: Rs. 1,400,000
It now plans to use activity-based costing to determine the costs of its products. The company performs four major
activities in the Production Support Department. These activities, related costs and cost drivers are as follows:
Production Support Activities Rupees Cost Driver

Set up costs 428,750 Number of set-ups
Production control 245,000 Number of machine hours
Quality control 183,750 Number of inspection hours
Materials management 367,500 Number of material requisitions
Total 1,225,000
The planning department has gathered the relevant information which is given below:
Direct Batch size Machine Inspections No. of Inspected
Products Production labor (units) hours per hours per Material units
in units hours unit unit requisitions
per raised
unit
Product X 10,000 2.5 125 7.50 0.2 320 500
Product Y 2,000 5.0 50 10.00 0.5 400 100
Product Z 50,000 2.8 10,000 3.00 0.1 30 1000
Required:
Determine the factory overhead cost per unit for Products X, Y and Z under:
(a) Single factory overhead rate method.
(b) Activity based costing. (16)
THE END
Q1
(a)
Sales-Annual Demand 3,600
Avg inventory including Safety Stock(562500/2500) 225 M-0.5
Safety stock 45
Avg inventory excluding Safety Stock(225-45) 180 M-0.5
EOQ (180*2) 360 M-0.5
Annual Ordering Cost (562,500-(2500x45) 450,000 M-0.5
Annual # of orders (3,600/360) 10 M-0.5
Order Cost per order(450,000/10) 45,000 M-0.5
Projections for 2024

Carrying cost per unit per annum (2500*1.2) 3000 M-0.5
Order cost per order ( 45000*1.1) 49,500 M-0.5
Sales-Annual Demand 4,752
EOQ-2024 396.00 M-1
(b)
450 ROL
Annual Stock out Cost
Annual Stock out Cost= - M-1
Annual Holding of SS
450-398.25= 51.75
51.75x3000 155,250 M-1
Total Sum of Annual Holding cost and stock out cost 155,250
405 ROL
Annual Stock out Cost
Total Demand During Lead Time Probab. ROL Stock Out Units Expected Stock out units
450 20% 405 45 9.0
9.0
Annual Stock out Cost= 162,000 M-1
Annual Holding of SS
405-398.25= 6.75
6.75x3000 20,250 M-1
Total Sum of Annual Holding cost and stock out cost 182,250
W-1 Avg demand during lead time
450 20% 90.00

405 45% 182.25
360 35% 126.00
398.25 M-1
Re-orderl level of 450 units is most beneficial under this situation
A-2
Material Price Variance

A B C (A-B) x C
Material Stand. Price Actual Price Aqc Variance
A 29.00 25.00 5,933,750 23,735,000

B 40.00 43.00 4,279,875 (12,839,625)
G 45.00 51.00 3,598,125 (21,588,750)
M-3
Material Mix Variance
A B C=A-B D E= CxD
AQ in Std Mix AQ in Actual Mix Variance KGs Stand. Price Variance Rs.
A 5,877,340 5,933,750 (56,410) 29 (1,635,878)
B 4,408,005 4,279,875 128,130 40 5,125,213
G 3,526,404 3,598,125 (71,721) 45 (3,227,434)
M-3
Material Yield Variance A B C=A-B D E= CxD

SQ in Std Mix AQ in Std Mix Variance KGs Stand. Price Variance Rs.
A 5,050,000 5,877,340 (827,340) 29 (23,992,872)
B 3,787,500 4,408,005 (620,505) 40 (24,820,213)
G 3,030,000 3,526,404 (496,404) 45 (22,338,191) M-3
Solution Question 3
(a) Equivalent Production
Units % Process I New Material Conversion Cost

Opening Work in process 140,000
-New Material 100% 140,000
- Conversion Cost 75% 105,000
Started & Finished 1,400,000 100% 1,400,000 1,400,000 1,400,000

(1,540,000-140,000)
Closing WIP 190,000

-Process I 100% 190,000
Abnormal loss 36,400

-Process I 100% 36,400
1,626,400 1,766,400 1,625,880
Cost per unit

Rs in 000
Process I New Material Conversion Cost
Current Period Cost 119,000 49,000 58,000
Total Cost [A] 119,000 49,000 58,000
EPU [B] 1,626,400 1,766,400 1,625,880
PUC [C=A/B] 73.1677 27.7400 35.6730
136.5808
(b)
Cost of Completed units
Rs '000'
Cost of Opening WIP
Opening balance 14,500.00
Cost incurred during the month
New Material 3,883.61
Conversion cost 3,745.66
(D) 22,129.27
Cost of Started & Completed
(1400000 x 136.5808) (E) 191,213.06
Total Cost of Completed Units F=D+E 213,342.33
W-1
Qty Schedule
opening work in process 140,000
Add Process I 950,000
ADD New Material 750,000
Less Normal Loss(1840000x4%) (73,600)
Less Completed units (1,540,000)
Less Closing work in process (190,000)
Abnormal Loss/(Gain) 36,400
Inspected Units working

Process I 950,000
New Material 750,000
Add opening WIP 140,000
1,840,000
SolQ4
(a)
Sales units
Laptops 243million/((22000x1)+(8000x4)) 4,500
Mobiles (4500x4) 18,000
Sales Rs000 Sales value mix

Laptops 4500x 22000 99,000 0.4074
Mobiles 18000x8000 144,000 0.5926
243,000
Variable cost per unit

Laptops 65%x 22000 14,300
Mobiles 70%x8000 5,600
variable cost Rs000

Laptops 4500x 14300 64,350
Mobiles 18000x5600 100,800
165,150
Total fixed cost = 211500+57300-165150 103,650 [A]

Weighhted Avg cm ratio= (35%x0.4074)+(30%x0.5926)
32.0370% [B]
Breakeven sales Rs [C=A/B] 323,532.17
Breakeven sales Laptops Rs [Cx0.4074] 131,809.40

Breakeven sales Mobiles Rs [Cx0.5926] 191,722.76
(b)
Contribution weighted avg
per unit contribution per unit
Laptops 22000 14,300 7,700 1/5 1,540
Mobiles 8000 5,600 2,400 4/5 1,920
3,460
3460X -103,650,000 = (22million+(150millionx12%))/0.66

3460X= 164,256,061
x 47,472.85
units
Laptops 9,494.57
Mobiles 37,978.28
Q-5
Rupees
Total revenue (6000x1000) 6,000,000 (M-0.5)
Direct Material
first 3500 units [7 batches]

1x180x3500 630,000 (M-0.5)
Next 2500 units [5 batches]
(1x.9/0.94) x 180 x2500 430,851 (M-2)
(1,060,851) (M-3)
Direct Labour
(11028.59x50) (551,430) (M-0.5)
Variable production overheads
25%x551430 (137,857) (M-0.5)
Variable selling
20x6000 (120,000.00) (M-0.5)
Total contribution of 6000 units 4,129,862.06 (M-0.5)
W-1
YX =8
Y (8) =
2000 x 8^(Log(0.8)/(Log(2))
1,024.0000
YX[8] = 8,192.00
8,192.00 YX8
8th batch time will be used for next 4 batches
8th batch time x 4 ( 4 x709.1467) 2,836.59 9 to 12 batche
total hours 11,028.59
8th Batch= YX8 8,192.00

YX7 (7,482.85)
8th batch 709.1467
Y (7) = 2000 x 7^(Log(0.8)/(Log(2))

1,068.9790
YX (7) = 7,482.85
Sol Q6
(a)
Statement of EPU & CPU
Units % Material Conversion cost
Opening WIP 1,200
-Material 0% - -
-conversion cost 30% - 360
Started & Finished 16,200 100% 16,200 16,200
Closing WIP 2,400

-Material 100% 2,400 -
-conversion cost 50% - 1,200
18,600 17,760
Rs in 000
Material Conversion cost Conversion cost
Variable Fixed
Cost incurred during the period (A) 394,320 117,216 97,680
EPU (B) 18,600 17,760 17,760
PUC (A/B) 21,200.00 6,600.00 5,500.00
(b)(ii) Mehanti Limited
Profit or loss statement under Absorption costing
For the Year ended December 2023
Rs('000')
Sales (16500x48000) 792,000.00
Less : Cost of sales
Opening Finished goods 55,800.00
C.O.G.M 577,056.00
Closing Finished goods (33300x2700) (89,910.00)
542,946.00
Gross Profit 249,054.00
Less Non production expense
Variable (750x16500) (12,375.00)
Fixed (33,750.00)
Net Profit 202,929.00
(b)(i) Mehanti Limited

Profit or loss statement under Marignal costing
For the Year ended December 2023
Rs('000')
Sales (16500x48000) 792,000.00
Less :Variable Cost of sales
Opening Finished goods 46,800.00
C.O.G.M 481,776.00
Closing Finished goods (27800x2700) (75,060.00)
453,516.00
Gross Contribution 338,484.00
Variable Non production expenses
Variable Selling (750x16500) (12,375.00)
Contribution 326,109.00
Less Fixed expenses
Fixed production overheads (97,680.00)
Fixed selling & Admin expenses (33,750.00)
Net Profit 194,679.00
All Workings are Rs in '000'
(w-1)
Quantity movement(FG) Quantity movement(WIP)
Opening Finished goods 1,800 Opening WIP 1,200.00
Units Produced (bal.) 17,400 Material input (bal.) 18,600.00
Closing Finished goods (2,700) Closing WIP (2,400.00)
Sales 16,500 Completed (17,400.00)
Losses -
(w-2) Per unit cost

2023 2022
Material 21,200.00 20,000.00 (2023 Value/1.06)
CC Variable 6,600.00 6,000.00 (2023 Value/1.1)
Variable PUC 27,800.00 26,000.00
CC Fixed 5,500.00 5,000.00 (2023 Value/1.1)
Full PUC 33,300.00 31,000.00
(w-3)
Statement of Evaluation
Cost of completed units (MC) Cost of completed units (AC)
Opening WIP Cost Opening WIP Cost

B/F 29,040.00 B/F 33,240.00
Cost incurred during the period Cost incurred during the period
Material - Material -
CC varaible (6600x 360) 2,376.00 CC varaible&Fixed (6600+5500)x360 4,356.00
31,416.00 37,596.00
Started & Finished Started & Finished
(27800x 16200) 450,360.00 (33300x 16200) 539,460.00
481,776.00 577,056.00
(w-3.1) Opening WIP Cost Opening FG Cost
Material (1200x20000) 24,000.00 Variable cost

CC Variable (840x6000) 5,040.00 (26000x1800) 46,800.00
Variable cost 29,040.00
CC Fixed (840x5000) 4,200.00 Fixed cost 9,000.00
Total Cost 33,240.00 (1800x5000)
Total 55,800.00
Q7(a)
Relevant costs of producing Zee
Material
cost Internal production of Beta (W.2) 7,520*757.50 5,696,400
External buying of Alpha (W.2) 13,984*1,100 15,382,400
Direct labour cost W.4 1,120,000
Variable overheads (W.4) 20,600*120 2,472,000
Total relevant cost Rs. 24,670,800
Zee selling price at 30% above the relevant costs 24,670,800*1.3 Rs. 32,072,040
W.1: Decision to produce Beta internally or not

Beta - internal production costs per kg
- Variable 520+(50*1.25)+(120*1.25) 732.50
- Fixed (existing) (Not relevant) -
- Fixed (additional) 188,000/9,400*1.25 25.00
757.50
Cost of Beta for each unit of Zee 757.5*2.5 1,894.00
Cost of material Alpha for each unit of Zee 1,100*2 2,200.00
Saving on producing Beta internally 306.00
Hence it is beneficial to produce Beta internally.
W.2: Internal production capacity for the substitute material Beta and buying of Alpha externally
Total hours available 30,000
Hours required for production of Zee W.4 20,600
Capacity available for production of Beta Hrs. 9,400
Beta production from the available capacity 9,400/1.25 Kg 7,520
Quantity of Alpha to be purchased externally (10,000-(7,520/2.5))*2 Kg 13,984
W.3: Variable overhead rate per labour hour for Zee and Beta
Variable overhead rate per labour hour 150-30 120.00
W.4: Direct Labour Cost for Zee

Hours per Wages at higher of Rs. 100 per hour and
Units Hours
unit Rs. 210 per unit
5,000 2.2 11,000 100 per hour 1,100,000
3,000 2.0 6,000 210 per unit 630,000
2,000 1.8 3,600 210 per unit 420,000
10,000 20,600 2,150,000
Payment of idle hours at 50% (non relevant cost) 20,600 *100/2 (1,030,000)
Relevant labour cost for Zee 1,120,000
Answer-7(b):
Chairs Benches Tables Total
Timber required per unit (m2) 2.5(Rs.50/Rs.20) 7.5(Rs.150/Rs.20) 5(Rs.100/Rs.20)

sales volume (units) 4 000 2 000 1 500
Total timber required (m2) 10 000 15 000 7 500 32,500
Production requirements exceed the available supply of materials by 12 500 m2. (01 mark)
Chairs Benches Tables

Cost of buying 140 350 255
Less:
Cost of making (120 ) (320.5 ) (240)
Extra contribution of 20 29.50 15 2 marks
making
Timber requirements (m2) 2.5 7.5 5 1 marks
Extra contribution of 8 3.93 3 1 marks
making per m2:
Ranking (for making ) 1 2 3 1 marks
Production Plan
Materials used Balance unused
20,000
Chairs (500 units x 2.5) 1250 18,750
Benches (100 units x 7.5) 750 18,000
Table(150 units x 5) 750 17,250
Chairs (3500x2.5) 8750 8,500
Benches(1133 x 7.5) 8,500 - (M-2)
Produce Buy Total

Chairs 4,000 - 4,000
Benches 1,233 767 2,000
Tables - 1,500 1,500
Ans.8 (a) X Y Z Total
Number of units A 10,000 2,000 50,000
Direct labour hours per unit B 2.5 5.0 2.8

Direct labour hours (A× B) C 25,000 10,000 140,000 175,000
Total factory overheads D 1,400,000
Factory overhead rate per hour (D/C) E Rs. 8
Cost per unit - single factory overhead rate
method (B × E) F 20 40 22.40
(b) Activity based costing

Set-up costs
Batch size G 125 50 10,000
Set-ups (A ÷ G) H 80 40 5 125
Set-up costs J 274,400 137,200 17,150 428,750
Production control
Machine hours per unit K 7.5 10.0 3.0
Total machine hours (A × K) L 75,000 20,000 150,000 245,000
Production control M 75,000 20,000 150,000 245,000
Quality control Allocation

Units inspected P 500 100 1,000
Hours per unit inspected Q 0.2 0.5 0.1
Total inspection hours (P × Q) R 100 50 100
Quality control costs S 250
73,500 36,750 73,500 183,750
Materials management
No. of requisitions T
Material management costs U 320 400 30 750
156,800 196,000 14,700 367,500
Factory overheads – General
Allocated on the basis of direct labour hours V
25,000 10,000 140,000 175,000
Total cost (J+M+S+U+V) W
604,700 399,950 395,350 1,400,000
Factory overhead cost per unit - activity
based costing (W ÷ A) Rs.
60.47 199.98 7.91
Page 6 of 6
February 17, 2024
Business Law
(i) Answer all TEN questions.
(iii) Multiple Choice Questions must be answered in answer script only
Q.1 Select the most appropriate answer from the options available for each of the following Multiple-Choice
Questions (MCQs). Each MCQ carries ONE mark.
i) In the absence of National Assembly, Senate passed a bill to add in Army Act that military of
Pakistan will not carry out any commercial activity. Which of the following regarding this action of
Senate will be correct?
a) In the absence of National Assembly this change after the assent of President will become part
of Army Act.
b) Bill after Senate will be passed by newly elected National Assembly and then will be sent to
the President for assent.
c) Action of Senate will be challenged in Supreme Court because in the absence of National
Assembly Senate cannot pass a bill.
d) All of the above options in alternate are workable therefore correct.
ii) Haider was executive director in X Cotton Mills Ltd. He applied for increment in his salary with a
warning that if his salary is not increased, he will not come to work. The Company hesitantly
increased his salary as requested by him. Which of the following options in this context will be
correct?
a) Agreement to do, what a person is already bound to do is not valid. Therefore, the company
can refuse to pay the increment.
b) The company was induced into the contract by coercion of Haider therefore the decision of
increment is voidable at the option of company
c) Increment in Salary of Haider will be taken as alteration of the contract and therefore valid.
d) The company was induced into the contract by undue Influence of Haider therefore the
decision of increment is voidable at the option of company
iii) In marriage ceremony groom is not allowed to take expensive gifts from bride’s parents under
Prohibition of Expenditure in Marriage Ceremonies Act. However, on insisting by groom, bride
parents agreed to give bride 5 marla house in which bride and groom will shift after marriage. This
agreement is void because
a) It is expressly forbidden by law
b) If allowed it would defeat the provisions of law
c) It is fraudulent
d) It is immoral and against public policy
iv) Aslam was engaged to be married with Hina who also had a twin sister Sana. Hina was interested
in someone else therefore on the day of marriage Hina ran away. To void any disturbance Hina was
switched with Sana. Nikkah was signed and Aslam took Sana believing her to be Hina. When
function was over and all the guests were gone in bridal room Sana told her real identity to Aslam.
a) Switching of Hina with Sana does not cause any effect on the marriage because both were
twins.
b) Aslam has the option of holding the marriage as void because the marriage was a fraud with
Aslam.
Business Law |Page 2 of 5
c) Aslam told Sana that they will talk about it in the morning and after consummation of marriage
he held the marriage void because of fraud.
d) In marriage of Aslam the object and consideration were fraudulent therefore the marriage was
void.
v) Khalid a 12 years old boy was genius in computer programing he agreed to work on a game
development project with Rumi for a monthly salary of Rs. 150,000/- per month. Khalid got sick
and couldn’t perform his work accordingly therefore he resigned from job at the end of his first
month. Rumi refused to pay Khalid agreed salary of Rs. 150,000/-
a) Khalid can get his salary because minor’s rights are enforceable by law
b) Khalid is not entitled for salary because agreement with minor is void
c) Khalid could only get the salary if the agreement was made through guardian
d) Khalid is not entitled for salary because he hasn’t done any work accordingly
vi) Saqib with his family had to vacate his house which later on turned into rubble due to earthquake.
After one-month Saqib showed Saleem picture of an antique gun placed on a wall of destroyed
house. Saleem agreed to search the gun in debris of house on payment of Rs. 500,000/-. After
through search when gun wasn’t found Saqib recalled that the gun wasn’t in the house.
a) agreement for the search of gun was void due to mutual mistake of the parties.
b) Agreement was valid contract but became impossible to perform.
c) In the agreement mistake was induced by Saqib therefore he liable to compensate for the
expenses incurred by the Saleem in searching the gun
d) Due to misrepresentation agreement was voidable at the option of Saleem and he can claim full
payment of Rs. 500,000/-
vii) Saeem owed Rs. 500,000/- to a Bank and requested the Bank for 50 % concession in recovery of
the outstanding amount. Bank allowed Saeem to pay only 50% of the outstanding amount. But
before making the payment government passed a law named ‘Covid 19 Debt Relief Act 2021’ and
waived debts of all bank defaulters who owed banks less than 300,000/- rupees.
a) Saeem owed Rs. 500,000/- to the Bank therefore Saeem will not be entitled for the relief given
by the government.
b) Saeem was already given relief by the Bank therefore Saeem will not be entitled for the relief
given by the government
c) Saeem is entitled for the relief because now Saeem’s debt is less then 300,000/-
d) Saeem didn’t pay even after concession therefore his debt will be considered Rs. 500,000/-
viii) Chahat Fatah Ali agreed to perform on a function of Rahat’s marriage. Chahat Fatah Ali will be
considered to have performed the contract if:
a) parties to the contract fulfil their respective obligations
b) Chahat offers to perform his promise but Rahat refuses to take the performance
c) Chahat performs according to the instruction of Rahat but still Rahat couldn’t get the benefits
of it.
d) In any of the above situations Chahat will be considered to have performed the contract
ix) Ahmed had an outstanding loan of Rs. 100,000/- payable to Salman on 10th of January 2021. Later
on, Ahmed again took another amount of Rs. 50,000/- from Salman, which was also payable on
10th of January 2021. In March 2023 Salman paid Rs. 15,000 to Ahmed. Unless otherwise agreed,
according to law the appropriation of Rs. 15,000 shall be:
a) The adjustment in Rs. 100,000/- because this amount was taken prior in time
b) The adjustment in Rs. 50,000/- because this amount was lesser in value
c) The adjustment in both the amounts of Rs. 100,000/- & Rs. 50,000/- appropriately
d) The adjustment as interest on outstanding amounts and amounts in full shall remain payable.
x) Adeel invested in a business of beauty Salon and for management engaged Saima, who was a
talented Makeup Artist. Adeel only visited beauty Salon for checking inventory items and sales
record. Saima suddenly died and Adeel called upon defaulting customers to make payment for the
services they had from beauty Salon.
a) Customers are not bound to make the payment as they were Saima’s customers and they didn’t
know Adeel.
b) Siama’s legal heirs are now responsible to arrange payment from customers for Adeel.
c) Adeel can assert himself as principal to the customers and take a legal action against customers
if they don’t pay.
d) In place of Siama, Adeel has to engage new Makeup Artist in the beauty Salon to get payment
from customers.
xi) Tariq Real Estate Consultants is a partnership firm. Which of the following is NOT considered as
property of the firm;
a) Office purchased to carry out business of the firm
b) funds embezzled by a partner from the office of the firm
c) Land secretly acquired by a partner in his own name with the funds embezzled from the firm
d) Land contributed by a partner for constructing a plaza by the firm.
xii) Tony was admitted to the benefits of partnership when he was just 10 years old. On attaining the
age of majority, he decided to become a partner in the firm. Which one of the following is a matter
of concern for Tony on choosing to a Partner of the firm.
a) Tony will be liable jointly and severally for the debts of firm taken in the course of business of
the firm
b) Tony will be responsible to manage the business of the firm
c) Tony will be bound in mutual agency as he will become principal for other partners
d) Tony will be liable for all the debts of the firm taken since he was enjoying benefits of
partnership.
xiii) Which of the following can be taken as operator of a Designated Payment System
a) Any Bank authorized by Government of Pakistan
b) Any financial institution authorized by State Bank of Pakistan
c) Any financial or other institution or any person authorized by State Bank of Pakistan
d) Any financial or other institution or any person authorized by Government of Pakistan
xiv) Which of the following is not covered in the definition of money laundering
a) A person who conceals or disguises ownership of property knowingly that such property is
proceed of a crime
b) A wife who possesses or uses her husband’s property having reasons to believe that such
property is proceed of a crime
c) A lawyer who advises his client knowingly that the client has committed an offence of money
laundering
d) A chartered accountant who facilitates his client to associate in commission of an offence of
money laundering.
xv) In arbitrator’s powers ‘Stating a special case’ means
a) Seeking a legal opinion from the court
b) Sending a case to court for decision on a question of law
c) Deciding a case and then send it to court to decide a question of law
d) All of the above.
Q.2
i) Babar helped his wife Saima in setting up her boutique of ladies’ garments with a brand name of
‘Ujala Garments’. When brand became very famous Babar and Saima had an understanding of
being partners in the business but they never signed a formal agreement. On a severe domestic
issue Babar and Saima had a divorce and Saima denied that Babar was a partner in the business of
‘Ujala Garments’. According to essentials of partnership given in Partnership Act 1932 state
whether Babar and Saima were partners in this situation? (05)
ii) Aslam and Danish were carrying on a business of fruit shop in partnership. They used to import
100 kg of cherry for a special customer named Xtra Bakers. Because of limited supply of cherry, it
was agreed between partners that they will not sell cherry to their other customers. Aslam without
the knowledge and approval of Danish agreed to sell 50 kg of Cherry to Zubair caterers in double
the price they used to get from Xtra Bakers. In this situation explain:
a) The rights and duties of Danish with Aslam, Xtra Bakers and Zubair caterers. (07)
b) Ratification (03)
Q.3 President Arif Alvi during the absence of National Assembly passed Apostille Ordinance 2024. What is the
status of this Ordinance and can this ordinance be converted into an Act of Parliament? (04)
Q.4 Usman was a famous wrestler of a small princely estate of Sultan. He was deeply in love with Parveen who
was a slave girl of Sultan. Kiran was the daughter of Sultan and she had a crush on Usman. A proposal of
marriage with Parveen was sent by Usman to Sultan, which was mistakenly communicated to Sultan for
Kiran. Sultan at first was very embarrassed but after finding out the wishes of Kiran, called Usman in open
court and in the presence of all the courtesans announced the marriage of Usman with Kiran. Usman was
shocked and surprised but in respect of Sultan couldn’t utter a word to disagree.
a) In the light of Contract Act 1872 what is the status of mistake on engagement of Usman and Kiran.
(04)
b) In the formation of contract differentiate between misstatement regarding opinion, fact and inducing
mistake with the help of suitable examples. (06)
Q.5 While shopping in a self-service shop Atif among other items also picked a chocolate box believing in the
price mentioned on the self, i.e., Rs. 700. On the counter after swapping all the items from Atif’s shopping
cart the counter girl told Atif a total bill of Rs. 5000, which Atif paid and took the bill from counter girl.
Closely observing the bill Atif noticed that the price of chocolate box which should have been charged Rs.
700 was charged Rs. 1,500/-. Atif complained about the price difference. But the counter girl argued that
Atif should have pointed it out before finalizing the bill, now Atif complaint cannot be addressed and she
refused to adjust the amount.
Keeping in view the above scenario, According to Contract Act 1872 answer the following:
i) What was the status of chocolate box on the shelf with price tag of Rs. 700 and when the contract
for the sale of chocolate box was made between the parties. (02)
ii) Giving appropriate reasons explain what options Atif have in this scenario? (04)
Q.6
i) Aslam found an unconscious injured man near a road accident. Aslam took that injured man to
hospital, arranged for his medicines and donated blood to save his life. After the injured man
gained his conscious in hospital, he thanked Aslam. However, Aslam demanded a payment of Rs.
50,000/- as expenses to save injured person’s life. Can Aslam recover this amount? (02)
ii) At a toll plaza instead of making toll payment Aslam abandoned his car and rushed to washroom
adjust to toll plaza. Saqib’s car was right behind Aslam’s car and was following a long queue of
cars honking behind him. Saqib in order to get pass the toll plaza paid Aslam toll and instructed his
driver to get Aslam’s car parked near washroom. Can Saqib recover the payment of toll from
Aslam? Support your answer with reason. (02)
iii) In the absence of Imran Khan his bail application in a criminal case was being called in court for
hearing and if no one appeared on behalf of Imran Khan, his bail application would have been
rejected. Asad Ullah, an advocate was present in court waiting for another case to be called but in
order to save Imran Khan case from getting dismissed, without any request from Imran Khan,
presented himself as his counsel and the case was adjourned instead of being dismissed. Can Asad
Ullah get remuneration from Imran Khan for his services. (02)
iv) Aslam had a house in walled city of Lahore. Aslam in order to rebuild deteriorating old structure of
his house demolished a wall and discovered some jewelry and gold coins underneath, which
belonged to a previous owner of the house, who after partition of India and Pakistan had migrated
to India. Is Aslam entitled to keep these things discovered from his own house? (02)
Q.7
a) Shahnawaz a car dealer contracted with Danish to sell and deliver brand new Mercedes Benz for Rs
3,000,000. Danish paid Rs 3,000,000 to Shahnawaz on Monday. The car was to be delivered to Danish
on Wednesday. However, on Tuesday there was a sudden riot in the locality and the car was set on fire
by an angry mob resulting in its complete destruction. According to the provisions of Contract Act
1872, advise Shahnawaz and Danish about the impact of this event on their contract. (04)
b) Ahmed contracted to supply ceramic tiles to Saeed and Saeed had contracted to supply those ceramic
tiles to Zubair Constructions (Pvt.) Ltd. Ahmed failed to supply the ceramic tile to Saeed and as a result
Saeed could not supply the tiles to Zubair Constructions (Pvt.) Lt on time. In order to avoid disruption
of its work, Zubair Constructions (Pvt.) Ltd. bought the required ceramic tiles from another supplier at
a higher price. According to Contract Act 1872 advice:
i) Zubair Construction (Pvt.) Ltd. on the claim it can file against Ahmed and Saeed and the
chances of success in that claim.
ii) Saeed on his claim against Ahmed and the chances of success in it.
(06)
Q.8
a) Differentiate between the following: (06)
i) Time instruments and Demand Instruments
ii) Order Instruments and Bearer Instruments
iii) Demand draft and Cheque
b) Ahmed made a promissory note payable to Saqib or to his order. Saqib want to further negotiate it to
Arsalan. What are the essentials, which Saqib must observe to negotiate this promissory note to
Arsalan? (02)
c) What is the rule of protection available to a collecting banker on a cheque with restrictive crossing?
(02)
Q.9
a) What is the definition of critical infrastructure given in Prevention of Electronic Crime Act 2016. (02)
b) Illustrate to explain glorification of an offence as cybercrime prohibited under Prevention of Electronic
Crime Act 2016. (02)
c) How an Umpire is appointed in an Arbitration and what is his role? (04)
d) What is required to grant designated payment system status to a payment system under Pakistan
Payment System and Electronic Fund Transfer Act 2007. (04)
Q.10
a) In your own words briefly explain what is money laundering? (04)
b) Unless otherwise agreed, according to Contract Act 1872 how following matters will be resolved:
i) X accepted delayed performance, when time was essence of the contract. X wished he could
claim compensation for the delay.
ii) X wants to perform his part of the contract but reciprocal promisee is not willing to perform
his part of the bargain.
iii) X and Y made a joint promise to pay Z. X died and Z recovered his debt from Y. Y had a right
of contribution from X.
iv) X agreed to deliver bricks at the construction site of Y. X knew that there are still bricks
available at the construction site of Y however no time of performance of contract was fixed.
(06)
(THE END)
Business Law Mock (Spring 2024)
Question no. 1 (15)

i) B
ii) C
iii) B
iv) B
v) A
vi) C
vii) C
viii) D
ix) C
x) C
xi) C
xii) D
xiii) C
xiv) C
xv) D
Question no. 2
i) According to section 4 of Partnership Act 1932 a partnership is the relation between persons who
have agreed to share the profits of a business carried on by all or any of them acting for all.
According to this definition essentials are (i) relationship which is based on agreement which can
be expressed in oral/written form or it can be implied. (ii) the agreement must be to carry out a
business (iii) in business parties intend to share profits and (iv) business can be carried out by all
or any one acting for all. In the situation under discussion Babar and Saima besides being life
partners also had an oral agreement on a partnership business under the name of Ujala Garments.
All the essentials mentioned above are fulfilled to hold relationship of partners between Babar
and Saima for the business of Ujala Garments. (05)
ii)
a. Due to an embarrassing situation caused by Aslam for Danish, he has following rights and
duties: (07)
(i) Rights and duties against Aslam
A partner has a right to be indemnified for loss caused by another partner.
Whereas a partner is dutybound as principal for the acts of other partner done
in the usual course of business. Therefore, Danish has a right to be compensated
by Aslam and duty to comply with the contractual obligation created by Aslam
for him.
Rights and duties against Xtra Bakers

A partner is bound in a relation of mutual agency with other partners. Therefore,
for third parties like Xtra Bakers Danish had a status of Principal and well as agent
of Aslam. Danish has a right to get payment from Xtra Bakers for fruit supplied
and duty to supply fruit as agreed. And if Xtra Bakers do not get what was agreed
then for compensation in breach of contract Danish will be liable to Xtra bakers.
Rights and duties against Zubair caterers

Although Danish do not have direct dealing with Zubair caterers but Alsam as
agent of Danish has bound him with Zubair caterers. Now Danish is bound to
comply with the commitment made by Aslam and in doing so Danish will have
the right of share in profits earned in the transaction. However, if Danish deny
the transaction, then Zubair caterers can claim compensation for breach of
contract from Aslam as well as from Danish.
b. Any unauthorized transaction of a partner can be subsequently ratified by other partners.

Such ratification with its retrospective effect will validate the transaction from the point in
time when it was unauthorized. Aslam for his unauthorized action if takes Danish in
confidence and on being convinced if Danish ratify the transaction of Aslam with Zubair
caterers then the unauthorized action will become retrospectively authorized at the point in
time when it was unauthorized. (03)
Question no. 3
Under 1973 Constitution of Pakistan a president has power to pass Ordinance to legislate when National
Assembly is not in session. In the tenure of caretaker setup legislation can be made through the exercise of
presidential power to issue ordinance. Apostille Ordinance 2024 was issued by President, which is valid for
only 120 days and within this time if new parliament takes oath, then to convert this ordinance into an Act
of parliament bill will be presented in National Assembly. After passing from National Assembly the bill will
be presented in Senate if passed from there the bill will require assent of president to become an Act of the
parliament. (04)
Question no. 4
a) According to Contract Act 1872, where both the parties to an agreement was under mistake as to a
matter of fact then agreement is void. The situation under discussion is a case of bilateral mistake as
the proposal of Usman was mistakenly communicated to Sultan, and when confronted with Usman
in front of others didn’t gave proper opportunity for Usman to resolve the confusion. However, later
on in reasonable time Sultan can be informed that the agreement of engagement is void because
both Usman and Sultan were under a mistake of essential fact. (04)
b) Difference between opinion, fact and inducing mistake regarding misstatement:
Misstated opinion: In matching a contrast of clothes Seller told the buyer that yellow color jacket
selected by the buyer is best choice and it would look really nice on Buyer. However, on wearing that
jacket Buyer was criticized by his friends. This misstated opinion of Seller does not cause any effect
on the sale of jacket. (02)
Misstated fact: While selling jacket Seller told buyer that the jacket was of original brand, whereas it
was a copy. Buyer believing in Seller statement bought the jacket and later on found the truth. In this
situation Seller has made a misstatement of fact essential to the agreement therefore the agreement
is voidable at the option of buyer. (02)
Inducing mistake: Seller displayed a used jacket at his shop on a mannequin making an impression as
if it was new and unused. Buyer purchased the jacket believing in the impression led by Seller. After
the purchase when Buyer discovered the fact misled by Seller the agreement becomes voidable at
the option of buyer. (02)
Question no. 5
Following are the answers:
i) The status of Chocolate box on the shelf was of an “invitation to offer”. The contract for the
sale of chocolate box was made when counter girl swapped chocolate box at counter to add
in the bill. (02)
ii) This is a case of fraud or misrepresentation. Atif purchased the chocolate box believing its
worth Rs. 700/-, but actually he was charged Rs. 1,500/- therefore it was the self-service shop’s
responsibility to fix the price tag on the shelf from where Atif picked chocolate box. Now if
this was intentionally done by self-service shop then it was a case of fraud but if it was
unintentionally done by mistake of a worker in the shop then it will be a case of
misrepresentation. In either case the contract is voidable at the option of Atif. Therefore, Atif
have following options:
1) Repudiate the contract for chocolate box and ask for refund of the price paid
2) Hold the contract as valid and claim for refund of the excessive amount charged for the
chocolate box. (04)
Question no. 6
i) In relations resembling those created by contract if a person provides necessities to someone who
is not competent to contract then the supplier of necessities is entitled to recover remuneration
for the supplies. Here Aslam provided necessities to an injured unconscious person, who wasn’t
competent to contract at that point of time. Therefore, Aslam is entitled for Rs. 50,000/- if it is
reasonable compensation for the supplies. (02)
ii) According to rules provided in Contract Act 1872 for certain relations resembling those created
by contract if a person under compulsion makes a payment on behalf of another, in which he is
also interested then the person making payment can recover the amount from that another. In
the situation under discussion Saqib made the payment of toll plaza on behalf of Aslam because
if the payment wasn’t made Saqib couldn’t get out of the queue. As the payment was made under
compulsion on behalf of Aslam by Saqib therefore Saqib has the right to recover the amount paid
from Aslam as a quasi-contract. (02)
iii) According to principles provided on relations resembling those created by contracts if a person
provides non-gratuitous services without request for the benefit of another and that another
enjoys the benefit thereof then the person providing non-gratuitous services is entitled for
reasonable remunerations for the services provided. Asad Ullah in this case is a professional
lawyer and if he wouldn’t have appeared in Imran Khan’s case then the case would have been
dismissed. Because Imran Khan has taken benefit from Asad Ullah’s non-gratuitous services
therefore Asad Ullah is entitled for reasonable remuneration of his services. (02)
iv) Find of the lost goods cannot be the owner of those goods. Under the law finder of lost goods is
bound to return goods found to their rightful owner. Discovery of Aslam from his house do not
belong to Aslam. Therefore, Aslam is bound to return the articles to its rightful owner. (02)
Question no. 7
a) The illustration relates to the Exception of Discharge by Supervening Impossibility. In the situation
Shahnawaz is a car dealer and has agreed to sell a Mercedes Benz to Danish. Because the contract
was not for any particular Mercedes Benz car therefore any destruction of the Shahnawaz’s cars
will not qualify the case as discharged by supervening impossibility. For the contract to be
dissolved there must have been a failure of something which was at the basis of the contract in
the intentions of both parties and that was not the case here. Shahnawaz has to bear the loss and
provide Danish a brand new Mercedes Benz, whereas Danish rights under the contract are
protected as the contract is not discharged by supervening impossibility. (04)
b) (i) Section 73 Contract Act 1872 (‘Act’) provides that ‘when a contract has been broken, the party
who suffers by such breach is entitled for receive, from the party who has broken the contract,
compensation for any loss or damage caused to him thereby, which naturally arose in the usual
course of things from such breach, or which the parties knew, when they made the contract,
to be likely to result from the breach of it.’ On the given facts, Saeed has breached his
contractual obligations towards Habib Constructions (Pvt.) Ltd. Consequently, Habib
Constructions (Pvt.) Ltd. may bring a claim for damages against Saeed. The market price paid
by Habib Constructions (Pvt.) Ltd. for the ceramic tiles is higher than the contractual price
agreed with Saeed. Therefore, Habib Constructions (Pvt.) Ltd. stands a good chance of being
able to recover from Saeed the difference between the market price paid by it and the
contractual price agreed with Saeed. As regards any claim against Ahmed, the doctrine of
privity of contract would prevent such a claim, which means that Habib Constructions (Pvt.)
Ltd. being stranger to the agreement between Saeed and Ahmed cannot claim anything from
Ahmed. (03)
(ii) On the given facts, Saeed may bring a claim for breach of contract against Ahmed. He may
only be able to recover the loss which could naturally have arisen in the usual course of things
from the breach of contract by Ahmed But Saeed cannot recover the loss paid to Habib
Constructions (Pvt.) Ltd. from Ahmed because Ahmed was not aware of the agreement
between Saeed and Habib Constructions (Pvt.) Ltd. (03)
Question no. 8
a) Differences
i) Time instruments and Demand Instruments (02)
Section 21B of Negotiable Instrument Act 1881 states that A promissory note or bill of exchange is payable at a
determinable future time within the meaning of this Act if it is expressed to be payable---
(a) at a fixed time after date or sight; or
(b) on or at a fixed time after the occurrence of a specified event which is certain to happen, though the time of
its happening may be uncertain.
Whereas for Demand Instruments Section 19 of Negotiable Instruments Act 1881 states as follows:
A promissory note or bill of exchange is payable on demand,
(a) where it is expressed to be so, or to be payable at sight or on presentment; or
(b) where no time for payment is specified in it; or
(c) where the note or bill accepted or indorsed after it is overdue, as regards the person accepting or
indorsing it
ii) Order Instruments and Bearer Instruments (02)

Payable to order: In explanation of payable ‘to order’, section 13 states that a promissory note, bill of exchange
or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular
person, and does not contain words prohibiting, transfer or indicating an intention that it shall not be transferable.
It is not necessary that the word ‘order’ or ‘bearer’ must be there with the payee’s name. An instrument payable
to a named person carrying no other words would be valid and would be payable to the order of the payee
Payable to bearer: Section 13 states that a promissory note, bill of exchange or cheque is payable to bearer which,
is expressed to be so payable or on which the only or last indorsement is an indorsement in blank.
iii) Demand draft and Cheque (02)

Differences between a Demand draft and cheque are as follows:
(i) Cheque is drawn by a customer on his banker, whereas Demand Draft is drawn by a
bank on any of its other branch or bank on behalf of its customer.
(ii) Cheques usually carry the suspicion that it might get dishonored, whereas if a bank
issues a demand draft, then bank receives payment in advance from the customer for
the amount of demand draft. This makes payment on demand draft more secure and
credible.
(iii) Cheques can be made payable to bearer on demand, whereas amount of demand draft
can only be transferred to a bank account and not payable to bearer.
b) Saqib if wants to negotiate promissory note to Arsalan then he must comply with following essentials
of endorsement on the promissory note:
i) It must be on instrument itself, if no space is left on the back of the endorsement, further
endorsements are signed on a slip of paper attached to the instrument called ‘allonge’.
ii) It must be signed by the endorser for the purpose of negotiation. Signature of the endorser
on the instrument without any additional words is sufficient.
iii) No particular form of words is necessary for an endorsement
iv) It must be completed by the delivery of the instrument. The delivery of the instrument with
the intention of passing the property in it.
v) Negotiation by endorsement must be of the entire instrument. Endorsement for part of the
amount or to two or more endorsee severally is invalid. (02)
c) The rule is that a collecting bank has protected against collection of money on behalf a customer with
a defective title. However, this protection is not available where the banker allows the proceeds of an
“Account payee crossed cheque” to be credited to any account other than the payee
Exception to the rule
If the collecting banker has collected a cheque that had a crossing “account payee” which has
been obliterated or altered, the banker, in good faith and without negligence collecting payment
of the cheque and crediting proceeds thereof to a customer, shall not incur any liability by reason
of the cheque having been so crossed. (02)
Question no. 9
a) “critical Infrastructure" means critical elements of infrastructure namely assets, facilities, systems,
networks or processes the loss or compromise of which could result in:
(a) major detrimental impact on the availability, integrity or delivery of essential services including
those services, whose integrity, if compromised, could result in significant loss of life or casualties,
taking into account significant economic or social impacts; or
(b) significant impact on national security, national defense, or the functioning of the state. (02)
b) Mr. A was participant of an illegal protest, where shops were being looted and cars were being
damaged. In order to instigate people to participate in illegal protest sends live steaming through
social media, while calling it a success of rightful people against evil. Mr. A will be liable for
punishment under section 9 of PECA. (02)
c) If the reference of disputing parties is to an even number of arbitrators, the arbitrators shall appoint an umpire not
later than one month from the latest date of their respective appointments. And if the arbitrators have allowed their
time to expire without making an award or have delivered to any party to the arbitration agreement or to the umpire
a notice in writing stating that they cannot agree, the umpire shall forthwith enter on the reference in lieu of the
arbitrators.
The umpire shall make his award within two months of entering on the reference or within such extended time as
the Court may allow. (04)
d) The State Bank may, if it finds it to be necessary in the public interest, by a written order designate a
Payment System as a Designated Payment System. The State Bank may, in considering whether to
designate a Payment System as a Designated Payment System would require to inspect the premises,
equipment, machinery, apparatus, books or other documents, or accounts and transactions relating
to the Payment System. (04)
Question no. 10
a) In your own words briefly explain what is money laundering? (04)
The term ‘money laundering’ as defined in Anti-money Laundering Act 2010 has very broad meanings
but in a summarized manner if a person tries to conceal illegal origin of his wealth and fortune by
putting up a show of legitimate business then such person is said to have committed a crime of money
laundering. Section 3 of AMLA 2010 states that amongst others “if a person acquires, converts,
possesses, uses or transfers property, knowing or having reason to believe that such property is
proceeds of crime, the person shall be guilty of offence of money laundering”.
{Students can try to answer this question with examples}
b) According to Contract Act 1872 the matters discussed in this questions will be resolved as follows:
i) It is essential for claiming compensation in delayed performance that notice of such
intention must be given at the time of agreeing for delayed performance. If no such notice
is given, compensation for delayed performance cannot be claimed. (1.5)
ii) In reciprocal promises if one party is willing to perform his part of the contract and other
party is not willing to perform his part. Then the party willing to perform is excused from
performing the contract. (1.5)
iii) In right to contribution from one of the joint promisee, estate of the deceased promisee
is liable to be used. If the deceased promisee had no estate then legal representatives are
not liable to pay from their own resources. (1.5)
iv) Where time of performance of contract is not fixed then the contract must be performed
in reasonable time. In the situation under discussion reasonable time would be no sooner
than the consumption of last brick at the construction site of Y. (1.5)
THE END
February 16, 2024
Financial Accounting & Reporting II

(i) Answer all NINE questions.
Section A
Q.1
(a) On 1st January 2023 Apple Limited (“AL”) issued debentures having a face value of 120,000 at premium of 5%.
The coupon rate is 10 % per annum. Transaction cost paid by AL at the time of issuance of debentures is
Rs.1,000. Interest shall be paid at end of each year on December 31 and debentures shall be redeemed after 3
years on December 31 ,2025 at premium of 1%. The effective rate of interest is 8.6697% p.a.
Required:
Extracts of Statement of financial position as at December 31 st 2023 in the books of AL. (04)
(b) On 1 January 2023, Banana Limited (BL) purchased one million four years bonds issued by kiwi Limited (KL)
at a premium of Rs. 2 per bond and the bonds will be redeemed at their face value of Rs. 100 per bond. The
transaction costs associated with the acquisition of the bonds were Rs. 0.5 million. The coupon interest rate is
9% per annum while the effective interest at the time of purchase was 8.2411% p.a. Investment is measured at
Fair value through Other comprehensive income and Fair value of bonds as at December 31 st 2023 is Rs 99 per
bond.
Required:
Prepare Journal entries for the year ended 31st December 2023 for BL (Narrations are not required.) (04)
Q.2 On 1st January 2022 Mango Limited (ML) purchased and installed plant for Rs. 125 million. Dismantling cost
of Rs. 8 million to be paid after four years at end of useful life of plant. Plant is measured under revaluation
model and depreciated under straight line method and relevant discount rate is 20% p.a for ML. Fair value along
with revised estimate of dismantling cost is given below:
Rs in million
2023 2022
Fair Value (Excluding Dismantling Cost) 57 110
Revised Estimate of Dismantling Cost 9 10.5
Required:
Extracts of statement of comprehensive income for the year ended December 31st 2023 & statement of financial
position as at December 31, 2023 of ML. (10)
Q.3 Following expenditures were incurred by Orange Limited (OL) during the year ending December 31, 2023.
Discuss how each should be accounted for in light of guidance given in IAS/IFRS:
(i) On January 1, 2023 a license was acquired at a cost of Rs. 30 million. The license is renewable after 5
years for a further period of 3 years. The renewal fee is 2% of the initial fee. OL has intention to sell it
after 6 years. (02)
(ii) During the year OL purchased an in-process research and development project for Rs. 12 million from
Grapes Limited (GL). GL has informed OL that they had incurred Rs. 5 million on research. OL has
planned to work further on this project and it is quite confident about the success of this project. (02)
(iii) On 31 December 2023, OL launched its new website for online sales of its products. Directly
attributable costs incurred for the website are as follows: (04)
Financial Accounting & Reporting II | Page 2 of 5
Rs. in million
Undertaking feasibility studies 2
Designing the appearance of web pages 10
Registration of domain names 4
Evaluating alternative products 6
Acquisition cost of operating system of web servers 18
Stress testing to ensure that website operates in the intended manner 7
Development cost of new content related to advertising OL’s products 12
Acquisition of web servers 50
Q.4 Bilal is a CAF qualified accountant and has recently joined a newly incorporated company Strawberry Limited
(SL), a subsidiary of a listed company. Bilal has been entrusted with preparing the notes on ‘Share capital &
Reserve’ in the financial statements of SL for the year ended 31st January 2024. While preparing the notes, Bilal
has complied with all the disclosure requirements of IFRS. However, he is unaware of additional disclosures
required by the Companies Act, 2017 due to limited understanding and knowledge.
Required:
List down the disclosure requirements related to ‘Share capital & reserves’ as provided in the fourth schedule
of the Companies Act, 2017. (06)
Q.5 On 1 October 2023, Jackfruit Limited (JL) entered into a contract with a customer to supply 180 units of
specialized vehicles for a total consideration of Rs. 360 million. The delivery and billing schedule for vehicles is
as follows:
Unit price Total
Delivery date Units
----- Rs. in million -----
31 December 2023 50 2 100
31 March 2024 60 2 120
30 June 2024 70 2 140
360
The customer has paid 20% of the consideration in advance. The remaining 80% for each lot will be paid 15
days after delivery of each lot, but not before.
JL is entitled to an additional consideration of Rs. 54 million, payable in August 2024, if all the delivery dates
are met. It is highly probable that JL will achieve this.
JL’s sales team, which had been working on obtaining this contract since the start of 2023, was rewarded with
a bonus of Rs. 21 million upon securing the contract.
Required:
Discuss how the above information would be dealt with in JL’s financial statements for the year ending 31
December 2023. (08)
Q.6 Select the correct option in each of the following:

(i) Which of the following are not items required by IAS 1 Presentation of Financial Statements to be shown
on the face of the statement of financial position?
(a) Inventories (c) Government grants
(b) Provisions (d) Intangible assets (01)
(ii) Transaction cost incurred on issuance of Bond (measured under amortized cost method) is accounted for;
(a) Added to the proceeds of the Bond
(b) Charged to finance cost immediately
(c) Deducted from the proceeds of the Bond
(d) Charged to finance cost on straight line basis over the life of Bond. (01)
(iii) Which of the following are not classified as financial instruments?
(a) Share options
(b) Intangible assets
(c) Trade receivables
(d) Redeemable preference share (01)
(iv) According to Companies Act, 2017, analysis of expenses in the statement of profit or loss requires to be
presented using:
(a) nature of expenses only
(b) function of expenses only
(c) function of expenses with additional information on nature
(d) nature of expenses with additional information on function (01)
(v) Which of the following statements under the Companies Act, 2017 is/are correct?
(I) The classification of a company shall be based on the current year’s audited financial statements.
(II) The classification of a company can be changed where it does not fall under the previous criteria
for two consecutive years.
(a) Only (I) is correct (c) Both are correct
(b) Only (II) is correct (d) None is correct (02)
(vi) Which of the following statements is/are correct under IAS 21?
(I) An entity can have only one presentation currency.
(II) Any currency other than functional currency of the entity is foreign currency.
(a) Only (I) is correct
(b) Only (II) is correct
(c) Both are correct
(d) None is correct (01)
(vii) Head office expenses:
(a) can be allocated to segments on a reasonable basis
(b) must not be allocated to segments
(c) must be allocated to segments based on their turnover
(d) must be allocated to segments based on their profit before tax (01)
(viii) In Fourth and Fifth Schedule, an executive has been defined as an employee, other than the chief
executive and directors, whose basic salary exceeds a certain amount in a financial year. What is that
amount?
(a) Rs. 600,000 (c) Rs. 2,000,000
(b) Rs. 1,200,000 (d) Rs. 3,000,000 (02)
Section B
Q.7 Coconut Limited (CL) has prepared draft financial statements for the year ended 31st December 2023 and
calculated profit before tax of Rs 999 million.
(i) Interest receivable as at 31st December 2023 is Rs 30 million and interest received during the year was
Rs. 15 million. As per tax Interest is taxed on receipt basis at 18%.
(ii) Accounting depreciation on Property, plant & equipment for the year exceeds tax depreciation by Rs.
100 million.
(iii) On 31st December 2023, buildings were revalued for the first time resulting in a surplus of Rs. 150
million. Revaluation does not affect taxable profits.
(iv) The tax rate for 2023 & onward year is 28% while it was 30% in 2022 and prior periods except stated
otherwise.
(v) Other deductible temporary differences (relating to P&L items) as at December 31 st 2023 was Rs. 35
million.
(vi) During the year 2023, CL started construction of its head office and Capital work in progress as at 31
December 2023 includes borrowing cost of Rs. 7 million incurred in 2023. Under tax laws, borrowing
cost is allowed in the year in which it is incurred.
(vii) During the year ended December 31st2023 Fair value gain of Rs. 20 million was recorded on investment
in shares measured at fair value through other comprehensive income. Under tax laws, capital gain is
taxable at the time of sale.
(viii) CL bought one investment property on 1st January 2023 at a cost of Rs. 50 million with useful life of 10
years. The fair value of the property as on 31 December 2023 amounted to Rs. 61 million. CL follows
cost model for accounting purposes. Under tax laws, capital gain on investment property is taxable at the
time of sale, while depreciation is not allowed.

(ix) Net deferred tax liability as on 31st December 2022 was as follows:
Rs.
‘milli
on’
120
Property, plant & equipment (Rs.400 million x 30%)
9
Investment in shares (measured at FV -OCI) (30 million x30%)
1.8
Interest receivables (10 million x 18%)
(24)
Unused tax losses (Rs.80 million x 30%) *
(7.80)
Other deductible difference (relating to P&L items) (26 million x
30%)
* Total unused tax losses as at December 31st 2022 were Rs 100 million.
Required:
(a) Prepare a note on taxation for inclusion in CL’s financial statements for the year ended 31 December 2023
and a reconciliation to explain the relationship between the tax expense and accounting profit. (13)
(b) Compute deferred tax liability/asset in respect of each temporary difference as at 31 December 2023.
(03)
Q.8 Following information relates to Tomato Limited (TL) and its investee companies, Olive Limited (OL) and
Apricot Limited (AL):
The draft summarized statements of financial position of the three companies on 30 th June 2023 are
given below:
TL OL AL
---------Rs. in million------
Assets
Property, plant and equipment 590 280 150
Investments 260 - -
Current assets 300 220 50
1,150 500 200
Equity and liabilities
Ordinary share capital (Rs.10 each) 600 200 100
Retained earnings 385 140 40
Current liabilities 165 160 60
1,150 500 200
Other information
(i) On 1 July 2022, TL acquired 14 million ordinary shares in OL, when its retained earnings were Rs. 100
million.
(ii) The purchase consideration for investment in OL was made up of Rs. 200 million in cash and Rs 80
million shall be paid after 2 years on 30th June 2024. Discount rate is 20% per annum. Only cash paid is
recorded by TL in its financial statements.
(iii) The fair value of OL’s net assets on the acquisition date was equal to their carrying amounts except
following:
 an equipment whose fair value exceed carrying value by Rs.5 million and remaining life at the
acquisition date was five years. carrying value and recoverable amount of such equipment at
acquisition date was Rs 24 million Rs.31 million respectively.
 Land whose fair value exceeded carrying value by Rs 3 million and such land was sold during the
year ended 30 June 2023 at gain on Rs 4 million.
 Inventories were carried at Rs. 20 million and had a fair value of Rs. 24 million. 80% of these were
sold during the year ended 30 June 2023.
(iv) TL values the non-controlling interest at its proportionate share of the subsidiary’s net identifiable assets.
(v) On 1st June 2023, TL acquired 3 million ordinary shares in AL and purchase consideration was Rs. 45
million in cash and recorded by TL. Retained earnings of AL as on 1 st July 2022 was Rs 42 million.
(vi) As on June 30, 2023, goodwill related to acquisition of OL was impaired by 10%.
(vii) Investment in AL was impaired by Rs. 1 million as on 30th June 2023.
(viii) OL declared interim cash dividend of 3% in June 2023 which was paid on July 2023. The dividend has
correctly been recorded by both companies. No dividend was declared/paid by AL during the year ended
30th June 2023.
(ix) On 1st April 2023, OL sold a plant to TL for Rs. 85 million. The plant had been purchased on 1st April
2021 for Rs. 120 million. The plant was assessed as having a useful life of six years when bought.
(x) On 21st June 2023 AL sold goods to TL for Rs. 20 million. AL makes a profit of 20% on the selling price.
Rs. 3 million of these goods were held by TL on 30 June 2023.
Required:
Prepare a consolidated statement of financial position for TL Group as on 30 th June 2023 in accordance with
the requirements of International Financial Reporting Standards. (19)
Q.9 Following information relates to Cherry Leasing Limited (CLL) and Lemon Limited (LL):
(i) On 1 January 2023, Cherry Leasing Limited (CLL) purchased a machine costing Rs. 200 million having
useful life of 10 years. Residual value of the machine at end of its useful life is estimated at Rs. 20 million.
(ii) On 1 February 2023, CLL entered into a lease agreement for this machine with Lemon Limited (LL) for
a non-cancellable period of 2 years with effect from 1 February 2023. Under the agreement, six
instalments of Rs. 12 million are to be paid quarterly in arrears commencing from the end of 3rd quarter
i.e. 31st October 2023.
(iii) CLL has incorporated an implicit rate of 12.5 % per annum which is not known to LL. Incremental
borrowing rate of LL is 12% per annum.
(iv) On 1 February 2023, LL completed installation of the machine at a cost of Rs. 6 million and put it into
use.
(v) Both companies follow straight line method for charging depreciation.
Required:
Prepare journal entries for the year ended 31 December 2023 in the books of CLL and LL to record the above
transactions. (Narrations are not required) (15)
(THE END)
Financial Accounting and Reporting-II
Mock Suggested Answers
Spring-24
A-1(a)
AL
Extracts of Statement of Financial Position
As at Deceember 31st 2023
2023
Non Current Liability
Debentures 122,573.43 (M-1.5)
Current Liability
Debentures 1,263.69 (M-1.5)
123,837.13
Amortisation Schedule
Year Opening Interest expense payment Closing
2,023 125,000.00 10,837.13 12,000.00 123,837.13 (M-0.5)
2,024 123,837.13 10,736.31 12,000.00 122,573.43 (M-0.5)
2,025 122,573.43 10,626.57 133,200.00 0.00
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A-1(b)
Date Accounting Head Debit Credit
01-01-2023 Investment 102.50

Bank 102.50 (M-1.5)
31-12-2023 Bank 9.00 (M-1.5)

Interest income 8.45
Investment(bal.) 0.55
31-12-2023 Fair Value reserve [OCI] 2.95 (M-1)

Investment 2.95
(99-101.95)
Amortisation Schedule
Year Opening Interest income receipts Closing
2,021 102.50 8.45 9.00 101.95
2,022 101.95 8.40 9.00 101.35
2,023 101.35 8.35 9.00 100.70
2,024 100.70 8.30 109.00 (0.00)
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Answer: 04
(i) Capital and Revenue reserves shall be clearly distinguished. Any reserve required to be
maintained under the Act shall be separately disclosed. Any legal or other restrictions, on the
ability of the company to distribute or otherwise, shall be disclosed for all kind of reserves
maintained by the company;
(ii) In respect of issued share capital of a company following shall be disclosed separately:
• shares allotted for consideration paid in cash;
• shares allotted for consideration other than cash, showing separately shares issued
against property and others (to be specified);
• shares allotted as bonus shares; and
• treasury shares;
(iii) Discount on issue of shares shall be shown separately as a deduction from share capital in the
statement of financial position and the statement of changes in equity;
(iv) Shareholder agreements for voting rights, board selection, rights of first refusal and block voting
shall be disclosed.
Spring-24
A.5 The amount of Rs. 72 million (360×20%) would be initially recorded as contract liability. JL should
include Rs. 54 million additional consideration in the transaction price of the contract as it is highly
probable that JL will achieve the delivery dates. So revenue of Rs.
2.3 million [(360+54)/180] should be recognised upon delivery of each vehicle. Revenue of Rs. 115
million (50×2.3) would be recognised upon delivery of first lot of
50 vehicles on 31 December 2023 by debiting receivable with Rs. 80 million (50×2×80%), contract
liability with Rs. 20 million (50×2×20%) and contract asset with Rs. 15 million (50×0.3).
JL should recognise an asset for the commissions to sales employees of Rs. 21 million because it is
incremental costs of obtaining the contract and is expected to be recovered through future deliveries.
This cost should be amortised on a systematic basis over the contract period. An amount of Rs. 7
million (21×3/9) or Rs. 5.83 million (21×50/180) should be expensed out in 2023. As a practical
expedient, JL may recognise the incremental costs of obtaining a contract as an expense
when incurred as the
amortisation period is less than one year.
Spring-24
A-6
(i) (c) 1
(ii) (c) 1
(iii) (b) 1
(iv) ('c) 1
(v) (b) 2
(vi) (b) 1
(vii) (a) 1
(viii) (b) 2
10
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February 18, 2024
Managerial & Financial Analysis

(iii) Multiple Choice Questions must be answered in answer script only
Section A
Q.1 Select the most appropriate answer from the options available for each of the following Multiple-Choice
Questions.
i. …………… is the characteristic of fascist capitalism. (01)
(a) Open communication and free market (c) Class less society
(b) Full religious freedom (d) Practice of violence
ii. USA and Pakistan are closest examples of: (01)
(a) Socialism (c) Democratic socialism
(b) Fascist capitalism (d) Democratic capitalism
iii. Business can influence the government through: (01)
(a) Constituency building
(b) Having an active marketing department
(c) Paying taxes
(d) None of the above
iv. All of the following are lagging indicators EXCEPT: (01)
(a) Interest rates (c) Unemployment
(b) GDP (d) Balance of payment
v. Market value of a firm calculated by multiplying the number of shares available for trade in stock market
by price per share is: (01)
(a) Free float market capitalization (c) Market worth
(b) Full cap market capitalization (d) All of the above
vi. Inflation adjusted GDP is called as: (01)
(a) Normal GDP (c) Nominal GDP
(b) Real GDP (d) None of the above
vii. Aay bee & Co is seeking additional finance and is considering using Islamic finance. In particular they
would require a form which would be similar to equity financing regarding Aay bee & Co’s interest in
Islamic finance. Which of the following statements is/are correct? (01)
1) Murabaha could be used to meet Aay bee & Co’s financing needs
2) Mudaraba involves an investing partner and a managing or working partner
a) 1 only c) Both 1 and 2
b) 2 only d) Neither 1 nor 2
Management and Financial Analysis | Page 2 of 6
viii. Which of the following statements about equity finance is correct? (01)
a) Equity finance reserves represent cash which is available to a company to invest
b) Additional equity finance can be raised by rights issues and bonus issues
c) Retained earnings are a source of equity finance
d) Equity finance includes both ordinary shares and preference shares
ix. Sun Limited (SL) has an accounts receivables turnover of 10.5 times, an inventory turnover of 4
times and payables turnover of 8 times. What is SL’s cash operating cycle (assume 365 days in a year)?
a) 80.38 days c) 22.50 days
b) 6.50 days d) 171.64 days (02)
x. Which one of the following is short-term Islamic financing used to facilitate trade Business? (01)
a) Mudarba c) Ijara
b) Murabaha d) Sukuk
xi. Which of the following statements about venture capital is NOT correct? (01)
a) Venture capital can provide funding for startup business.
b) Venture capitalists may exit their investment by selling their shares after the company goes public
and lists on the stock exchange.
c) Venture capitalists would never sit on the board of a company.
d) venture capitalists expect the current owners of a company to bear a significant portion of the risk
involved
xii. The Islamic mode of financing in which the seller expressly mentions the cost of a commodity sold and
sells it to another person by adding mutually agreed profit is called: (01)
a) Ijarah c) Mudaraba
b) Murabaha d) Musharaka
xiii. Which of the following is NOT considered as cash flows to calculate an IRR of redeemable debt? (01)
a) Annual interest payment on the bond
b) Tax relief on annual interest payments
c) Par value of the bond, excluding any interest payable in near future
d) Redemption amount
xiv. Which of the following is not a characteristic of a zero-coupon bond? (01)
a) Investor return is gained through capital appreciation
b) It can have only one annual interest payment
c) It is ideal for those investors who require a periodic return
d) It cannot be sold before its maturity date
Q.2 Furqan, ACA, has recently joined StarTech Solutions (STS), a well-established family-owned company. STS
specializes in high-tech gadgets and electronics supply. STS customers have diverse payment preferences,
including debit/credit card transactions, 30-day credit business accounts, and a significant number of cash
payments made by customers who collect goods in person. The preference for cash payment is influenced by
the nature of their businesses, such as events management or entertainment, where cash payments are
common.
During his first week at STS, the sales director, a close relative of a principal shareholder, gave Furqan a
cheque to settle an account for a major customer. The cheque included an overpayment because it didn’t
account for the retrospective bulk discount. The sales director further explained that for certain customers,
one of their key management personnel personally collects the discount in cash. This practice helps to
maintain strong relationship, foster loyalty, and encourage repeat purchases. Furthermore, it facilitates
regular face-to-face meetings with the key management personnel of the customers and minimizes bank
charges.
Curious about the customers’ preference for cash refunds instead of simply paying the net amount owed,
Furqan seeks an explanation from the sales director. In a professional manner, the sales director asserts that
it is not their prerogative to question the customers’ motives.
Required:
Apply AAA model on the scenario above clearly highlighting the key stages and steps taken under
each stage. (10)
Q.3 Opulent Designs (OD) is a renowned luxury furniture mega store known for its eye catching designs and
durable products. It offers three-years warranty on all its products. The OD store is an exquisite Moghul
palace-style five-story building with large glass window displays, located at the center of the city. Each floor
is dedicated to a different product category that is managed by the floor in-charge who has about ten support
staff, known as Customer Managers (CM), working on the floor. The floor in-charge is responsible for all
activities on the floor and reports directly to the owner of the store. OD does not have separate functional
teams to manage operations. For marketing, the owner of the store hires expert vendors to periodically
organize exclusive events and collaborations with renowned interior designers and influencers. For hiring
staff members, the owner relies on the floor in-charge to do their own hiring, which is normally done through
referrals.
When the customer decides to purchase a product from OD, they are assigned to a floor-specific CM as their
main point of contact. The CM presents the customer with a form containing several options for popular
designs, wood types and fabric choices for the furniture. CMs get a hefty commission for each customer they
assist, which fuels their competitive drive to secure prime sales spots on the floor.
Once the customer’s order is confirmed, the CM contacts the warehouse manager at the central warehouse,
located at the basement of the building, to check the availability of the required materials. If any materials
are out of stock, the CM takes approval from the floor in-charge and normally places an order for twice the
required material by directly emailing the suppliers who are situated around the world. The shipment of
materials usually takes between 20 to 30 days to reach the warehouse. Upon arrival of the materials, the
warehouse manager notifies the CM, who then transfers the required design of furniture and material to the
factory in-charge at a remote site. The excess material ordered is stored in the warehouse for future use.
At the factory, the skilled artisans bring the designs to life through intricate hand-carving and meticulous
craftsmanship. The individual crafted components of the furniture are then passed on to skilled craftsmen
who assemble them with precision, ensuring structural integrity. After this, a rigorous quality assurance check
is conducted to ensure that every piece meets OD’s quality standards. The furniture is then handed over to
the finishers who enhance its natural beauty by polishing it and carefully packaging it for distribution. Once
the job is complete, the factory in-charge notifies the CM, who then arranges reliable delivery personnel to
deliver the furniture to the customer. In the event of any post-delivery issue, customers normally contact the
CM for solutions.
As OD’s business continues to grow, it encounters pressing challenges that require immediate attention.
Notably, there have been recurring issues such as substandard customer service on the floor, inconsistent
delivery times, inadequate finishing of products, and instance of furniture damage upon receipt.
Required:
Discuss changes in primary and secondary value chain activities to address the issues encountered
in business growth. (13)
Q.4 Smart Electronics (SE), a company specialized in the manufacturing and selling of smartphones, experienced
remarkable success when it launched its latest smartphone, the ‘Horizon-S’. Despite its high price, Horizon-
S quickly gained popularity among consumers due to its unique features and design. Following its established
practices, SE adopted lifecycle costing for Horizon-S, paving the way for strategic decision-making
throughout the product lifecycle. Through intensive marketing efforts, SE successfully created awareness
and excitement among potential buyers, resulting in significant sales growth that endured for well over a
year. This outstanding performance enabled SE to establish a strong market presence and gain a considerable
market share.
Observing the tremendous success of Horizon-S, SE’s direct competitor, Ztronics (ZT), sought to replicate
SE’s achievement by developing its own smartphone called the ‘Z-factor’ that boasted all the features of the
Horizon-S, and the added innovative feature of 360-degree rotating phone camera. ZT also employed
lifecycle costing for the development and production of the Z-factor. The market reception for the Z-factor
was positive, and upon its launch, the market share of Horizon-S started to reduce. However, to ZT’s dismay,
just after a few months of Z-factor’s launch, three other reputable competitors also launched their
smartphones, which closely replicated the configurations and features of the Z-factor but at significantly
lower prices.
Required:
(a) Perform SWOT analysis of Smart Electronics. (08)
(b) Identify the costs that SE may have incurred on Horizon-S at each phase of the lifecycle to date. (04)
Section B
Q.5 Akhter Lawa Limited (ALL) has the following financing structure at end of 2023.
Rs.
Ordinary share Capital (Rs 10 per share) 500,000
Retained Earnings 415,000
Bank loan from Apna Bank at 13% 100,000
15% redeemable bonds (Rs 100 per share) 480,000
12% irredeemable preference shares (Rs 100 per share) 750,000
Other information
(i) Tax Rate of ALL is 25% and Current equity beta of ALL is 1.1
(ii) Market value of ir-redeemable preference share is Rs.101 per share
(iii) Market value per bond is Rs 105 and debentures shall be redeemed at premium of 10% at end of
2026
(iv) The return on government securities is 17% per annum whereas market risk premium is 8% per
annum
(v) Dividend history of ALL for last 5 years is as follows:
Year 2019 2020 2021 2022 2023
Dividend Per share(Rs) 12 13 14.5 15 16
ALL is considering to investment in a new project which requires investment of Rs 2,000,000 and would be
financed through 20% redeemable TFCs (Par value Rs 100) and redeemable at discount of 2% after three
years. Issuance of TFCs and new project initiation would result in following
• Increase in equity beta of ALL by 10%.
• Dividend of next year will increase by 20%
• Growth rate in dividend after next year will be 10%
Required:
(i) Compute ALL’s weighted average cost of capital (WACC) of the existing business. (07)
(ii) Revised WACC if New Project is undertaken. (05)
(iii) Discuss any three factors that ALL may need to consider before deciding on whether to finance the
expansion by issuing shares or debt. (03)
Q.6 (a) Identify two strategies to manage credit risk that is faced by business. (02)
(b) Moye Limited (ML) is engaged in manufacturing and selling textile products. ML procures the material
from Singapore. The management of ML is concerned over high volatility in foreign exchange rates. The
payment of SGD (Singapore Dollar) 100,000 to a supplier is expected in three months’ time and
management is considering to hedge the foreign exchange risk.
ML’s bank has quoted the following exchange rates and annual interest rates:
SGD 1
Buy Sell
Spot [Rs] 196.6 197.4
1 month forward [Rs] 199.4 200.5
3 months forward [Rs] 199.9 201.1
Deposit Borrowings
Interest rates
--- Rate per annum ---
In SGD (1 month) 12.55% 15.92%
In SGD (3 months) 13.01% 16.75%
In PKR (1 months) 16.22% 18.91%
In PKR (3 months) 17.10% 19.76%
Required:
Determine which of the following options would be more beneficial for ML:
(i) Hedging through forward contract
(ii) Hedging through money market
(iii) No hedging. Assume that on the date of settlement of transaction, spot rate is SGD 1 = PKR
205.15. (09)
Q.7 Orry Limited (OL) produces and sells laptop & Printer accessories. It is planning to introduce a portable
mobile printer for the local market. Following information has been gathered in this respect:
(i) Initial investment in the new plant for manufacturing the portable mobile printer would be Rs.
320 million including installation and commissioning of the plant. The plant would be partly
financed through a loan of Rs. 120 million at an interest rate of 20% per annum. The
interest would be payable annually and the principal amount would have to be repaid at the end of
5th year.
(ii) The plant would be installed in a building owned by OL which has been currently rented out at Rs.
5 million per annum.
(iii) Applicable tax rate is 20% and tax would be payable / refundable in the year in which it arises.
(iv) The plant would be depreciated at the rate of 20% under the reducing balance method. The one of the
associated company has offered to purchase the plant for Rs. 90 million at the end of 5th year.
(v) OL expects to produce 55,000 mobile printers in first year. Sales volume is expected to increase by
4% per annum. Contribution margin is estimated to be Rs. 2,000 per mobile printer, whereas the
annual fixed cost (excluding depreciation & insurance) is estimated to be Rs. 15 million.
(vi) Insurance premium of plant shall be paid at start of every year and shall decrease by 0.2 million each
year. Insurance premium of year 1 is Rs 3.2 million
(vii) OL estimates immediate working capital requirements to be Rs. 12 million. An overall 16% increase,
inclusive of inflation, in the working capital requirement (based on the previous balance) is
anticipated at the start of years 2, 3,4 & 5. However, only 90% of the working capital is expected to
be realised at the project’s end. The remaining balance would be written off at the end of year 5.
(viii) OL’s real cost of capital is 15% and general inflation in economy is 6%.
(ix) All revenues and costs are quoted on today's rate and are expected to remain the same in the
first year. Thereafter, the estimated annual inflation of 12% would be applicable on all future
revenues and costs.
Required:
By using the net present value method, recommend whether OL should launch the Portable mobile printer.
(Assume that all cash flows arise at the end of each year unless otherwise specified) (16)
Q.8 Bieber Limited (BL) is engaged in manufacturing of textile products. Management is in the process of
developing business plan for next year (i.e 2024).
Following is the summary of BL's financial position as at 31 December 2023.
Rs. (million)
Total assets 1,080
Total current assets (including receivables & inventory of Rs300) 350
Total Equity 550
Total Liabilities 530
Total current liabilities (Including trade payables of Rs.160) 200
Following additional information is available:
i. The sales of BL for the year 2023 was Rs 1,200 million while the net profit after tax is 10% of sales.
ii. It is the policy of BL to distribute 30% of its profits after tax among the shareholders.
iii. It is expected that profit after tax and dividend distribution for the year 2024 will be in line with 2023.
iv. Head of planning & budgeting department has informed that for the year 2024 that any increase in sales
amount would increase receivables & inventory by 125% of the additional sales amount and trade
payables would increase by 15% of the additional sales amount.
Required:
(a) Calculate Current ratio and Debt to Equity ratio and working capital amount for the year 2023. (02)
(b) Determine the amount of additional working capital finance required to achieve a 32% increase in sales
amount for the year 2024. (03)
(c) Estimate the maximum growth in sales amount for the year 2024 that BL can achieve if Only debt financing
is available to the extent that existing debt equity ratio is maintained at the end of 2024. (03)
(THE END)
CAF-06 MFA Mock Solution (Spring-2024)
Q-1
1. D
2. D
3. A
4. B
5. A
6. B
7. B
8. C
9. A (marks 02)
10. B
11. C
12. B
13. C
14. B,C,D
Q-2
Step 1- Establishing the facts of the case.
This step means that when the decision-making process starts, there is no ambiguity about what is under
consideration.
The leading questions about the facts will revolved around What? Who? Where? When? How?
Essentially, efforts are made to identify what we know or need to know, if possible, to clearly define the
problem.
In the above scenario, Furqan is aware that some of the company’s customers are intentionally overpaying
their accounts and receiving cash repayments. If credit notes were issued to these customers, it is possible
that they may not report it to their respective organizations thereby decreasing their profits.
Step 2- Identify the ethical issues in the case.
This involves examining the facts of the case and asking what ethical issues are at stake.
A complete account of key ethical issues and dilemmas is developed that helps in resolving the problem
comprehensively.
The key ethical issue here is the ability of Furqan to control the situation and do the rightful action to ensure
the ethical dilemma is resolved.
Step 3- An identification of the norms, principles and values related to the case.
This involves placing the decision in its social, ethical and in some cases, professional behaviour context. In
this last context, professional codes of ethics or the social expectations of the profession are taken to be the
norms, principles and values.
The following fundamental principles are identified in the case:
Integrity
Objectivity
Professional behavior
These principles will be violated if furqan does not act in ethical way.
Step 4- Each alternative course of action is identified.
This involves compiling a complete set of major practical alternatives or likely decisions one can make in a
given situation. These alternatives should not consider the norms, principles and values identified in Step 3.
It is expected that in these alternatives one may feel or see some form of compromise or point between
simply doing or not doing something.
Following alternative actions are identified in the case:
1. Staying silent and letting the things happen the way they are happening
2. Be vocal and trying stop the malpractices
Step 5- Matching norms, principles, and values to options
The norms, principles and values identified in Step 3 are overlaid on to the options identified in Step 4.
When this is done, it should be possible to see which options accord with the norms and which do not.
If Furqan stays silent, all ethical norms and principles will be violated.
If Furqan takes action, he will ensure compliance with integrity, objectivity and professional behaviour.
Step 6- The consequences of the outcomes are considered.
This step is an analysis of implications and consequences of each possible alternate course of action.
Implication and consequences should be analyzed in all respects: short and long run, positive and negative.
This step addresses the problem of human preference or focus on short run benefits/harms over long run.
Again, the purpose of the model is to make the implications of each outcome unambiguous so that the
final decision is made in full knowledge and recognition of each one.
If Furqan follows ethical principles, he might have to lose the job
Step 7- The decision is taken.
After performing the steps that cover facts, analysis and available options, the final decision requires
application of professional judgment. Professional judgment is an application of accumulated knowledge
and experience gained during initial professional development and through continuing professional
development.
The decision taken in this step should demonstrate that the selected course of action is a well-informed
ethical decision and appropriately balances the consequences against primary principles or values.
Furqan should take the decision that best matches with all ethical principles.
Q-3
Q-4
SWOT analysis
Strengths
 Popularity among customers
 Strong market presence
 Outstanding performance
Weaknesses
 High price
 Inability to ensure sustainable core competence
Opportunities
 Growing market demand
 Opportunities to innovate the product
Threats
 Increased competition
 Lower prices by the competitors
b.
Sol Q5
(a)
Existing WACC
Rs in million
Number of instrument MV per instrument TMV Cost of finance
Ordinary shares 50,000 93.73 4,686,262.54 25.80%
Bank Loan 100,000.00 9.75%
ir-redeemable pref shares 7,500 101.00 757,500.00 11.88%
redeemable bonds 4,800 105.00 504,000.00 12.05%
6,047,762.54
Existing WACC 22.65%
w-1 ordinary shares

w-2 Ir redeemable preference shares
Cost of equity
17+(1.1x8) Cost of finance = 12/101 11.88%
25.80%
Market value per share
growth is calculated through extrapolation of historical analysis

growth = 7.456%
D1 = 16x1.07456= 17.19
93.73 = D1 17.19/(0.258-0.07456)
Rs per share re-g
w-3 redeemable debentures PV13% PV17%
0 105 105 105

1 (11.25) (9.96) (9.62)
2 (11.25) (8.81) (8.22)
3 (121.25) (84.03) (75.70)
2.20 11.46
IRR 12.05%
(b) New Project

Rs in million
Number of instrument MV per instrument TMV Cost of finance
Ordinary shares 50,000 115.11 5,755,395.68 26.68%
ir-redeemable pref shares 7,500 101.00 757,500.00 11.88%
redeemable bonds 4,800 105.00 504,000.00 12.05%
redeemable TFC 20000 100 2,000,000.00 13.96%
bank loan 100,000.00 9.75%
9,116,895.68
WACC IF New Project is started 21.66%
w-4 ordinary shares
Cost of equity
17+(1.1x1.1x8)
26.68%
Market value per share
D1 = 16x1.2 = 19.20
115.11 D1 19.20/(0.2668-0.10)
Rs per share re-g
w-5 Redeemable TFC
redeemable debentures PV18% PV22%
0 100 100 100

1 (15.00) (12.71) (12.30)
2 (15.00) (10.77) (10.08)
3 (113.00) (68.78) (62.23)
4
7.74 15.40
IRR 13.96%
(c)
(I) Amount required – The company should have a best estimate of the amount of finance required as after financing, further
long-term bank lending may be restricted or available at a higher cost.
(ii) Cost – The company should consider both the on-going servicing cost and the initial arrangement cost for its financing.
For example, the cost of both raising and servicing equity may be high as shareholders accept high risk in return for the promise
of higher rewards.
(iii) Flexibility – The Directors should consider balancing risk, cost and flexibility. For example, in a year with low profits
(or even a loss) the company could decide not to pay a dividend to the shareholders. However, most debt financing requires
the payment of interest irrespective of company performance
Sol Q6
(a)
Credit risk is the risk of loss as a result of a borrower's inability to make a payment on a debt obligation
Some key strategies to manage credit risk are:
(i) Setting credit limits (0.5)
(ii) Regular monitoring (0.5)
(iii) Guarantees (0.5)
(iv) Credit insurance (0.5)
(b)
(i) Hedging through forward contract:
ML is expected to pay SGD 100,000 in three months’ time. Therefore, it should enter into a 3 months’ forward contract
to buy SGD 100,000 as follows:
Amount 100,000 SGD

Forward Rate 201.1 Rupees
On settlement date Rs. 20,110,000 (100,000x201.1) Net Cost in PKR to pay 100,000 SGD
(M-2.5)
(ii) Hedging through money market:
Buy SGD 96,849.96 (100000/(1+(0.1301x3/12)) (M-1.5)

Buy SGD from PKR Loan 96,849.96 x 197.40 19,118,181.16 Rs (M-1.5)
Deposit amount in FCY account(SGD) 96,849.96
Interest income on deposit account(3 months)(SGD) 3,150.04 96849.96x13.01%x3/12
After month Deposit account including Interest(SGD) 100,000.00
Loan Amount PKR 19,118,181.16

3 Months interest on Loan 944,438.15 19,118,181.16 x19.76%x3/12 (M-1)
Net Cost in PKR to pay 100,000 SGD 20,062,619.31 (M-1)
(iii) No Hedging
100,000 x 205.15 Rs. 20,515,000 (M-1.) Cost to pay 100,000 SGD
Conclusion
The hedging through money market would be more beneficial for ML as it would result in the lowest amount of payment
(M-0.5)
Sol Q7
Rupees in million
0 1 2 3 4 5
Contribition 110.00 128.13 149.24 173.84 202.49
(55,000x2000) (Lyx 1.04x1.12) (Lyx 1.04x1.12) (Lyx 1.04x1.12) (Lyx 1.04x1.12)
Rental income lost (LY x1.12) (5.00) (5.60) (6.27) (7.02) (7.87)
Insurance (3.20) (3.00) (2.80) (2.60) (2.40) -
Fixed Cost (LY x1.12) (15.00) (16.80) (18.82) (21.07) (23.60)
PBT-Cash (3.20) 87.00 102.93 121.56 143.34 171.02
Tax (4.56) (10.31) (16.08) (22.07) (35.40)
Investment (320.00) - 141.62

working capital (12.00) (1.92) (2.23) (2.58) (3.00) 19.55
Net Cash Flows(A) (335.20) 80.52 90.40 102.89 118.27 296.79
PVF @ 21.9%(B) 1.0000 0.8203 0.6730 0.5521 0.4529 0.3715
PV(AxB) (335.20) 66.05 60.83 56.80 53.56 110.26
Net Present Value 12.32

Investment should be made in this project
W-1 Tax Profit

1 2 3 4 5
PBT-CASH 87.00 102.93 121.56 143.34 171.02
DEP (64.00) (51.20) (40.96) (32.77) (26.21)
Gain 36.76
insurance-reverse 3.00 2.80 2.60 2.40 -
insurance-record (3.20) (3.00) (2.80) (2.60) (2.40)
Loss working capital (2.17)
Tax Profit 22.80 51.53 80.40 110.37 176.99
Tax 4.56 10.31 16.08 22.07 35.40
Gain /(Loss) on sale

Proceed 141.62
NBV 104.86
Gain 36.76
W-2 Working capital 0 1 2 3 4 5

Cumulative 12.00 13.92 16.15 18.73 21.73 -
Per year (12.00) (1.92) (2.23) (2.58) (3.00) 19.55
W-3 Cost of capital = [(1.15x1.06)-1)
SolutionQ-8
(a)
CurrentRatio 350/200 1.75 (M-
Debttoequityratio 330/550x10 0.75)
Workingcapitalrequirement2023 0 60% (M-
0 75)
Rsinmillion
(b)
Increasein workingcapitalneed (1200x32%x1.1) 422.40 (M-1)
Increasein Retainedearnings[cash]throughnormalsales(1200x7%) (84.00 (M-1)
Increasein Retained )
( ( )
Additionalworkingcapitalfinance 311.52
(c)
Estimatethemaximumgrowth insalesifOnlydebtfinancingisavailableto the
extentthatexisting debtequity ratio ismaintained attheend of 2024
Thatwould meanthatanyincreasein working capital need should beequalto

increaseinretained
earnings& increaseof debt
Let" S" isrequired sales increase
1200xSx1.1 = (1200x.07)+(1200xSx.07)+(1200x.07x0.6)+(1200xSx0.07x0.6) (M-3)
S=11.336%
(w-1)
PATis 10 %ofsales
Dividend payoutis30%
PAT retainedratiois
70%
Wecan say that

RetainedProfittosalesratio= 10%x70% 7.00%
(w-2)
Rs1increasein saleswouldincreaseWorkingcapitalneed by Rs 1.1(125%-
15%)
(w-3)
Existingdebtequityratio
330/550x100 60.00%
February 20, 2024
Company Law
(i) Answer all TEN questions.
Q.1
Select the most appropriate answer from the options available for each of the following Multiple-Choice Questions.
1. Kohat Ltd engaged in production of sports products having paid up capital of Rs.10 million comprising of 1
million shares of Rs. 10 each. Election of directors was held on 31 December 2022 in which nine (09)
directors were elected. Mr. Tarik who was elected with minimum number of votes totalling to 972,000, was
appointed chief Executive by BoD after election. Mr. Sarfraz and Mr. Irfan were also elected securing
2,054,000 and 1,982,000 votes respectively. In June 2023 both resigned and shifted to Canada. In August 2023
Board of Directors appointed Mr. Khalid as new Director. Now Kohat Ltd is considering removing Mr. Khalid
from BoD. Mr. Khalid will not be deemed to be removed as director if votes casted against the resolution are
more than or equal to:
a. 1.1250 million
b. 9 million
c. 972,000
d. 1 million (02)
2. Korangi Limited (KL) was formed for a period of five years. The period of five years is due to complete on 31
August 2023. Company Secretary of KL is of the view that the company cannot continue its business after
expiry of the said period. In this regard which of the following statement is correct?
a. KL will continue its business even after the expiry of the period mentioned in its Articles of
association until members pass special resolution for winding up of company.
b. KL will continue its business even after expiry of the period mentioned in its Articles of association
until members pass a resolution for winding up of company.
c. KL will not continue its business after expiry of the period mentioned in its Articles of association and
members shall pass special resolution for winding up of company.
d. KL will continue its business even after expiry of the period mentioned in its Articles of association
until BOD passes resolution for winding up of company. (1.5)
3. Clifton Limited is in financial difficulties and creditors has started legal proceedings against company. In
which of the following situations, CL shall be deemed to be unable to pay its debts?
a. If a creditor of Rs. 3 million duly made a demand requiring CL to pay the sum so due and CL has for
21 days thereafter neglected to pay/secure/compound the sum.
b. If a creditor of Rs.100,000 or more made a demand requiring CL to pay the sum so due and CL has
for 30 days thereafter neglected to pay/secure/compound the sum.
c. If a creditor of Rs. 100,000 or more duly made a demand requiring CL to pay the sum so due and CL
has for 21 days thereafter neglected to pay/secure/compound the sum.
d. If a creditor of Rs. 101,000 duly made a demand requiring CL to pay the sum so due and CL has for
30 days thereafter neglected to pay/secure/compound the sum. (1.5)
4. Bhatti Limited has obtained short term loan of Rs. 50 million from a bank against which BL has deposited a
postdated cheque as security. Which of the following statements is correct regarding registration of above
security under the Companies Act, 2017?
a. Post dated cheques are not considered as security for the purpose of mortgage or charge and does not
require registration.
b. Post dated cheque of the same bank is required to be registered as mortgage or charge.
c. Post dated cheque up to Rs. 50 million is not required to be registered as mortgage or charge.
d. Post dated cheque is acceptable as security; hence, it is required to be registered as mortgage or
charge. (01)
5. A company which, through inadvertence or otherwise, is registered by a name in contravention of the
Companies Act:
a. May, with approval of the Commission, change its name.
b. Shall, if the registrar so directs, within 30 days of receipt of such direction, change its name with
approval of the Commission.
c. Shall, if the registrar so directs, within 30 days of receipt of such direction, change its name with
approval of the registrar.
d. Shall, if the registrar so directs, within 60 days of receipt of such direction, change its name with
approval of the registrar. (01)
6. Evo Limited, having financial year end on 30 September each year, was incorporated on 11 November 2022
and 1st AGM was held on 30 November 2023. Now company secretary is planning the next Annual general
meeting of company. What is the latest date for holding 2nd annual general meeting of SL:
a. 28 January 2024
b. 31 December 2024
c. 30 November 2024
d. 31 January 2025 (01)
7. Under the provisions of the Companies Act, 2017, which of the following transactions falls under the
definition of related party transaction?
a. Entity A has extended Rs. 20 million loan to Entity B. One of the directors of Entity A is the friend of
Entity B’s CFO.
b. Entity C has supplied raw materials amounting to Rs. 50 million to Entity D. The CEOs of both the
entities are childhood friends.
c. Ahmed, a director in Entity E, has recently been elected as a director in Entity F, a subsidiary
company of Entity G. Entity G is providing machine maintenance services to Entity E for the last
many years.
d. Entity H and Entity J entered into a consultancy agreement. Azam Khan is the son of Entity H’s CEO
and son-in-law of Entity J’s CEO. (1.5)
8. Science Research Centre was registered under section 42 of Companies Act, 2017. On November 01, 2020,
licence of Science Research Centre was revoked by Commission due to non-compliance with licensing
requirements. On 30 November 2020, all assets of the company were transferred to Alif Associates, another
company registered under section 42. Directors of Science Research Centre shall not hold office in Alif
Associates till:
a. 30 December 2020
b. 29 November 2025
c. 31 January 2025
d. 31 January 2026 (01)
9. MNC Limited is a public listed company. Federal govt owns 54% voting power in MNC Limited while
Buzdaar family owns 12% shares in company. Which of the following can not be appointed as independent
director of MNC Limited:
a. Mr. Armaan whose name is included in list of independent directors was employee of MNC Limited
and resigned in 2019.
b. Miss. Roshail is an experienced lawyer having 15 years of experience and her name is also included
in panel of independent directors.
c. Mr. Zaman was employee of MNC Limited and resigned in 2018 and receiving retirement benefits
from MNC Limited.
d. Mr. Zameer is employee of Cambridge Bank owned by Federal Govt. (1.5)
10. The board of directors of Ubaid Limited, a listed company, intends to issue prospectus for offer of securities to
public. The proposed date for publication of prospectus is 25 February 2021. Last date for submission of
prospectus to Commission for approval is:
a. 10 February 2021
b. 15 February 2021
c. 4 February 2021
d. 8 February 2021 (01)
11. Every listed company shall ensure that book closure must be started for determination of interim dividend
entitlement:
a. Within 10 days of the date on which such dividend is approved by the board.
b. Within 15 days of the date on which such dividend is approved by the members.
c. Within 15 days of the date on which such dividend is approved by the board.
d. Within 15 days of the date on which such dividend is proposed by the board. (01)
12. A charge was created in Canada on the property situated in Canada belonging to AVN Limited on 30 June
2021. The documents posted from Canada to Pakistan take 3 days in ordinary course of post. What is the latest
date by which such charge must be registered?
a. 30 July 2021
b. 2 August 2021
c. 8 August 2021
d. 15 August 2021 (01)
Q.2
Hibiscus Limited (HL), incorporated on 10 July 2017, is a listed entity engaged in the business of information
technology. Abid was appointed as HL’s company secretary on 31 May 2021. He is planning to arrange the next board
meeting(s) and shareholders’ general meeting(s) to discuss annual financial statements for the year ending 30 June
2021 and other matters. He obtained the following information from HL’s records:
• The first annual general meeting (AGM) of HL was held on 31 August 2018, where seven directors were also
elected. Subsequent AGMs were held on 26 August 2019 and 21 August 2020 respectively.
• Since incorporation, HL announced a final dividend of 10% each year.
• During the year, there have been no changes in HL’s share capital, memorandum of association or articles of
association.
Required:
a. Advise, with justification, the most efficient timelines for holding the meetings of the board and the
shareholders. (05)
b. Prepare a list covering statutory communications, submissions and filings mandatorily required to be made
before and after the respective meetings along with time frame(s). (08)
Q.3
a. The board of directors of Patel Limited (PL), a listed company, has decided in its recent meeting to Sell-off
entire investment in Agha Limited (AL), one of PL’s most profitable associated companies, at a premium of
30% above market value. For the last five years, AL has consistently been contributing 80% of PL’s total
income.
Required:
In the light of Companies Act, 2017 comment whether the directors are exclusively entitled to take the above
strategic decision. Also, briefly describe further approvals or requirements, if any, attached to this decision.
(05)
b. Securities and Exchange Commission of Pakistan revoked the license of Panipuri sports club, an association
not for profit registered under Companies Act 2017, due to default in filing its financial statements with
registrar for two consecutive financial years. Under the provisions of Companies Act 2017, discuss what
would be the effect of revocation of license on Panipuri Sports Club. (06)
Q.4
Gandhara Limited (GL) has obtained short-term financing of Rs. 500 million from Emirates Bank Limited (EBL) and
Rs. 50 million running finance from Sindh Bank Limited (SBL). The loan from Emirates Bank Limited is secured by
way of the first pari passu hypothecation charge on the stocks and moveable assets of the Company while the loan
from Sindh Bank Limited is secured against a promissory note issued by the company. The Company Secretary of GL
forgot to file the required forms and Hypothecation Agreement with the registrar for registering the above charges
within the time allowed under the law. The banks, after becoming aware of this fact, approached GL and asked for
repayment of the loan in full within 30 days of serving the notice. The banks are of the view that the charge is
defective and is of no use because it is not registered with the Registrar within prescribed timelines.
Required:
Advise the management of GL, the most suitable action which they can take in the above-mentioned scenario, keeping
in view the provisions of the Companies Act, 2017. (10)
Q.5
Crimson Investments Limited (CIL) is a public unlisted company. It has a paid-up share capital of Rs. 600 million
comprising 60 million shares of Rs. 10 each. On 30 June 2021, Zahid Abbas and Shahid Malik were elected as
directors by securing 40 million and 30 million votes respectively whereas the remaining seven directors were elected
each by securing 50 million votes. After election, Zahid Abbas was appointed as CEO. On 31 August 2021, Zahid
Abbas resigned from the board and Benjamin Brady, a foreign national, was appointed as CEO and director in his
place. As Benjamin had to relocate to Pakistan for his role as CEO, CIL’s board agreed to insert a clause in his
appointment letter prohibiting his termination before expiry of the contract term. On 4 December 2021, Shahid Malik
resigned from the board due to serious illness and his position is still vacant. Benjamin has not been able to achieve
the performance benchmarks and CIL reported net losses for two consecutive years. Further, there is news circulating
in the market that he has grossly misused his position by sharing price sensitive information with unauthorized
persons.
Required:
Discuss how Benjamin Brady may immediately be removed from CIL. (05)
Q.6
Comment on following separate situations:
a. Crown Limited, a listed company, is finalizing its accounts for the year ending 30 September 2023. The
company secretary applied to the registrar for extension as accounts were due to be presented to members in
AGM not later than 31 January 2024. (02)
b. Directors of Stage private Limited approved financial statements for the year ending 30 October 2023 and
proposed a 5% dividend. The annual general meeting was held on 15 January 2024 in which accounts were
presented to members. Mr. Irfan a shareholder of 10 % shares proposed 20% dividend and members approved
his proposal. 5% dividend was paid on 20 February 2024 while the remaining is still payable. (03)
c. Mr. Umer subscribed to a memorandum for registration of a company “Umer Limited”. Mr. Ubaid, who is the
brother of Mr. Umer is also desirous to become a member of Umer Limited. How he can become a member of
company. (04)
Q.7
Qazi Fazal is the director of Aitmad Limited (AL) and Sukoon Limited (SL). Both companies are listed on Pakistan
Stock Exchange Limited and have paid-up share capital of Rs. 500 million and Rs. 800 million respectively. AL’s
board of directors in its meeting held on 2 December 2021 has taken following decisions:
• To make an investment of Rs. 150 million in SL by purchasing 15 million shares of Rs. 10 each from its
sponsors.
• To give loan to SL amounting to Rs. 100 million for expansion of SL.
Required:
You are required to describe the conditions which AL must fulfil before making the above investments in SL. (07)
Q.8
a. Mr. Rizwan is an experienced lawyer and wants to add his name to the panel of official liquidators. You are
required to describe the eligibility criteria for this purpose and any restriction on appointment of official
liquidator. (03)
b. Members of Wisdom Limited (WL), a public unlisted company, passed a resolution to wind up the company
by court on 07 August 2022. The petition for winding up was filled on 14 August 2022. Court appointed Mr.
Emaandar as official liquidator.
i. When the proceedings of winding up shall commence? (01)
ii. Mr. Emmandar has to file a report with the court and for this purpose he needs a statement of affairs.
You are required to list the information which shall be included in statement of affairs and from whom
such statement may be required by Mr. Emaandar. (10)
iii. Mr. Maaldar, a creditor of WL, is not happy on the appointment of Mr. Emmandar as official
liquidator and wants to appoint Mr. Jaandar as official liquidator but his name is not included in the
panel. What course of action is available to Mr. Maaldar. (03)
Q.9
Mr. Hanan recently joined a corporate consultancy firm which has many private and public sector clients. You are
required to advise him on following:
a. What information is generally included in the annual return of a company. (02)
b. At which date the annual return is prepared and time limit for filling of annual return. (03)
c. Any exceptions about the filling requirement of annual return. (03)
Q.10
Khatoon Limited (KL), a listed company, has two classes of ordinary shares i.e. Class A and Class B. Both classes
have the same voting rights. The directors intend to restrict voting rights of class B ordinary shares. Currently KL’s
memorandum and articles of association do not contain such restrictions. Some shareholders of Class B ordinary
shares do not agree with such change.
Required:
Advise shareholders about the course of action they should take in this case if they do not agree to such restrictions on
voting rights. (05)
THE END
A-1
1. A
2. B
3. B
4. A
5. C
6. B
7. C
8. B
9. D
10. C
11. C
12. B
A-2
a) Most efficient timelines for holding meetings of the board and shareholders:
 In order to be most efficient, HL should plan to hold Annual General Meeting

(AGM) on 31 August 2021 in which HL can also hold election of its directors
whose term of three years’ office will be expired on that date.
 HL should hold its board meeting (or through circular resolution) to get
approval of agenda for AGM and fix the number of directors for the next term.
Since the fixation of directors should be done at least 35 days before the date
of elections, the board meeting should be held on or before 26 July 2021.
 If HL could not hold its AGM on that date then it shall have to call an EOGM
to conduct the elections on 31 August 2021 and then will have to hold its AGM
separately for the purpose of adoption of annual financial statements and other
matters latest by 28 October 2021 (i.e. within 120 days of close of financial
year).
 In this case, HL shall also have to hold separate board meetings for the purpose
of election as discussed above by 26 July 2021 and for AGM by 6 October
2021.
b)
 Furnish copy of draft minutes of the board meeting to directors within 14 days.
 Send notice of AGM along with proxy form and draft resolution in case of
special resolution (if any) to the members, directors, auditors, Commission,
PSX, and any person entitled to a share in consequence of the death /
bankruptcy of a member where HL has been notified of his entitlement, 21
days before AGM. Also publish notice of AGM in newspapers.
 Send audited financial statements along with auditors’/ directors’/ chairman’s
review report in the manner stated above and post the same on HL’s website.
Further, send by post three copies and also an electronic copy to PSX,
Commission and registrar.
 Transmit the notices received from members seeking to contest election to the
office of director to all the members 7 days before AGM and publish the same
in newspapers.
 File the consent in writing from proposed directors with the registrar within 15
days of receipt of consent.
 Where special resolution has been passed in AGM, the same shall be filed with
registrar within 15 days of the meeting.
 File a copy of duly signed financial statements and reports with the registrar
within 30 days of AGM in which audited financial statements were adopted.
 File annual return with registrar within 30 days from AGM.
A-3
a) For selling investment in AL, consent of members in the general meeting is needed
either specifically or by way of an authorisation, since:
• AL is an undertaking which generates more than 20% of PL’s total income during
the previous financial year.
• PL’s main business does not comprise of selling such undertakings.
Secondly, any resolution passed in this regard, if not implemented within one year from
the date of passing, shall stand lapsed.
Thirdly, since PL is a listed company and disposing of AL may lead to drastic decline in
PL’s business operations, risking PL’s own existence, there needs to be a viable alternate
business plan duly authenticated by the board.
b) On revocation of licence of Panipuri Sports, by the Commission (SECP) —
 Panipuri Sports shall stop all its activities except the recovery of money owed to it; (01)
 Panipuri Sports shall not solicit or receive donations from any source; and (01)
 all the assets of the Panipuri Club (after satisfaction of all debts and liabilities) shall, with
90 days of revocation, be transferred to another company licenced under section 42,
preferably having similar or identical objects to those of the company. (02)
The members and officers of Panipuri Sports or any of their family members shall not be
eligible to hold any office in the later company for a period of five years from the date of
transfer of such assets. (1)
Provided that a reasonable amount to meet the expenses of voluntary winding up or making
an application to the registrar for striking the name of Panipuri Sports off the register, may be
retained by the company. (1)
A-4
Loan from EBL:
 Ghareeb Limited (GL) or EBL being an interested party may apply to Commission to grant
relief in case of omission to file with the registrar the particulars of any mortgage or charge
or any modification therein within the time.
 The Commission shall grant relief on being satisfied that the omission
a) was accidental or due to inadvertence or to some other sufficient cause, or
b) is not of a nature to prejudice the position of creditors or shareholders of the
company, or
c) on other grounds it is just and equitable.
 The Commission, on such terms and conditions as seem to the Commission just and
expedient, may order:
a) that the time for filing the required particulars be extended; or
b) that the omission or misstatement be rectified; and
c) as to the costs of the application as it thinks fit.
 A copy of the order passed for rectification of register of mortgages duly certified by the
Commission or its authorised officer shall be forwarded to the concerned registrar within
7 days from the date of the order.
 Where the Commission extends the time for the registration of a mortgage or charge, the
order shall not prejudice any rights acquired in respect of the property concerned prior to
the time when the mortgage or charge is actually registered.
Loan from SBL:

Loan from SBL is secured against issuance of negotiable instrument which is not required to
be registered under the provisions of Companies Act, 2017.
A-5
Benjamin Brady may immediately be removed from Crimson Investments Limited (CIL) from
the position of CEO, notwithstanding anything contained in his appointment letter prohibiting
his termination before expiry of the contract term, on following grounds:
i) By the board of CIL through resolution passed by 6 or more directors (i.e. 3/4th of
total number of directors for time being), on any basis over which such number of
directors agree.
Board of CIL shall immediately after passing the above resolution inform the
Commission along with reasons for the same.
ii) By the members of CIL through special resolution, on any basis over which such
number of members agree.
Benjamin Brady was also an appointed director of CIL, therefore, in (i) above, a
resolution shall also have to be passed in general meeting to remove him from the
position of director. However, the said resolution and the special resolution
mentioned in (ii) above shall not be deemed to have been passed if number of votes
cast against such resolution is equal to or exceeds 67.5 million votes (60 million
shares × 9 directors = 540 million votes ÷ 8 directors).
A-6
i) Company secretary applied to registrar for extension but Crown Limited being a listed
company was required to apply to SECP for extension.
ii) Proposal by Mr. Irfan was not according to provisions of law as members are not
authorized to enhance the dividend proposed by directors. Further, dividend was due
to be paid within 30 days of meeting which in this case was 15 February.
iii) “The subscribers to the memorandum of association are deemed to have agreed to
become members of the company and become members on its registration and every
other person:
a) to whom is allotted, or who becomes the holder of any class or kind of shares; or
b) in relation to a company not having a share capital, any person who has agreed to
become a member of the company;
and whose names are entered; in the register of members, are members of the company.”
So, Mr. Ubaid can become member of company in any of the above manner.
A-7
 SL and AL are associated companies due to common directorship of Mr. Nadeem Ghazi.
 AL shall not make any investment in its associated company:
 Except under the authority of a special resolution which shall indicate the nature, period
and amount of investment and terms and conditions attached thereto.
 The company shall invest in its associated company by way of loans or advances in
accordance with an agreement in writing and such agreement shall inter-alia include:
1. nature of loan;
2. purpose of loan;
3. period of the loan;
4. rate of return;
5. fees or commission;
6. repayment schedule for principal and return
7. penalty clause in case of default or late repayments; and
8. security, if any, for the loan
 provided that the return on the loan of Rs. 100 million shall not be less than the higher of
borrowing cost of investing company (AL) or such other rate as the commission may
specify and shall be recovered on regular basis in accordance with the terms of the
agreement, failing which the directors shall be personally liable to make the payment
 The directors of AL shall certify that the investment is made after due diligence and
financial health of the borrowing company is such that it has the ability to repay the loan
as per the agreement.
A-8
i) The panel shall consist of persons having at least 10 years’ experience in the field of
accounting, finance or law and as may be specified by the Commission such other persons,
having at least 10 years’ professional experience.
The person appointed on the panel shall be subject to such code of conduct and comply
with the requirement of any professional accreditation programs as may be specified by the
Commission.
Restriction on appointment
A person shall not be appointed as provisional manager or official liquidator of more than
3 companies at one point of time.
ii) Contents of statement of affairs:

Following details shall be elaborated in statement of affairs:
a) particulars of the company’s assets, debts and liabilities;
b) the detail of cash balance in hand and at the bank;
c) the names and addresses of the company’s creditors stating separately the amount of
secured debts and unsecured debts, and, in the case of secured debts, particulars of the
securities given, their value and the dates when they were given.
d) the names, residential addresses and occupations of the persons from whom debts of the
company are due and the amount likely to be realised therefrom;
e) where any property of the company is not in its custody or possession, the place where
and the person in whose custody or possession such property is;
f) full address of the places where the business of the company was conducted during the
180 days preceding the relevant date and the names and particulars of the persons-in-
charge of the same;
g) details of any pending suits or proceedings in which the company is a party; and
h) such other particulars as may be prescribed or as the Court may order or the provisional
manager or official liquidator may require in writing, including any information relating
to secret reserves and personal assets of directors.
Duty of Submission:
The statement of affairs shall be submitted and verified by persons who are at the relevant
date the directors, chief executive, chief financial officer and secretary of the company.
Mr. Emaandar, subject to the direction of the Court, may also require to make and submit to
him a statement in the prescribed form as to the affairs of the company by some or all of the
persons:
a) who have been directors, chief executives, chief financial officer, secretary or other
officers of the company within one year from the relevant date;
b) who have taken part in the formation of the company at any time within one year before
the relevant date;
c) who are in the employment of the company, or have been in the employment of the
company within the said year, and are in the opinion of the official liquidator or
provisional manager capable of giving the information required and to whom the
statement relates.
iii) The Court may, on the application of creditors to whom amounts not less than 60% of
the issued share-capital of the company being wound up are due, after notice to the
registrar, appoint a person whose name does not appear on the panel maintained for
the purpose, to be the official liquidator. If Mr. Maaldar fulfils the above criteria he
can apply to court for appointment of Mr. Jaandar as official liquidator.
A-9
a) Annual Return is a snapshot of general information about a company as on a specific date,
giving details of its chief executive, directors, chief financial officer, secretary, legal adviser
and auditors, registered office address, members and share capital.
b) The annual return is prepared as on the date of the annual general meeting or, where no
such meeting is held or if held is not concluded, on the last day of the calendar year.
The annual return shall be filed with the registrar within 30 days from the date of annual
return. However, in the case of a listed company, the registrar may for special reasons
extend the period of filing of such return by a period not exceeding 15 days.
c) The requirement of annual retuen shall not apply to following companies, in case there is
no change of particulars in the last annual return filed with the registrar:
 A single member company.
 A private company having paid up capital of not more than Rs. 3 million.
All other companies shall inform the registrar in a specified manner that there is no change
of particulars in the last annual return filed with the registrar.
A-10
Any member or members of affected class representing at least 10% shareholding of that
class who are aggrieved by the variation of their rights may, within 30 days of the date of
the resolution varying their rights, apply to the Court for an order cancelling the resolution.
The application may be made on behalf of the shareholders entitled to make it by such one
or moreof their number as they may authorise in writing in this behalf.
The court has got the powers to declare the resolution null and void if it feels that either:
• the company withheld certain facts while getting the resolution passed, had the
members been in knowledge of those facts, they would not have passed the
resolution varying the rights of a particular class; or
• the variation is otherwise prejudicial to the interest of members.
February 22, 2024
Audit and Assurance

(i) Answer all SEVEN questions.
Q.1 (a)You are a partner in a firm of chartered accountants. Your firm has recently been approached by following
clients for the appointment as external auditors for the year ended December 31, 2023.
i. Ballot Mining Ltd. (BML) is engaged in the mining of barite deposits in Baluchistan, along with its
associate, Paper Mines Ltd. (PML). The mining industry is strictly regulated through local laws and
applicable reporting standards. If this appointment is accepted, BML would be the firm’s first client in
the mining sector. While evaluating client acceptance, you came to know that the owners of BML have
strong political connections and, a few years back, were investigated by authorities due to their alleged
involvement in operating an offshore company. While you were discussing this matter with one of your
partners in the firm, he informed you about his wife's shareholding in PML, which she purchased two
years ago. (04)
ii. Voter Limited (VL) deals in the manufacturing of hiking equipment. One of your partners, Ali Kaleem,
was an employee of one of the directors of VL (Salman Sheikh) in his consultancy business. Later, that
employment changed to a partnership between Ali Kaleem and Salman Sheikh due to the successful
running of the consultancy business. Six years ago, the partnership was dissolved, and Mr. Ali Kaleem
was employed in VL. He left his employment four years ago and started his auditing practice. Further,
the CEO of VL shows interest in implementing a supply chain management system and requested your
firm to handle all matters from the selection of software to implementation. You discussed this prospect
with your partner who knows some renowned vendors for such software. Your partner also suggested
receiving a commission relating to the procurement of software. (08)
Required:
Comment on each of the above independent situations with reference to the Companies Act 2017 and ICAP
code of ethics.
(b) You are the ethics partner in a firm of chartered accountants. You have received the following information
from the audit partner, seeking advice on accepting a prospective client:
“I have been in negotiation with the CEO of Commission (Private) Limited (CPL) about providing multiple
services for the year ending 31 December 2024. CPL, a family managed enterprise, has been in the
confectionary business since 1995. Currently, it is being audited by another firm. CPL’s owners highly value
the impactful management consultancy services our firm provides. They are eager to engage our consultancy
expertise to revitalize their marketing and sales department. They believe that there has been a lack of
evolution in their marketing strategies and sales promotion over the years. They hope that our consultancy
services can guide them out of this financial challenge. Since our firm also offers audit services, they are
interested in hiring us for both services. However, their primary interest lies in leveraging our management
consultancy to drive transformative changes.”
Required:
Advise audit partner regarding the acceptance of CPL’s offer in the light of code of ethics. (08)
Q.2 Your firm is the auditor of Electoral Highland Limited (EHL) for the year ended 30 November 2023. EHL
operates two hotel chains namely, Alpine and Serenity. Alpine is the oldest brand, established by EHL itself.
Regards:Serenity
Saboor brandAhmad, Senior
was acquired Tax 2023
in February Advisor - BDO
by EHL, Riyadh
marking strategicKSA (0302-9114479)
expansion into the Northern areas of
Audit and Assurance| Page 2 of 4
Pakistan. This acquisition included three hotels, all part of the Serenity brand, which are upscale resorts with
high-end designs. EHL spent a total of Rs. 5,000 million on this transaction. This amount has been recorded in
the company's fixed assets and allocated across various assets, including land, buildings, and equipment.
The following are the extracts from the financial statements of EHL:
Statement of financial position 2023 2022

------- Rs. in million -------
Non-current assets:
Property, plant, and equipment 8,803 3,778
Intangible assets 426 335
Statement of profit or loss 2023 2022

------- Rs. in million -------
Revenue:
Room rent 1,523 898
Food and beverages 137 96
Others 607 82
Total revenue 2,267 1,076
i. Serenity operates on an 'all-inclusive' basis, allowing guests unrestricted access to food and beverages,
various activities, and all hotel amenities included in the price of their stay. On the other hand, EHL’s
other hotels generate revenue through room rent, food and beverages, and other revenue such as hall
rent, car hire, laundry services and health club services.
ii. EHL collaborates with travel agencies, online hotel booking platforms, and utilizes its own website for
hotel reservations. Room rent from bookings made through travel agencies and hotel booking platforms
is transferred to EHL after the guest’s stay, with the agreed commission deducted.
iii. To further attract foreign customers, EHL has recently registered its properties on stay.com, a platform
that allows hotel bookings through debit cards, credit cards, bank transfers, and cryptocurrency
payments. Stay.com has experienced a significant increase in hotel bookings compared to other websites.
It offers hotels the option to receive payments via bank transfers, which is subject to higher fees, or in
cryptocurrency.
iv. To expand its consumer base, EHL has actively engaged with various social media platforms. It provides
complimentary stays to travel bloggers, journalists, or social media influencers in exchange for publicity
on their platforms. In a similar manner, EHL often provides its empty halls for media events without any
cost, in exchange for EHL's promotion during the event.
v. EHL completed the construction of a new hotel in Karachi in February 2023. However, it faced
challenges in commencing operations due to the complaints from the local community about increased
commercial activity in the area. These complaints led to a legal issue, which was resolved in favor of the
community. Consequently, EHL has repurposed the building as a warehouse for inventory storage,
addressing the community’s concerns.
Required:
Discuss the audit risks that exist in the above scenario. (16)
Q.3 You are the audit partner of a Chartered Accountants firm. The following significant matter have arisen at Box
Limited (BL) clients of your firm, where the audit field work for the year ended 31 March 2023 has been
completed:
BL has financing arrangements that are set to expire and outstanding amounts are payable on 19 June 2023.
However, BL’s management has not made any assessment regarding how the company would manage without
these financing arrangements. Further, no disclosures have been made regarding the uncertainty that may arise
from this situation.
Required:
Evaluate the above matter and advise the course of action. Also suggest the implications, if any, for the audit
report. (Audit procedures are not required) (10)
Q.4 You are an audit manager. Described below are situations which have arisen at two unrelated external audit
clients of your firm. In each case, the issues relate to the audits of the financial statements for the year ended
30 September 2023. Assume the date is 4 December 2023.
A. Voter Suppression Limited (VSL)
VSL, a listed company, provides health and fitness solutions to help customers meet diet and exercise goals. In
August 2023, VSL launched a new fitness app ‘Flexify’ which gathers information about customer’s diet and
exercise activities and allows customers to scan barcodes of food items. Flexify then uses a proprietary AI
algorithm to make personalized diet and exercise recommendations. The development of Flexify was highly
complex and the total cost of development was Rs. 6.3 million. The recognition of Flexify as an intangible
asset involved high costs and significant judgments made by management.
During the year ended 30 September 2023, VSL capitalized costs for several other interactive fitness apps
which are in the development stage. You have concluded that Rs. 580,000 of the costs should have been
charged as expenses. The directors do not plan to make any adjustments in respect of this matter. The draft
financial statements for the year ended 30 September 2023 show profit before tax of Rs. 10.2 million.
Required:
i. Identify the factors that should have been considered when allocating staff to the audit team and explain
why each factor is important. (05)
ii. State, with reasons, the implications for the auditor’s report. (05)
B. Mandate Limited (ML)

ML operates 50 restaurants across the country. ML has struggled to make profits in recent years due to difficult
economic conditions. ML is no longer able to afford the rental costs of its restaurants and the directors intend
to liquidate the company.
The draft financial statements of ML have been prepared on an alternative basis called break-up basis of
accounting. You are satisfied that it is not appropriate to prepare the financial statements on the going concern
basis of accounting. Appropriate disclosures have been made in the notes to the draft financial statements. The
directors have not yet informed all the shareholders or suppliers of ML of their intention to liquidate the
company.
Required:
State, with reasons, the implications for your firm’s auditor’s report. (03)
Q.5 Your firm is the external auditor of ECP Limited (ECPL). You are the audit senior responsible for the final
audit of the financial statements of ECPL for the year ended 31 December 2022. On the audit file, you find a
copy of the following draft inventory count instructions for the inventory count that took place on 1 January
2023, which the previous audit senior attended. There is a note in the audit file that ECPL agreed to amend
certain inventory count instructions however there is no copy on the audit file.
Inventory count instructions (DRAFT)
i. Staff should arrive promptly at 9am on 1 January 2023 for a briefing.
ii. The inventory count will be conducted by teams of two: one finance team member and one warehouse
employee. The teams will be supervised by the warehouse manager.
iii. Inventory count teams will be provided with sequentially pre-numbered count sheets for all inventory
lines extracted from the inventory management system. The count sheets will include the expected
quantity of items and a box for recording actual quantities counted. Items are stored on shelves with the
product name, code, and a photo. Staff should work through the count sheets in sequential order. One
inventory count team member will count and the other will record the quantities called out on the count
sheet. The warehouse manager will direct the external auditor to perform test counts on a sample of
items to provide a double check.
iv. Damaged or opened returned items should be included in count totals and noted down in the box
provided on the count sheet for further investigation.
v. Dispatches and deliveries of components and finished goods will be stopped at 10am until after the
inventory count is complete. There will be no work in progress items to count as production will be
stopped on 23 December 2022 until 2 January 2023.
vi. Completed count sheets will be collected by the warehouse manager every 30 minutes. The quantities
provided will be updated on the inventory management system by the warehouse manager as the count
progresses, and any anomalies investigated before the inventory count is completed.
vii. At the end of the inventory count, the completeness of the sequencing of the count sheet numbers will be
checked by the warehouse manager in front of the external auditor and a photocopy made and provided
to the external auditor at the same time.
Required:
Identify any six deficiencies by explaining why there was a deficiency in the draft inventory count instructions
and outline appropriate solutions that should have been implemented before the inventory count took place.
(12)
Q.6 You are working as audit senior of Zaiqa Limited (ZL) which operates a chain of restaurants located in
shopping malls of Lahore. ZL operates a discount voucher scheme for customers in the city. Vouchers are
printed in the local newspaper and customers present the discount voucher on payment, reducing the final price
of their meal by 5%. During discussions with the restaurant manager, you identified several internal control
deficiencies in respect of the discount voucher scheme. After entering the full price of a meal into the cash till,
staff members manually calculate and separately enter the 5% discount to give the final price of the customer’s
meal. Any member of staff may deduct a discount from a sale entered the till without authorization. There is no
daily reconciliation between discounts deducted on the cash till and physical discount vouchers presented as
the vouchers are discarded by restaurant staff on presentation by the customer.
Required:
Discuss the four possible consequences of internal control deficiencies and provide appropriate
recommendations. (08)
Q.7
a. You are working as audit manager. The management of one of audit client has refused to provide your
firm with written representations regarding its responsibility for the preparation of the financial
statements or the completeness of recorded transactions and information provided during the audit.
Required:
Describe three confirmations relating to specific items in the financial statements that could be included in a
management representation letter and explain the implications of the above matter, if any, for the auditor’s
report. (06)
b. You required the services of an expert on one of your clients operating in the construction industry. Set
out procedures for the assessment of competence, capabilities, and objectivity of the expert. (05)
c. State five key substantive audit procedures for verification of Provisions. (05)
d. You are the manager responsible for the audit of Democracy Limited (DL) for the year ended 31
December 2023. Your audit team has informed you that DL is developing a new product ‘EVote’ which
would provide election results instantly. DL had capitalized material development costs during last year
based on meeting the criteria. However, review of board minutes revealed that DL is facing technical
problems that may delay the launch of ‘EVote’ till March 2025. The minutes further revealed that DL
may require to incur further material amount for the development of this project. This would result in an
increase in the selling price that was originally envisaged by DL.
DL’s management is of the view that they would overcome these technical problems without incurring
any additional cost and would launch ‘EVote’ as per the original plan.
Required:
State the audit procedures which may be performed in respect of the above audit issue. (05)
(THE END)
Audit & Assurance
Spring-24
Ans. 1 (a)
i. (4 Marks, 2 for companies act and 2 for code of ethics)
According to Companies Act 2017, appointed shall not be accepted if the person or his spouse
or minor children, or in case of a firm, all partners of such firm who hold any shares of an audit
client or any of its associated companies. However, if such a person holds shares prior to his
appointment as auditor, whether as an individual or a partner in a firm, the fact shall be disclosed
on his appointment as auditor and such person shall disinvest such shares within ninety days of
such appointment.
So, if the shareholding of wife of partner is disclosed at the appointment and disposed of within
ninety days of the appointment then offer for appointment as external auditor of BML can be
accepted.
However, auditor should also consider following as per code of ethics before accepting the
appointment:
▪ Determine whether acceptance would create any threats to compliance with the
fundamental principles. Potential threats to integrity or professional behavior may be
created from, for example, questionable issues associated with the client (its owners,
management, or activities), client involvement in illegal activities (such as money
laundering), dishonesty or questionable financial reporting practices.
▪ Consider whether the audit team will have sufficient knowledge of the applicable financial
reporting framework and the laws and regulation relating to the mining sector. A self-
interest threat to professional competence and due care is created if the engagement team
does not possess, or cannot acquire, the competencies necessary to properly carry out the
engagement.
▪ Obtain professional clearance letter from the predecessor auditor.
(8 Marks, 4 for companies act and 4 for code of ethics)
ii. According to the Companies Act 2017 a person shall not be appointed as auditor of a company
who is, or at any time during the preceding three years was, a director, other officer or employee
of the company. The partner left employment three years ago so your firm can be appointed as
external auditor of AL. Past employment or partnership with the director is irrelevant to
appointment as per Companies Act.
A self-interest threat to compliance with the principles of objectivity and professional
competence and due care is created if a chartered accountant pays or receives a referral fee or
receives a commission relating to a client. In the given scenario, commission can be obtained
subject to the following safeguards.
▪ Obtaining an advance agreement from the client for commission arrangements in
connection with the sale by another party of goods or services to the client might address a
self-interest threat.
▪ Disclosing to clients any referral fees or commission arrangements paid to, or received
from, another chartered accountant or third party for recommending services or products
might address a self-interest threat.
Audit & Assurance
Spring-24
Ans. 1 (b)
CPL appears more focused on our role as management consultant rather than auditors. The risk
here is that the client may not fully appreciate the distinct nature of assurance services,
perceiving them merely as an extension of our advisory roles. This could lead to confusion and
even conflict in the future. (2 Marks)
Before accepting an engagement to provide a non-assurance service to an audit client, it is
crucial for the firm to determine whether providing such a service might create a self-interest
threat and self-review threat to independence. However, the outcome of the service is unlikely
to affect the matters reflected in the financial statements on which the firm will express an
opinion as the firm will only be advising on marketing and product development. (2 Marks)
Additionally, it does not have any effect on the systems that generate information for the
preparation of financial information. Furthermore, providing advice and recommendations to
assist the management of an audit client in discharging its responsibilities does not equate to
assuming management responsibility. However, it is important that it is made clear to the
management that our role will be solely to provide advice and recommendations during the
management consultancy. We also need to make sure that we assign separate teams for both
assignments and ensure that there is no information sharing among them. (4 Marks)
Audit & Assurance
Spring-24
Ans. 2 (16 Marks Maximum)
i. Intangible asset (2 Marks)
EHL purchased a hotel brand by the name of Serenity for a total consideration of Rs. 5,000
million. EHL’s intangible assets have only increased by Rs. 91 million, therefore there is a risk
that EHL has not recorded an intangible asset related to the purchase of the Serenity brand.
Furthermore, there is a lot of judgment and complexity involved in assessing the value at which
the brand needs to be capitalized. This also leads to the risk of the determination of the useful
life of the brand as it would affect the amortization expense to be recorded in the financial
statements.
ii. Property plant and equipment (2 Marks)
There is a risk that incorrect amounts have been allocated within the categories of property
plant and equipment, as it requires judgment and estimation. The incorrect allocation of assets
and determination of useful life will also affect the depreciation expense. There is also a risk
that some administrative and other general overheads incurred during the negotiation of the
purchase may be part of the cost of the asset.
iii. Multiple revenue streams: (2 Marks)
EHL has multiple revenue streams each having a different time and point of revenue
recognition. Revenue is derived from various revenue streams, which my lead to revenue being
recognized both at a point in time and over multiple accounting periods. There is judgment
involved in determining the progress towards satisfaction of performance obligations which
may result in incorrect revenue recognition and its related asset/liability.
iv. Revenue allocation: (2 Marks)
The room rent charged at Serenity is on an “all-inclusive” basis which brings in further
complexity related to revenue recognition as the revenue collected needs to be apportioned
amongst room rent, food and beverage consumed by the guests, activity, and other charges. It
is inherently very complex as every stay will have a different proportion of all these services.
Another issue related to this sort of billing is the charge of sales and service tax, how it is
apportioned among each of the service and sale of goods so as to be compliant with the tax law.
Travel agents pay to EHL after netting off their commission, there is a risk that the revenue and
the commission expense are not separately reported in the financial statements.
v. Penalties, fines, and contingency: (2 Marks)
EHL has collaborated with stay.com for listing their properties online. Crypto payments are
considered illegal in Pakistan and any collaboration with the website might bring legal issues
which need to be looked into. There might be a risk that the government might initiate legal
proceedings against EHL which might not be disclosed as a contingency. Since the legal case
regarding the newly constructed hotel in Karachi was decided against EHL there is a risk that
any fine or penalty imposed by the court might not be recorded or disclosed by EHL.
vi. Accounting issues related to crypto receipts: (2 Marks)
If EHL accepts payments in crypto there would be accounting issues on how to classify it either
as inventory or as an intangible asset and the treating the resulting gain/loss.
vii. Marketing expenses: (2 Marks)
EHL has been offering free accommodations and halls for rent to social media influencers and
media events is in essence a barter transaction. There is a risk that EHL has not recorded these
Audit & Assurance
Spring-24
transactions or misclassified the revenue and expenses. EHL needs to separately record revenue
for the room and other services and record marketing expenses for the services received. There
is the complexity involved in determining at which value these are to be recorded either at the
fair value of the services received or the services given.
viii. Impairment of new hotel: (2 Marks)
There is a risk associated with the measurement of the new hotel recognized as property, plant
and equipment, as the asset could be impaired. This is currently not being used by EHL
according to its intended use, and there are indications that its recoverable value may be less
than its cost. There is a lot of judgment involved in determining the fair value of the asset and
its value in use.
ix. Foreign exchange risk: (2 Marks)
EHL also attracts foreign customers and the exchange gain or loss resulting from their
transactions may not be correctly recorded. There is a risk that EHL may not translate the
revenue from foreign customers at the exchange rate applicable at the date of their stay.
Audit & Assurance
Spring-24
Ans. 3
Evaluation of the matter and course of action
Expiration of financing arrangements and since the outstanding amounts are payable on 19 June
2023 this indicates a material uncertainty regarding the entity’s ability to continue as a going
concern which needs to be disclosed in the financial statements. There is an explicit requirement
for management to make a specific assessment of the entity’s ability to continue as a going
concern. It is the auditor’s responsibility to evaluate management’s assessment in this regard.
If management refuses to perform such an assessment of the entity, it constitutes a scope
limitation. (3 Marks)
We will ask the management and those charged with governance to make an assessment of the
entity’s ability to continue as a going concern and also disclose it in the notes to the financial
statements. (1 Mark)
Reporting implication
If adequate disclosure about a material uncertainty regarding the entity’s ability to continue as
a going concern is not made in the financial statements, the auditor shall express a qualified
opinion or an adverse opinion. In the Basis for Qualified or Adverse Opinion section of the
auditor’s report, the auditor should state that a material uncertainty exists that may cast
significant doubt on the entity’s ability to continue as a going concern and that the financial
statements do not adequately disclose this matter. (2 Marks)
If management is not willing to carry out an assessment of an entity’s ability to continue as a
going concern, a qualified opinion or a disclaimer of opinion in the auditor’s report may be
appropriate. This is because the auditor may not be able to obtain sufficient appropriate audit
evidence regarding management’s use of the going concern basis of accounting in the
preparation of the financial statements. In such cases, the auditor should include in the Basis
for Opinion section the reasons for the inability to obtain sufficient appropriate audit evidence.
(2 Marks)
In case the management has performed an assessment of the entity’s ability to continue as a
going concern and has also made appropriate disclosures, then the auditor will include a
paragraph related to material uncertainty related to going concern in audit report. (2 Marks)
Audit & Assurance
Spring-24
Ans. 4a (i)
Factors that should have been considered: (5 Marks total, 1 mark for each factor and why the factor is important)
Factors Why the factor is important
Experience auditing a listed client. There are additional reporting requirements.
Experience auditing clients in the health and To ensure that work is performed to a high
fitness industry. standard.
Experience auditing development costs. Due to complex accounting.
Availability of firm’s resources, e.g. staffing. To ensure the work is completed on time.
To discuss estimates and judgements with

Seniority of staff. management.
Availability of an engagement quality review This is required for a listed company in

partner. Pakistan.
Availability of an expert. To review the reasonableness of assumptions.
Any independence issues of audit team

members. To comply with the Ethical Standard.
Audit & Assurance
Spring-24
Ans. 4a (ii)
Implications for the auditor’s report (3 Marks)
Intangible assets are overstated, and expenses understated.
The error of Rs. 580k is 5.7% of PBT (Rs. 580k/Rs. 10,200k). The error of Rs. 580k is material.
There is a material misstatement of the financial statements. A modified opinion should be
issued.
The misstatement is not pervasive:
• the error is confined to specific elements, accounts or items in the financial statements
• a qualified opinion should be issued
• ‘except for the effects of the matter described in the Basis for Qualified Opinion section of
our report, the financial statements give a true and fair view…’.
A ‘Basis for Qualified Opinion’ section is added: (2 Marks)
• directly following the opinion section
• which describes and quantifies the effects of the issue (the misstatement of intangible assets
and receivables).
Furthermore, due to the complex nature of Flexify's development, the recognition of Flexify as an
intangible asset incurred substantial costs and required significant judgments from management, it
may be deemed a key audit matter to include in the report.
Audit & Assurance
Spring-24
Ans. 4b (iii) (3 Marks)
No material misstatement and no limitation on scope.
An unmodified opinion should be issued:
• As the issue is appropriately disclosed in the financial statements.
• ‘The financial statements give a true and fair view...’
Shareholders and suppliers are unaware of the intention to liquidate the company.
An emphasis of matter paragraph should be added:
• drawing users attention to matter disclosed in the financial statements
• as the matter is of such importance that it is fundamental to users’ understanding
of the financial statements
• as a separate section of the auditor’s report
• including a clear reference to the matter being emphasised
• to where relevant disclosures (that fully describe the matter) can be found
• referring only to information presented or disclosed in the financial statements
• indicating that the auditor’s opinion is not modified in respect of the matter
emphasised
• the auditor may consider it necessary to place the paragraph immediately following
the Basis for Opinion section to provide appropriate context to the auditor’s
opinion.
Do not include ‘Conclusions relating to going concern’ section of the auditor’s report.
Communicate the facts with those charged with governance.
Audit & Assurance
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Ans. 5 (1 Mark for each deficiency, explanation, and solution)
Deficiency Explanation of why a deficiency Practical solution(s)

The inventory count is The warehouse manager is supervising The inventory count should
supervised by the warehouse the checking of an area they are be supervised by a member
manager. normally responsible for (there is no of the finance team.
segregation of duty).
Inventory count sheets include Inventory count sheets
expected quantities of Count teams may accept the quantity
given rather than counting properly. should not include an
inventories. expected quantity.
Mark or label
Staff are only instructed to There is no control to ensure inventories inventories counted.
count inventories for for which there is no count sheet are Review other inventories
which there is a count included in the count so inventories may at the end of the count
sheet. missed. (or work through shelves
methodically).
Inventory quantities could be Both team members should
miscounted as there is no double count the inventories.
Only one team member checking.
counts the inventories. The quantity entered onto the
Figures could be manipulated and fraud sheet should be confirmed by
could be hidden by the warehouse the other team member.
member counting or writing.
The warehouse manager may
The warehouse manager deliberately avoid items where there The auditor should choose
wants to choose which items has been fraud or are obsolete. the sample items on which to
the auditor will test count. perform test counts.
The auditor must be independent of the
count and not be a part of it.
The count sheets go onto the system
immediately without further Damaged inventories should
Damaged inventories are investigation which could lead to
included in the count. be clearly marked or
overstatement if they need to be written separated.
down.
A staff member should follow

up on any items marked as
damaged or obsolete.
Despatches and deliveries Items could still be being processed as Despatches and deliveries
are stopped only at the the count teams commence their count should be stopped well
inventory count start time leading to incorrect quantities being before counting commences
(10am). recorded. to allow any despatches of
deliveries in progress to be
completed and recorded on the
inventory management system.
Hold deliveries in a separate
area.
Audit & Assurance
Spring-24
Work in progress is not Production may have stopped on 23 Work in progress should be
counted. December, however some items may not included in the inventory
have been fully completed. count.
The stage of completion
should be assessed and
recorded.
The warehouse manager The warehouse manager could alter or A non-warehouse member of
collects the inventory count manipulate figures to cover up fraud or staff (eg, a member of finance
sheets. error. staff) should collect the
sheets, update the system and
The quantities are updated on There is a lack of segregation of duty. flag anomalies.
the inventory management There is no check that quantities are
system by the warehouse The entries should be
updated correctly or anomalies
manager. checked by another person.
followed
up. A member of the audit team
should monitor the collection
of count sheets and take a
copy before the sheets are
reconciled to the system
(whether this happens during
or at the end of the inventory
count).
Audit & Assurance
Spring-24
Ans. 6 (1 Mark for each consequence and recommendation)
Consequences
i. The control deficiencies identified give rise to potential loss of revenue and profits, a negative
impact on cash flows of the restaurant and the risk of inaccurate recording of revenue.
ii. This arises from the opportunity for fraudulent conduct by staff through giving discounts when
no voucher is presented or entering discounts on the cash till but charging customers full price
and keeping the difference.
iii. The manual calculation of the discounts increases the risk of incorrect amounts being deducted
as discounts which could result in loss of customer goodwill if discounts given are too low.
iv. Fraud or error when recording discounts may go undetected as a result of not reconciling
discounts given with the vouchers presented each day.
Recommendations
i. The cash till should be programmed to automatically discount sales by 5% using a discount
button.
ii. The input of discounts into the till should be authorised by senior members of staff.
iii. The cash till should record the level of discounts entered and authorised by each member of
staff.
iv. Discount vouchers presented by customers should be kept in the till and reconciled daily to the
value of discounts recorded in the till.
v. The restaurant manager should review and sign the reconciliation.
vi. The restaurant manager should regularly review the level of discounts given by each member
of staff to identify any staff appearing to give excessive discounts.
vii. Staff should be trained in new procedures which should also be monitored for compliance.
Audit & Assurance
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Ans. 7 (i)
Specific Representations: (3 Marks)
▪ Inventory: valued at the lower of cost and net realisable value
▪ Trade receivables: stated at recoverable amounts
▪ Tangible assets: assumptions used in determining useful lives
▪ Related party transactions: fully disclosed in the financial statements
▪ Subsequent events to the date of audit report: disclosed in the notes to the financial statements
▪ Liabilities, actual or contingent: recognised or disclosed in the financial statements
Impact on report(3 Marks)
▪ The opinion should be modified due to the limitation on scope imposed by the directors, as the
auditor is unable to obtain sufficient appropriate evidence.
▪ The auditor is required to disclaim an opinion on the financial statements when the directors
refuse to provide representations regarding the fulfilment of their responsibilities in relation to
the preparation of the financial statements.
▪ The matter is material and pervasive as it could affect many items in the financial statements.
The auditor should specify in the opinion section of the report that “we do not express an
opinion”. There should be an explanation of the reasons for the disclaimer of opinion in the
“basis for disclaimer of opinion’’ section of the audit report.
Ans. 7 (ii) (5 Marks)

▪ Personal experience with previous work of that expert.
▪ Discussions with that expert.
▪ Discussions with other auditors or others who are familiar with that expert’s work.
▪ Knowledge of that expert’s qualifications, membership of a professional body or industry
association, license to practice, or other forms of external recognition.
▪ Published papers or books written by that expert.
Audit & Assurance
Spring-24
Ans. 7 (iii) (5 Marks)
Key substantive procedures for verification of provisions include the following:
▪ Ensure that all provisions have been recognized in accordance with the IAS 37.
▪ Review the measurement of the closing balance for each provision and discuss these with
management if appropriate. Consider whether it might be appropriate to take expert advice on
the existence or measurement of a provision.
▪ Review the board approval related to provisions booked in the financial statements.
▪ Review the list of provisions for possible omissions, based on the auditor’s knowledge of the
business and the industry in which it operates.
▪ Relate the testing of provisions to other areas of the audit work, such as correspondence with
lawyers/minutes of Board of director’s meeting (which might reveal more information about
matters to which the provisions relate).
▪ Compare provisions for the current financial year with provisions in previous years, and
investigate any major differences or omissions.
▪ Review the subsequent events to ensure completeness of provisions.
Ans. 7 (iv) (5 Marks)

Your team should first discuss with the management and those charged with governance to
evaluate the contradicting views obtained from the board minutes and the management’s
explanation.
▪ Consider whether DL would be able to arrange the additional funding requirements for
completion of the project.
▪ Ask management to provide the revised marketing plans to assess that whether a market at such
an increased price actually exists.
▪ Review revised projections, feasibility and forecasts for using resources and generating future
economic benefits.
▪ Obtain written representation from management as to their commitment to complete the project.
▪ Assess whether DL would be able to sell the EVote at an increased price.
(THE END)

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The Professionals’ Academy of Commerce

Pakistan’s Leading Accountancy Institute

Financial Accounting & Reporting 1

Following information relates to above operating cashflows:

6. Cash/Bonus dividends for last three years are as follows:

Rs. ‘000’ Rs. ‘000’

Cost Accumulated Depreciation

Payment date Rs. (000)

The cost of the plant was financed as follows:

Yellow Rose Limited

Fair value as at 1st July 2022 -

Calculation of Impairment Loss

Cost of Machine (400+70) 470 1.00

Less :Accumulated Depreciation [(470-20)x8/15] (240) 1.00

Less: Recoverable amount

Fair value less cost to sell -

Value in use w-1 204.22 3.00

Higher of Fair value and value in use (204.22)

Impairment loss 25.78 1.00

Journal Entry Rs. (m) Rs. (m)

w-1 Value in use

Average inventory 2160 Average inventory 1575

Inventory period =[2160*360/28500] 27.28 =[1575*360/21950] 25.83

(b) Receivable collection period

Average receivables 3100 Average receivables 1650

Annual credit sales =60500 x 80% 48400 Total sales 39600

Receivable period =[3100*360/48400] 23.06 =[1650*360/36000] 16.50

'(c ) Payable payment period

Average receivables 2100 Average receivables 2100

Annual Credit purchases Cost of sales 28500 Cost of sale 21950

Payable period =[2100*360/28980] 26.09 =[2100*360/21600] 35.00

(d) Working capital cycle Days Days

Purple Rose Limited Marking

Basic EPS = 24,000,000 w-1 2.38 Rs. /share 1.00

W-1 Earnings attributable to ordinary shareholders

31/5/23 Right issue (2/5) 3,200,000

TERP (5x42)+(2x35) 40.00 Rs./share

Share options 500,000 shares

Free Shares (50 - 45)

Convertible preferance shares

Incremental EPS = (50000x100)x10%

= 500,000 2.00 Rs./share 2nd 1.00

Incremental earings '=20000000 x 6% x 9/12 900,000

Weighted average shares '=20000000 x 2/100 x 9/12 300,000

Incremental EPS = 735,000

Diluted EPS Earnings Weighted EPS

Basic EPS 24,000,000 10,083,333 2.380 per share

Share options - 50,000

10% Convertible preference share 250,000 500,000

6% Convertible bonds 350,000 735,000

Orange Rose Limited

Plant (at cost) 80

(ii) Fair value Rs.(million)

Plant (At fair value) 60 0.50

Note: At fair value basis, disposal cost would not be deducted.

(iii) Value in use /(Present value)

Years Cash flows DF @12% Present value

(iv) Curent cost/Replacement cost Rs.(million)

Cost of new plant 95

Pink Rose Limited Marking

Statement of changes in equity Scheme

For the year ended December 31, 2023

Share Revaluation Retained

-------------------------------------------------------Rs. (000) -------------------------------------------------

Inventory period =[2160360/28500] 27.28 =[1575360/21950] 25.83

Receivable period =[3100360/48400] 23.06 =[1650360/36000] 16.50

Payable period =[2100360/28980] 26.09 =[2100360/21600] 35.00