CAF7-Financial Accounting and Reporting II - Questionbank
CAF7-Financial Accounting and Reporting II - Questionbank
CAF7-Financial Accounting and Reporting II - Questionbank
FINANCIAL ACCOUNTING
AND REPORTING II
QUESTION BANK
CAF-07
Question
P
ICAP
Bank
Financial accounting
and reporting II
Second edition published by
Emile Woolf Limited
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C
Financial accounting and reporting II
Contents
Page
Question and Answers Index v
Questions
Section A Questions 1
Answers
Section B Answers 93
I
Financial accounting and reporting II
2.1 LARRY 2 94
2.3 BARRY 4 97
Question Answer
page page
Question Answer
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Question Answer
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A
Financial accounting and reporting II
SECTION
Questions
2.1 LARRY
The trial balance of Larry at 31 December 2015 is as follows.
Rupees in million
Dr Cr
Administration charges 342
Bank account 89
Cash 2
Payables ledger 86
Accumulated amortisation on patents at 31 December 2015 5
Accumulated depreciation at 31 December 2015 918
Receivables ledger 189
Distribution expenses 175
Property, plant and equipment at cost 2,830
Interest received 20
Issued share capital 400
Loan 18
Patents at cost 26
Accumulated profits 1,562
Purchases 2,542
Sales 3,304
Inventories at 31 December 2014 118
6,313 6,313
The following information is also relevant.
(1) Inventories on 31 December 2015 amounted to Rs. 127 million.
(2) Current tax of Rs. 75 million is to be provided.
(3) The loan is repayable by equal annual instalments over three years.
Required
Prepare an statement of profit or loss (analysing expenses by function) for the year
ended 31 December 2015 and a statement of financial position as at that date.
2.3 BARRY
Barry has prepared the following draft financial statements for your review
Non-current liabilities
8% Debentures 2019 5,200
Total equity and liabilities 52,500
Additional information
1 Income tax of Rs. 2.1 million has yet to be provided for on profits for the
current year. An unpaid under-provision for the previous years liability of Rs.
400,000 has been identified on 5th September 2015 and has not been
reflected in the draft accounts.
2 There have been no additions to, or disposals of, non-current assets in the
year but the assets under construction have been completed in the year at an
additional cost of Rs. 50,000. These related to plant and machinery.
The cost and accumulated depreciation of non-current assets as at 1st
September 2014 were as follows:
Cost Depreciation
Rs. in 000 Rs. in 000
Freehold land and buildings 19,000 3,000
(land element Rs. 10 million)
Plant and machinery 20,100 4,000
Fixtures and fittings 10,000 3,700
Assets under construction 400 -
3 There was a revaluation of land and buildings during the year, creating the
revaluation surplus of Rs. 5 million (land element Rs. 1 million). The effect on
depreciation has been to increase the buildings charge by Rs. 300,000. Barry
adopts a policy of transferring the revaluation surplus included in equity to
retained earnings as it is realised.
4 Staff costs comprise 70% factory staff, 20% general office staff and 10%
goods delivery staff
5 An analysis of depreciation charge shows the following:
Rs. in
000
Buildings (50% production, 50% administration) 1,000
Plant and machinery 2,550
Fixtures and fittings (30% production, 70% administration) 700
Required
Prepare the following information in a form suitable for publication for Barrys
financial statements for the year ended 31st August 2015.
Statement of profit or loss
Statement of financial position
Reconciliation of opening and closing property, plant and equipment (25)
Required
Prepare the companys statement of profit or loss for the year to 31 March 2015 and
a statement of financial position as at that date in accordance with IAS 1. (18)
(4) The leasehold property has a 25-year life and is amortised at a straight-line
rate. On 30 September 2015 the leasehold property was re-valued to Rs. 220
million and the directors wish to incorporate this re-valuation in the financial
statements.
(5) The provision for income tax for the year ended 30 September 2015 has been
estimated at Rs. 18 million. At 30 September 2015 there are taxable
temporary differences of Rs. 92 million. The rate of income tax on profits is
25%.
Required
(a) Prepare an statement of profit or loss for Clifton Pharma Limited for the year to
30 September 2015 (8)
(b) Prepare a statement of financial position (balance sheet) for Clifton Pharma
Limited as at 30 September 2015 (17)
(25)
On 1 October 2014 an item of plant was disposed of for Rs. 25 million cash.
The proceeds have been treated as sales revenue by Sarhad Sugar Limited.
The plant is still included in the above trial balance figures at its cost of Rs. 8
million and accumulated depreciation of Rs. 4 million (to the date of disposal).
All plant is depreciated at 20% per annum using the reducing balance method.
Depreciation and amortisation of all non-current assets is charged to cost of
sales.
(ii) Non-current assets intangible:
In addition to the capitalised development expenditure (of Rs. 20 million),
further research and development costs were incurred on a new project which
commenced on 1 October 2014. The research stage of the new project lasted
until 31 December 2014 and incurred Rs. 14 million of costs. From that date
the project incurred development costs of Rs. 800,000 per month. On 1 April
2015 the directors became confident that the project would be successful and
yield a profit well in excess of its costs. The project is still in development at 30
September 2015.
Capitalised development expenditure is amortised at 20% per annum using
the straight-line method. All expensed research and development is charged
to cost of sales.
(iii) Sarhad Sugar Limited is being sued by a customer for Rs. 2 million for breach
of contract over a cancelled order. Sarhad Sugar Limited has obtained legal
opinion that there is a 20% chance that Sarhad Sugar Limited will lose the
case. Accordingly Sarhad Sugar Limited has provided Rs. 400,000 (Rs. 2
million x 20%) included in administrative expenses in respect of the claim. The
unrecoverable legal costs of defending the action are estimated at Rs.
100,000. These have not been provided for as the legal action will not go to
court until next year.
(iv) The directors have estimated the provision for income tax for the year ended
30 September 2015 at Rs. 114 million. The required deferred tax provision at
30 September 2015 is Rs. 6 million.
Required
(a) Prepare the statement of profit or loss for the year ended 30 September 2015.
(10)
(b) Prepare the statement of financial position as at 30 September 2015. (10)
Note: notes to the financial statements are not required. (20)
Additional Information
(i) The first revaluation of freehold land was carried out in 2011 and resulted
in a surplus of Rs. 120 million. The valuation was carried out under market
value basis by an independent valuer, Mr. Dee, Chartered Civil Engineer of
M/s SSS Consultants (Pvt.) Ltd., Islamabad.
(ii) The details relating to additions, disposal and depreciation/amortization of
fixed assets, during the year 2015 are given below:
The company uses the straight line method for charging depreciation
and amortization. The building is depreciated at a rate of 5% whereas
10% is charged on machines, furniture and fixtures and computer
software.
Construction on third floor of the building commenced on March 1,
2015 and is expected to be completed on September 30, 2015. The
cost incurred during the year i.e. Rs. 20 million was capitalised on June
30, 2015.
Required
Prepare the statement of financial position as at June 30, 2015 along with the
relevant notes showing all possible disclosures as required under the International
Accounting Standards and the Companies Ordinance, 1984.
(Comparative figures and the note on accounting policies are not required.)(22)
(vii) The carrying value of YILs net assets as on June 30, 2015 exceeds their tax
base by Rs. 30 million. The income tax rate applicable to the company is 30%.
(viii) On July 1, 2014, the leasehold property having a useful life of 40 years was
revalued at Rs. 238 million. No adjustment in this regard has been made in the
books.
(ix) Depreciation of leasehold property is charged using the straight line method.
50% of depreciation is allocated to manufacturing, 30% to administration and
20% to selling and distribution.
Required
In accordance with the requirements of the Companies Ordinance, 1984 and
International Accounting Standards, prepare the:
(a) statement of financial position as of June 30, 2015.
(b) statement of profit or loss for the year ended June 30, 2015. (20)
(Comparative figures and notes to the financial statements are not required.)
Plant and
Land Buildings equipment
Rs in 000
Cost as at June 30, 2014 20,000 36,000 30,000
Fully depreciated amounts included in cost 3,000
Estimated useful life at the date of purchase 20 years 10 years
The company uses straight line method for charging depreciation.
Depreciation is allocated to manufacturing, distribution and administrative
costs at 75%, 15% and 10% respectively.
(v) Rs. 6 million of the long term borrowings is of current maturity (i.e. will be
repaid within 12 months).
(vi) During the year Rs. 5 million was paid in full and final settlement of income
tax liability against which a provision of Rs. 7.0 million had been made in the
previous year. Current years taxable income exceeds accounting income by
Rs. 5 million of which 0.8 million are permanent differences. Applicable tax
rate for the company is 35%.
(vii) On July 30, 2015 the board of directors proposed a final dividend at 15% for
the year ended June 30, 2015 (2014: at 20%)
Required
In accordance with the requirements of the Companies Ordinance, 1984 and
International Financial Reporting Standards, prepare:
(a) The statement of financial position as of June 30, 2015
(b) The statement of profit or loss for the year ended June 30, 2015
(c) The statement of changes in equity for the year ended June 30, 2015.
(Comparative figures and notes to the financial statements are not required)
(25)
Additional Information
(i) The land and buildings were acquired on January 1, 2011. The cost of
land was Rs. 600 million. On January 1, 2015 a professional valuation firm
valued the buildings at Rs. 1,840 million with no change in the value of land.
The estimated life at acquisition was 20 years and the remaining life has not
changed as a result of the valuation. 60% of depreciation on buildings is
allocated to manufacturing, 25% to selling and 15% to administration.
(ii) Plant is depreciated at 20% per annum using the reducing balance method.
(iii) On March 31, 2015 MPL made a bonus issue of one share for every six
held. The issue has not been recorded in the books of account.
(iv) Right shares were issued on September 1, 2015 at Rs. 12 per share.
(v) The interest on long term loan is payable on the first day of July and January.
No accrual has been made for the interest payable on January 1, 2013.
(vi) MPL operates an unfunded gratuity scheme for all its eligible employees.
The provision required as on December 31, 2015 is estimated at Rs. 23
million. Rs. 3 million were paid during the year and debited to the provision
for gratuity account. Cost of gratuity is allocated to production, selling and
administration expenses in the ratio of 60% : 20% : 20%.
(vii) The tax charge for the current year after making all related adjustments is
estimated at Rs. 37 million. The timing differences related to taxation are
estimated to increase by Rs. 80 million, over the last year. The applicable
income tax rate is 35%.
Required
In accordance with the requirements of Companies Ordinance, 1984 and
International Financial Reporting Standards, prepare the following:
(a) Statement of Financial Position as of December 31, 2015.
(b) Statement of profit or loss for the year ended December 31, 2015. (22)
(Comparative figures and notes to the financial statements are not required)
(ii) The basis of allocation of various expenses among cost of sales, distribution
costs and administrative expenses are as follows:
Cost of Distribution Administrative
sales costs expenses
% % %
Salaries, wages and benefits 55 30 15
Depreciation and amortization 70 20 10
Stationery and office expenses 25 40 35
Repairs and maintenance / Utilities 85 5 10
(iii) Salaries, wages and benefits include contributions to provident fund (defined
contribution plan) and gratuity fund (defined benefit plan) amounting to Rs. 54
million and Rs. 44 million respectively.
(iv) Auditors remuneration includes taxation services and out-of-pocket expenses
amounting to Rs. 4 million and Rs. 1 million respectively.
(v) Donations include Rs. 5 million given to Dates Cancer Foundation (DCF). One
of the companys directors, Mr. Peanut is a trustee of DCF.
(vi) The tax charge for the current year after making all related adjustments is
estimated at Rs. 1,440 million. Taxable temporary differences of Rs. 3,120
originated in the year million, over the last year. The applicable income tax
rate is 35%.
(vii) 274 million ordinary shares were outstanding as on 31 December 2015.
(viii) There is no other comprehensive income for the year.
Required
Prepare the statement of profit or loss for the year ended 31 December 2015 along
with the relevant notes showing required disclosures as per the Companies
Ordinance, 1984 and International Financial Reporting Standards. Comparatives are
not required. (24)
3.1 KLEA
The statement of financial position and statement of profit or loss for Klea for the
year to 31st March 2015 are provided below.
Statement of financial position as at 31st March 2015
2015 2014
Rs. in 000
Assets
Non-current assets
Intangible assets 300 200
Property, plant and equipment 3,450 1,600
Financial assets 400 200
4,150 2,000
Current assets
Inventory 3,200 2,000
Trade receivables 2,400 2,000
Cash and cash equivalents 32 580
5,632 4,580
Total assets 9,782 6,580
Equity and liabilities
Equity
Issued share capital 3,000 2,000
Share premium account 838 560
Retained earnings 910 354
Total equity 4,748 2,914
Revaluation surplus 1,000 -
Non-current liabilities
Interest-bearing loans and liabilities 1,600 2,000
Current liabilities
Bank overdraft 414 -
Trade payables 1,600 1,266
Taxation 420 400
2,434 1,666
Total liabilities 4,034 3,666
Total equity and liabilities 9,782 6,580
Statement of profit or loss for the year ended 31st March 2015
Rs. in 000
Revenue 10,000
Other income 100
Change in inventory of finished goods and WIP 1,300
Raw materials and consumables used 4,000
Employee benefits costs 3,000
Depreciation and amortisation expense 800
Other expenses 1,724
Total expenses (9,524)
1,876
Finance costs (320)
Finance income 50
Profit before tax 1,606
Income tax expense (650)
Profit for the year 956
Additional information
(i) Non-current assets Rs. in 000
2015 2014
Cost Deprecn Cost Deprecn
Intangible assets 700 400 400 200
Property, plant and equipment 5,000 1,550 3,000 1,400
(ii) At 1 April 2014 land was revalued from Rs. 1million to Rs. 2 million.
(iii) During the year, plant and machinery costing Rs. 600,000 and depreciated by
Rs. 500,000 was sold for Rs. 150,000.
(iv) The interest bearing loans relate to debentures which were issued at their
nominal value. Rs. 400,000 of these debentures were redeemed at par during
the year.
(v) Ordinary shares were issued for cash during the year.
(vi) Rs. 100,000 of current asset investments held as cash equivalents were sold
during the year for Rs. 94,000.
(vii) Dividends paid in the year were Rs. 200,000 relating to the 2014 proposed
dividend and a Rs. 200,000 interim dividend for 2015.
Required
Prepare a statement of cash flows for Klea for the year ended 31 March 2015 in
accordance with IAS 7 using the indirect method. (25)
3.3 FALLEN
Fallen has prepared the following rough draft accounts for the year ended 31
December 2015.
Statement of profit or loss
Rs. in 000
Revenue 11,563
Cost of sales (5,502)
Gross profit 6,061
Distribution costs (402)
Administration expenses (882)
Interest payable (152)
Operating profit before tax 4,625
Taxation (35%) including deferred tax (1,531)
Profit after tax 3,094
Dividends (700)
Retained profit 2,394
31 December
2015 2014
Rs. in 000 Rs. in 000
Share capital 2,280 1,800
Share premium 2,112 1,800
Profit and loss account 9,108 6,714
Deferred taxation 202 138
Long-term loan (10%) 1,240 1,800
Provision for deferred repairs 1,202 1,016
Payables 1,026 702
Overdraft 222
Taxation
Corporation tax 1,730 2,038
Proposed dividends 390 234
19,512 16,242
The following data is relevant.
(1) The 10% long-term loan were redeemed at par.
(2) Plant and equipment with a written down value of Rs. 276,000 was sold for
Rs. 168,000. New plant was purchased for Rs. 2,500,000.
(3) Leasehold premises costing Rs. 1,300,000 were acquired during the year.
(4) The investments are highly liquid securities held for the short term.
Required
Prepare the cash flow statement and supporting notes in accordance with IAS 7 for
Fallen Inc for 2015. (20)
Revaluation surplus 90 40
Non-current liabilities
Deferred tax 439 400
Deferred income 275 200
10% Convertible loan stock nil 400
714 1,000
Current liabilities
Trade accounts payable 644 760
Accrued interest 40 25
Provision for negligence claim nil 120
Provision for income tax 480 367
Deferred income 100 125
Overdraft 136 nil
1,400 1,397
Total equity and liabilities 5,135 3,689
The following information is relevant
(i) Non-current assets
Property, plant and equipment is analysed as follows: Rs in 000
30 September 2015 30 September 2014
Cost/ Cost/
Valuation Depreciation NBV Valuation Depreciation NBV
Land and buildings 2,000 760 1,240 1,800 680 1,120
Plant 1,568 464 1,104 1,220 432 788
3,568 1,224 2,344 3,020 1,112 1,908
(2) On 1 April 2015 the 10% convertible loan stock holders exercised their
right to convert to ordinary shares. The terms of conversion were 25
ordinary shares of Rs. 1 each for each Rs. 100 of 10% convertible loan
stock.
(3) The remaining increase in the ordinary shares was due to a stock
market placement of shares for cash on 12 August 2015.
(iv) Provision for negligence claim
In June 2015 Bin Qasim Motors Limited made an out of court settlement of a
negligence claim brought about by a former employee. The dispute had been
in progress for two years and Bin Qasim Motors Limited had made provisions
for the potential liability in each of the two previous years. The unprovided
amount of the claim at the time of settlement was Rs. 30,000 and this was
charged to operating expenses.
Required
Prepare a statement of cash flows for Bin Qasim Motors Limited for the year to 30
September 2015 in accordance with IAS 7 Statement of Cash Flows. (25)
Current assets
Stocks-in-trade 55 48
Trade debts 51 38
Advances, prepayments and other
receivables 37 40
Cash and bank balances 11 20
Total current assets 154 146
TOTAL ASSETS 504 459
(iii) Advances, prepayments and other receivables include advance tax of Rs. 10
million (2014: Rs. 7 million).
(iv) In 2015, the company paid Rs. 6 million on account of gratuity.
(v) Accrued mark-up on long term finances amounting to Rs. 7 million (2014:
Rs. 9 million) is included in trade and other payables. Financial charges
included in the profit and loss account are Rs. 16 million (2014 : Rs. 14
million).
(vi) Income tax expense for the year 2015 amounted to Rs. 19 million (2014:
Rs. 13 million).
Required
Prepare a cash flow statement in accordance with the requirements of IAS 7 Cash
Flow Statement using the indirect method. (20)
Required
Prepare a statement of cash flow for the year ended December 31, 2015 in
accordance with the requirements of International Accounting Standards. Show all
necessary workings. (23)
2015 2014
Rs. 000 Rs. 000
Issued, subscribed and paid up capital 25,000 20,000
Unappropriated profit 20,900 22,000
45,900 42,000
Non-current liabilities
Staff gratuity 1,400 1,190
Deferred tax liability- net 590 -
1,990 1,190
Trade and other payables 4,200 6,250
59,090 57,440
2015 2014
Rs. 000 Rs. 000
(iv) On 15 July 2015, MELs board of directors proposed a final dividend of 10%
for the year ended 30 June 2015 (2014: 5% cash dividend and 5% bonus
declared on 20 July 2014).
(v) Other income comprises of the following:
Rs. m
Dividend income 30
Gain on sale of vehicles (carrying value of Rs. 5 million) 2
Gain on sale of investments (carrying value of Rs. 10 million) 3
35
Required
Prepare the statement of cash flows for Marvel Engineering Limited for the year
ended 30 June 2015. (24)
4.1 HALL
Statements of financial position at 31 December 2015
Hall Stand
Rs. 000 Rs. 000
Assets
Non-current assets
Property, plant and equipment 35,000 20,000
Investment in Stand 12,000
On 1 January 2013 Hall acquired 75% of Stand for Rs. 12,000,000. At that date the
balance on Stands retained earnings was Rs. 8,000,000.
Required
Prepare the consolidated statement of financial position of Hall as at 31 December
2015. (6)
4.2 HASSLE
Statements of financial position at 31 December 2015
Hassle Strife
Rs. Rs.
Investment in Strife 60,000
Sundry assets 247,500 226,600
307,500 226,600
Share capital 120,000 50,000
Retained earnings 87,500 70,000
Liabilities 100,000 106,600
307,500 226,600
Hassle bought 80% of Strife when the balance on Strifes retained profit was Rs.
50,000.
Required
Prepare the consolidated statement of financial position at 31 December 2015. (8)
4.3 HYMN
The following are the summarised statements of financial position of a group of
companies as at 31 December 2015.
Hymn Psalm
Rs. Rs.
Assets
Non-current assets
Property, plant and equipment 105,000 65,000
Investment 85,000
Current assets 220,000 55,000
410,000 120,000
Equity and liabilities
Equity
Share capital 100,000 50,000
Retained earnings 155,000 49,000
255,000 99,000
Current liabilities 155,000 21,000
410,000 120,000
Hymn purchased 80% of Psalms shares on 1 January 2015 when there was a
credit balance on that companys retained earnings of Rs. 20,000.
Required
Prepare the Hymn group consolidated statement of financial position as at 31
December 2015. (6)
4.4 HANG
On 31 December 2012, Hang acquired 60% of Swing for Rs. 140,000. At that date
Swing had a retained earnings balance of Rs. 50,000 and a share premium account
balance of Rs. 49,000.
The following statements of financial position have been prepared as at 31
December 2015.
Hang Swing
Rs. Rs.
Assets
Non-current assets
Property, plant and equipment 240,000 180,000
Investment in Swing 140,000
Current assets 250,000 196,000
630,000 376,000
Equity and liabilities
Equity
Share capital 200,000 90,000
Share premium 25,000 49,000
Retained earnings 180,000 80,000
405,000 219,000
Current liabilities 225,000 157,000
630,000 376,000
Required
Prepare the consolidated statement of financial position of Hang and its subsidiary
as at 31 December 2015. (6)
4.5 HASH
Statements of financial position at 31 December 2015
Hash Stash
Rs. 000 Rs. 000
Investment in Stash (80%) 100,000
Sundry assets 207,500 226,600
307,500 226,600
Required
Prepare the consolidated statement of financial position at 31 December 2015. (8)
5.1 HAIL
The following are the draft statements of financial position of Hail and its subsidiary
Snow as at 31 December 2015.
Hash Stash
Rs. 000 Rs. 000
Assets
Non-current assets
Property, plant and equipment 161,000 85,000
Investments 68,000
Current assets
Cash 7,700 25,200
Trade receivables 92,500 45,800
Snow current account 15,000 -
Inventory 56,200 36,200
400,400 192,200
Equity and liabilities
Shareholders equity
Share capital 100,000 50,000
Retained earnings 185,400 41,200
Share premium - 5,000
Capital reserve - 20,000
285,400 116,200
Current liabilities 115,000 68,000
Hail current account - 8,000
400,400 192,200
Notes
(1) Snow has 50,000 shares in issues. Hail acquired 45,000 of these on 1
January 2012 for a cost of Rs. 65,000,000 when the balances on Snows
reserves were
Rs. 000
Share premium account 5,000
Capital reserve
Retained earnings 10,000
(2) Hail declared a dividend of Rs. 3,000,000 before the year end and Snow
declared one of Rs. 2,000,000. These transactions have not been accounted
for.
(3) The current account difference is due to cash in transit.
Required
Prepare the consolidated statement of financial position as at 31 December 2015 of
Hail. (12)
5.2 HAIRY
The summarised statements of financial position of Hairy and Spider as at 31
December 2015 were as follows.
Hairy Spider
Rs. 000 Rs. 000
Assets
Non-current assets
Property, plant and equipment 120,000 60,000
Investments 55,000
Current assets
Cash 11,000 4,000
Investments 3,000
Trade receivables 72,600 19,100
Current account Hairy 3,200
Inventory 17,000 11,000
275,600 100,300
Required
Prepare the consolidated statement of financial position of Hairy and its subsidiary
Spider as at 31 December 2015. (12)
5.3 HARD
On 31 December 2011, Hard acquired 60% of the ordinary share capital of Soft for
Rs. 110 million. At that date Soft had a retained earnings balance of Rs. 50 million
and a share premium account balance of Rs. 10 million.
The following statements of financial position have been prepared as at 31
December 2015.
Hard Soft
Rs. 000 Rs. 000
Assets
Non-current assets
Property, plant and equipment 225,000 175,000
Investments in Soft 110,000
During the year to 31 December 2015 Hard sold a tangible asset to Soft for Rs. 50
million. The asset was originally purchased in the year to 31 December 2012 at a
cost of Rs. 100 million and had a useful economic life of five years.
Softs depreciation policy is 25% per annum based on cost. Both companies charge
a full years depreciation in the year of acquisition and none in the year of disposal.
Required
Prepare the consolidated statement of financial position of Hard and its subsidiary
as at 31 December 2015. (12)
5.4 HALE
On 1 July 2012 Hale acquired 128,000 of Sowens 160,000 shares. The following
statements of financial position have been prepared as at 31 December 2015.
Hale Sowen
Rs. 000 Rs. 000
Property, plant and equipment 152,000 129,600
Investment in Sowen 203,000
Inventory at cost 112,000 74,400
Receivables 104,000 84,000
Bank balance 41,000 8,000
612,000 296,000
Hale Sowen
Rs. 000 Rs. 000
Share capital 100,000 160,000
Retained earnings 460,000 112,000
Payables 52,000 24,000
612,000 296,000
The following information is available.
(1) At 1 July 2012 Sowen had a debit balance of Rs. 11 million on retained
earnings.
(2) Property, plant and equipment of Sowen included land at a cost of Rs. 72
million. This land had a fair value of Rs. 100,000 at the date of acquisition.
(3) The inventory of Sowen includes goods purchased from Hale for Rs. 16
million. Hale invoiced those goods at cost plus 25%.
Required
Prepare the consolidated statement of financial position of Hale as at 31 December
2015. (12)
5.5 HELLO
On 1 January 2012, Hello acquired 60% of the ordinary share capital of Solong for
Rs. 110,000. At that date Solong had a retained earnings balance of Rs. 60,000.
The following statements of financial position have been prepared as at 31
December 2015.
Hello Solong
Rs. Rs.
Assets
Non-current assets
Property, plant and equipment 225,000 175,000
Investments in Solong 110,000
The fair value of Solongs net assets at the date of acquisition was determined to be
Rs. 170,000.
The difference between the book value and the fair value of the new assets at the
date of acquisition was due to an item of plant which had a useful life of 10 years
from the date of acquisition.
Required
Prepare the consolidated statement of financial position of Hello and its subsidiary
as at 31 December 2015. (12)
6.1 HARRY
The following are the statements of profit or loss for the year ended 31 December
2015 of Harry and its subsidiary Sally.
Harry Sally
Rs. 000 Rs. 000
Revenue 1,120 390
Cost of sales (610) (220)
Gross profit 510 170
Distribution costs (50) (40)
Administration costs (55) (45)
Operating profit 405 85
Investment income 20 4
Finance costs (18) (4)
Profit before tax 407 85
Income tax expense (140) (25)
Profit for the year 267 60
Required
Prepare a consolidated statement of profit or loss and a working showing the
movement on consolidated retained profit for the year ended 31 December 2015.(10)
6.2 HORNY
Statements of profit or loss for the year ended 31 December 2015.
Horny Smooth
Rs. 000 Rs. 000
Revenue 304,900 195,300
Cost of sales (144,200) (98,550)
Gross profit 160,700 96,750
Operating costs (76,450) (52,100)
Operating profit 84,250 44,650
Investment income 10,500 2,600
Profit before tax 94,750 47,250
Income tax expense(42,900) (16,500)
Profit for the year 51,850 30,750
Statement of changes in equity (extracts) for the year ended 31 December 2015.
Horny Smooth
Rs. 000 Rs. 000
Retained earnings brought forward 80,200 31,000
Profit for the year 51,850 30,750
Proposed ordinary dividend (20,000) -
112,050 61,750
The following information is also available.
(1) Horny acquired 75% of the share capital of Smooth on 31 August 2015.
(2) Negative goodwill of Rs. 3.8 million arose on the acquisition.
(3) Profits of both companies are deemed to accrue evenly over the year except
for the investment income of Smooth all of which was received in November
2015.
(4) Horny has bought goods from Smooth throughout the year at Rs. 2 million per
month. At the year-end Horny does not hold any inventory purchased from
Smooth.
Required
Prepare the consolidated statement of profit or loss and a working showing the
movement on consolidated retained profit for the year ended 31 December 2015.(10)
6.3 HERON
Statements of financial position as at 30 June 2015
Heron Stork
Assets Rs. 000 Rs. 000
Non-current assets
Property, plant and equipment 31,000 15,000
Investment in Stork ( 1,000 ordinary shares) 1,000
32,000 15,000
Current assets 23,000 11,000
55,000 26,000
Shareholders equity and liabilities
Share capital (Rs. 0001 ordinary shares) 10,000 1,500
Share premium 5,000
Retained earnings 20,000 18,500
35,000 20,000
Non-current liabilities 15,000
Current liabilities 5,000 6,000
55,000 26,000
Heron acquired its shares in Stork when the balance on the retained earnings was
Rs. 000nil.
Statements of profit or loss for the year ended 30 June 2015
Heron Stork
Rs. 000 Rs. 000
Revenue 30,000 25,000
Cost of sales (9,000) (10,000)
6.4 HANKS
Statements of financial position as at 31 December 2015
Hanks Streep Scott
Rs. 000 Rs. 000 Rs. 000
Assets
Non-current assets
Property, plant and equipment 32,000 25,000 20,000
Investments 33,500
65,500 25,000 20,000
Current assets
Cash at bank and in hand 9,500 2,000 4,000
Trade receivables 20,000 8,000 17,000
Inventory 30,000 18,000 18,000
125,000 53,000 59,000
Equity and liabilities
Share capital 40,000 10,000 15,000
Share premium account 6,500
Retained earnings 55,000 37,000 27,000
101,500 47,000 42,000
Current liabilities 23,500 6,000 17,000
125,000 53,000 59,000
Statements of profit or loss for the year ended 31 December 2015
Hanks Streep Scott
Rs. 000 Rs. 000 Rs. 000
Revenue 125,000 117,000 82,000
Cost of sales (65,000) (64,000) (42,000)
Gross profit 60,000 53,000 40,000
Distribution costs (21,000) (14,000) (16,000)
Administrative expenses (14,000) (8,000) (7,000)
Profit before taxation 25,000 31,000 17,000
Income tax expense (10,000) (9,000) (5,000)
Profit after tax 15,000 22,000 12,000
Statement of changes in equity (extract) for the year ending
31 December 2015
Hanks Streep Scott
Rs. 000 Rs. 000 Rs. 000
Retained earnings brought forward 40,000 15,000 15,000
Retained profit for the financial year 15,000 22,000 12,000
Dividends
Retained earnings carried forward 55,000 37,000 27,000
Required
Prepare the consolidated statement of profit or loss and consolidated statement of
changes in equity for the year ended 31 December 2015 and the consolidated
statement of financial position at that date. (20)
7.1 ROONEY
(a) Rooney has recently finished building a new item of plant for its own use. The
item is a press for use in the manufacture of industrial diamonds. Rooney
commenced construction of the asset on 1st April 2013 and completed it on 1st
April 2015.
1st January 2013, Rooney took out a loan to finance the construction of the
asset. Interest is charged on the loan at the rate of 5% per annum. The annual
interest must be paid in four equal instalments at the end of each quarter.
Rooney capitalises interest on manufactured assets in accordance with the
rules in IAS 23 Borrowing costs.
The costs (excluding finance costs) of manufacturing the asset were Rs. 28
million.
Required
State the IAS 23 rules on the capitalisation of borrowing costs, calculate the
cost of the asset on initial recognition and explain the amount of borrowing
cost capitalised. (6)
(b) The press comprises two significant parts, the hydraulic system and the
frame. The hydraulic system has a three year life and the frame has an eight
year life. Rooney depreciates plant on a straight line basis. The cost of the
hydraulic system is 30% of the total cost of manufacture.
Rooney uses the IAS 16 revaluation model in accounting for diamond presses
and revalues these assets on an annual basis.
7.2 EHTISHAM
The following information relates to the financial statements of Ehtisham for the year
to 31 March 2015.
The head office of Ehtisham was acquired on 1 April 2012 for Rs. 1million. Ehtisham
intend to occupy the building for 25 years. On 31 March 2014 it was revalued to Rs.
1.15 million. On 31 March 2015, a surplus of vacant commercial property in the area
had led to a fall in property prices and the fair value was now only Rs. 0.8 million.
Required
Explain the correct accounting treatment for the above (with calculations if
appropriate). (10)
7.3 CARLY
The following is an extract from the financial statements of Carly on 31 December
2014.
Property, plant and equipment
Land and Plant and
buildings equipment Computers Total
Rs. Rs. Rs. Rs.
Cost
On 31 December 2014 1,500,000 340,500 617,800 2,458,300
Accumulated depreciation
On 31 December 2014 600,000 125,900 505,800 1,231,700
Carrying amount
On 31 December 2014 900,000 214,600 112,000 1,226,600
Accounting policies
Depreciation
Depreciation is provided at the following rates.
(3) A new machine was purchased on 31 March 2015. The following costs were
incurred:
Rs.
Purchase price, before discount, inclusive of reclaimable
sales tax of Rs. 3,000 20,000
Discount 1,000
Delivery costs 500
Installation costs 750
Interest on loan taken out to finance the purchase 300
Required
Explain the effects of these changes on the depreciation for the year to 31
December 2015. (15)
7.5 FAM
Fam had the following tangible fixed assets at 31 December 2014.
Cost Depreciation NBV
Rs. 000 Rs. 000 Rs. 000
Land 500 500
Buildings 400 80 320
Plant and machinery 1,613 458 1,155
Fixtures and fittings 390 140 250
Assets under construction 91 91
2,994 678 2,316
In the year ended 31 December 2015 the following transactions occur.
(1) Further costs of Rs. 53,000 are incurred on buildings being constructed by the
company. A building costing Rs. 100,000 is completed during the year.
(2) A deposit of Rs. 20,000 is paid for a new computer system which is
undelivered at the year end.
(3) Additions to plant are Rs. 154,000.
(4) Additions to fixtures, excluding the deposit on the new computer system, are
Rs. 40,000.
(5) The following assets are sold.
Cost Depreciation Proceeds
brought forward
Rs. 000 Rs. 000 Rs. 000
Plant 277 195 86
Fixtures 41 31 2
(6) Land and buildings were revalued at 1 January 2015 to Rs. 1,500,000, of
which land is worth Rs. 900,000. The revaluation was performed by Messrs
Jackson & Co, Chartered Surveyors, on the basis of existing use value on the
open market.
(7) The useful economic life of the buildings is unchanged. The buildings were
purchased ten years before the revaluation.
(8) Depreciation is provided on all assets in use at the year end at the following
rates.
Buildings 2% per annum straight line
Plant 20% per annum straight line
Fixtures 25% per annum reducing balance
Required
Show the disclosure under IAS 16 in relation to fixed assets in the notes to the
published accounts for the year ended 31 December 2015. (14)
Required
Compute the depreciation expenses and other adjustments (if any) required
to be made in the financial statements of the company for the year ended
June 30, 2015 under each of the following assumptions:
(i) the review of useful life and residual value was carried out on June 30,
2015;
(ii) the review of useful life and residual value was carried out on June 30,
2014 but in the financial statements for the year then ended the
depreciation expense was erroneously recorded on the previous basis.
(11)
(b) Discuss the requirements of International Accounting Standard(s) in
respect of estimation and revision of useful life of an item of property, plant
and equipment. (04)
Required
Prepare the journal entries to record the above transactions from the date of
acquisition of the building to the year ended June 30, 2015.
(Ignore deferred tax) (16)
Required
Calculate the amount of borrowing costs to be capitalised on June 30, 2015 in
accordance with the requirements of International Accounting Standards.
(Borrowing cost calculations should be based on number of months). (18)
Required
Prepare accounting entries for the year ended June 30, 2015. Give all the necessary
calculations.
(Ignore taxation) (20)
The cost of the project has been financed through the following sources:
(i) Issue of right shares amounting to Rs. 15 million, on September 1, 2014.
The company has been following a policy of paying dividend of 20% for the
past many years.
(ii) Bank loan of Rs. 25 million obtained on December 1, 2014. The loan carries a
markup of 13% per annum. The principal is repayable in 5 half yearly equal
instalments of Rs. 5 million each along with the interest, commencing from
May 31, 2015. Loan processing charges of Rs. 0.5 million were deducted by
the bank at the time of disbursement of loan. Surplus funds, when available,
were invested in short term deposits at 8% per annum.
(iii) Cash withdrawals from the existing running finance facility provided by a
bank. Average running finance balance for the year was Rs. 60 million.
Markup charged by the bank for the year was Rs. 9 million.
Required
Compute cost of capital work in progress for the factory building as of June 30,
2015 in accordance with the requirements of relevant IFRSs.
(Borrowing costs calculations should be based on number of months) (18)
Required
Calculate the amount of borrowing costs that may be capitalised during the years
ended 30 June 2014 and 2015 in accordance with the requirements of International
Financial Reporting Standards. (20)
8.1 FAZAL
The following information relates to the financial statements of Fazal for the year to
31 March 2015.
The IT division has begun a training course for all managers in a new programming
language at a cost of Rs. 200,000. The consultants running the training course have
quantified the present value of the training benefits over the next two years to be Rs.
400,000. The project cost has been included in the statement of financial position as
a current asset. The accounting policy note identifies that the costs will be written off
over the next two years to match the benefits.
Required
Explain the correct accounting treatment for the above (with calculations if
appropriate). (3)
8.2 HENRY
During 2015 Henry has the following research and development projects in
progress.
Project A was completed at the end of 2014. Development expenditure brought
forward at the beginning of 2015 was Rs. 412,500 on this project. Savings in
production costs arising from this project are first expected to arise in 2015. In 2015
savings are expected to be Rs. 100,000, followed by savings of Rs. 300,000 in 2016
and Rs. 200,000 in 2017.
Project B commenced on 1 April 2015. Costs incurred during the year were Rs.
56,000. In addition to these costs a machine was purchased on 1 April 2015 for Rs.
30,000 for use on the project. This machine has a useful life of five years. At the end
of 2015 there were still some uncertainties surrounding the completion of the
project.
Project C had been started in 2014. In 2014 the costs relating to this project of Rs.
36,700 had been written off, as at the end of 2014 there were still some
uncertainties surrounding the completion of the project. Those uncertainties have
now been resolved and a further Rs. 45,000 costs incurred during the year.
Required
Show how the above would appear in the financial statements (including notes to
the financial statements) of Henry as of 31 December 2015.
8.3 TOBY
Toby entered into the following transactions during the year ended 31 December
2015. The directors of Toby wish to capitalise all assets wherever possible.
(1) On 1 January Toby acquired the net assets of George for Rs. 105,000. The
assets acquired had the following book and fair values.
Book value Fair value
Rs. Rs.
Goodwill 5,000 5,000
Patents 15,000 20,000
Non-current assets 40,000 50,000
Other sundry net assets 30,000 25,000
90,000 100,000
The patent expires at the end of 2022. The goodwill arising from the above
had a recoverable value at the end of 2015 of Rs. 7,000.
(2) On 1 April Toby acquired a brand from a competitor for Rs. 50,000. The
directors of Toby have assessed the useful life of the brand as five years.
(3) During the year Toby spent Rs. 40,000 on developing a new brand name. The
development was completed on 30 June. The useful life of this brand has
been assessed as eight years.
(4) The directors of Toby believe that there is total goodwill of Rs. 2 million within
Toby and that this has an indefinite useful life.
Required
Prepare the note to the financial statements for intangible assets as at 31 December
2015.
8.4 BROOKLYN
Brooklyn is a bio-technology company performing research for pharmaceutical
companies. The finance director has contacted your financial consulting company to
arrange a meeting to discuss issues relevant to the preparation of the financial
statements for the year to 30th June 2015. Your initial telephone conversation has
provided the necessary background information.
1 On 1st August 2014 Brooklyn began investigating a new bio-process. On 1st
September 2015, the new process was widely supported by the scientific
community and the feasibility project was approved. A grant was then
obtained relating to future work. Several pharmaceutical companies have
expressed an interest in buying the know how when the project completes in
June 2016. The nominal ledger account set up for the project shows that the
expenditure incurred between 1st August 2014 and 30th June 2015 was Rs.
300,000 per month.
2 In August 2015, an employee lodged a legal claim against the company for
damage to his health as a result of working for the company for the two years
through to 31st March 2014 when he had to retire due to ill health. He has
argued that his health deteriorated as a result of the stress from his position in
the organisation. Brooklyn has denied the claim and has appointed an
employment lawyer to assist with contesting the case. The lawyer has advised
that there is a 25% chance that the claim will be rejected, 50% chance that the
damages will be Rs. 600,000 and 25% chance of Rs. 1 million. The company
has an insurance policy that will pay 10% of any damages to the company.
The lawyer has said that the case could take until 30th June 2018 to resolve.
The present value of the estimated damages discounted at 8% is Rs. 476,280
and Rs. 793,800 respectively.
3 Brooklyn owns several buildings, which include an administrative office in the
centre of London. The company has revalued these on a regular basis every
five years and the next valuation is due on 30th June 2017. Property prices
have increased since the last review and particularly for the London premises.
The cost of engaging a professionally qualified valuer is very expensive and
so to reduce costs the finance director is proposing that the property manager,
who is a professionally qualified valuer, should value the London property and
that the increase in value should be included in the financial statements. The
finance director is of the opinion that the property prices may fall next year.
Required
Prepare notes for your meeting with the finance director which explain and justify the
accounting treatment of these issues, preparing calculations where appropriate and
identifying matters on which your require further information. (25)
Required:
(a) What are the requirements of International Accounting Standards relating to
amortization of intangible assets having finite life?
(b) Prepare the ledger accounts for goodwill and the brand, showing initial
recognition and all subsequent adjustments. (15)
The draft financial statements (before correction of error) show that retained
earnings as at December 31, 2015 was Rs. 1,950 million (2014: Rs. 1,785 million).
Required
In accordance with the requirements of International Financial Reporting Standards,
prepare relevant extracts of the Statement of Financial Position along with the
note on intangible assets after incorporating the required corrections.
(Ignore tax) (16)
Required
In the light of International Financial Reporting Standards, explain how each of the
above transaction should be accounted for in the financial statements of Raisin
International for the year ended 31 December 2015. (11)
9.1 DAWOOD
The following information relates to the financial statements of Dawood for the year
to 31 March 2015.
On 1 October 2014, Dawood entered into a 5 year lease for a machine from
Narbonne, agreeing to make payments every 6 months of Rs. 29,500 beginning on
the 1 October. The cash price of the machine is Rs. 250,000 and the machine is
believed to have a useful life of 5 years. Dawood has treated the arrangement as a
finance lease. Any finance costs are to be treated using the sum-of-digits method.
Required
Explain the correct accounting treatment for the above (with calculations if
appropriate). (7)
9.2 FINLEY
On 1 January 2015, Finley entered into an agreement to lease a boat. The fair value
of the boat was Rs. 36,000 and the term of the lease was four years. Annual lease
payments of Rs. 10,000 are payable in advance. The interest rate implicit in the
lease is 7.5%. Finley is responsible for insuring and maintaining the boat throughout
the term of the lease.
Required
Show how this lease would be presented in the statement of profit or loss of Finley
for the year ended 31 December 2015 and the statement of financial position as at
that date. Detailed disclosure notes are not required.
9.3 FABIAN
In the year ended 31 December 2015, Fabian leased two assets.
(1) A car was leased on 1 July 2015 via a three year lease agreement. Fabian
paid a deposit of Rs. 7,500 followed by 36 monthly payments of Rs. 700 each
on the 1st of each month. At the end of the three years Fabian will return the
car. The car has a useful life of eight years.
(2) A machine was leased on 1 January 2015 via a four year lease. The machine
has a fair value of Rs. 130,000 and Fabian is responsible for its upkeep.
Lease payments of Rs. 40,000 are payable in arrears annually. The interest
rate implicit in the lease is 10% and the present value of the minimum lease
payments is Rs. 126,760.
Required
Show how the two lease agreements would be presented in the statement of profit
or loss for 2015 and the statement of financial position at 31 December 2015. Notes
to the financial statements are not required.
Required
(a) Show the relevant extracts from the accounts of XYZ Inc at 31 December
2015. (5)
(b) Show the allocation of the finance charge for XYZ Inc using the actuarial
before tax method (using the interest rate implicit in the lease). Compare this
with the sum of the digits allocation in (a) above. (14)
The rate of interest implicit in the lease is 7.68% per half year.
Required
Show the relevant extracts from the accounts of Snow Inc for year ended 31
December 2015. (15)
Required
Prepare relevant extracts of the statement of financial position and related notes to
the financial statements for the year ended 30 June 2015 along with comparative
figures. Ignore taxation (16)
Required
(a) Prepare the journal entries for the years ending June 30, 2016, 2017 and
2018 in the books of lessor. Ignore tax.
(b) Produce extracts from the statement of financial position including relevant
notes as at June 30, 2016 to show how the transactions carried out in 2016
would be reflected in the financial statements of the lessor.
(Disclosure of accounting policy is not required.) (20)
Required
Pass journal entries in respect of the lease, for the year ended June 30, 2015. (12)
10.2 GEORGINA
Georgina Company is preparing its financial statements for the year ended 30
September 2015. The following matters are all outstanding at the year end.
(1) Georgina is facing litigation for damages from a customer for the supply of
faulty goods on 1 September 2015. The claim, which is for Rs. 500,000, was
received on 15 October 2015. Georginas legal advisors consider that
Georgina is liable and that it is likely that this claim will succeed. On 25
October 2015 Georgina sent a counter-claim to its suppliers for Rs. 400,000.
Georginas legal advisors are unsure whether or not this claim will succeed.
(2) Georginas sales director, who was dismissed on 15 September, has lodged a
claim for Rs. 100,000 for unfair dismissal. Georginas legal advisors believe
that there is no case to answer and therefore think it is unlikely that this claim
will succeed.
(3) Although Georgina has no legal obligation to do so, it has habitually operated
a policy of allowing customers to return goods within 28 days, even where
those goods are not faulty. Georgina estimates that such returns usually
amount to 1% of sales. Sales in September 2015 were Rs. 400,000. By the
end of October 2015, prior to the drafting of the financial statements, goods
sold in September for Rs. 3,500 had been returned.
(4) On 15 September 2015 Georgina announced in the press that it is to close
one of its divisions in January 2016. A detailed closure plan is in place and the
costs of closure are reliably estimated at Rs. 300,000, including Rs. 50,000 for
staff relocation.
Required
State, with reasons, how the above should be treated in Georginas financial
statements for the year ended 30 September 2015.
Required
Explain how you would respond to the matters listed above. (13)
(d) An item has been produced at a manufacturing cost of Rs. 1,800 against a
customers order at an agreed price of Rs. 2,300. The item was in inventory at
the year-end awaiting delivery instructions. In January 2016 the customer was
declared bankrupt and the most reasonable course of action seems to be to
make a modification to the unit, costing approximately Rs. 300, which is
expected to make it marketable with other customers at a price of about Rs.
1,900.
(e) At 31 December a company has a total potential liability of Rs. 1,000,400 for
warranty work on contracts. Past experience shows that 10% of these costs
are likely to be incurred, that 30% may be incurred but that the remaining 60%
is highly unlikely to be incurred.
Required
For each of the above situations outline the accounting treatment you would
recommend and give the reasoning of principles involved. The accounting treatment
should refer to entries in the books and/or the year-end financial statements as
appropriate. (12)
Required
Discuss how Akber Chemicals (Pvt.) Limited would deal with the above
situations in its financial statements for the year ended June 30, 2015. Explain
your point of view with reference to the guidance contained in the International
Financial Reporting Standards. (13)
Required
Describe how each of the above transactions should be accounted for in the
financial statements of Walnut Limited for the year ended 31 December 2015.
Support your answer in the light of relevant International Financial Reporting
Standards. (16)
Required
State how the above events should be treated in ATLs financial statements for the
year ended June 30, 2015. You may assume that all the above events are material
to the company. (11)
Following additional information has not been taken into account in the
preparation of the above financial statements:
(i) Cost of repairs amounting to Rs. 20 million was erroneously debited to the
machinery account on 1 October 2013. The estimated useful life of the
machine is 10 years.
(ii) On 1 July 2014, WL reviewed the estimated useful life of its plant and
revised it from 5 years to 8 years. The plant was purchased on 1 July 2013 at
a cost of Rs. 70 million.
Depreciation is provided under the straight line method. Applicable tax rate is 30%.
Required
Prepare relevant extracts (including comparative figures) for the year ended 30 June
2015 related to the following:
(a) Statement of financial position
(b) Statement of profit or loss
(c) Statement of changes in equity
(d) Correction of error note (20)
11.2 DUNCAN
Duncan Company has previously written off any expenditure on borrowing costs in
the period in which it was incurred.
The company has appointed new auditors this year. They have expressed the view
that the previous recognition of borrowing costs in the statement of profit or loss was
in error. The company has decided to correct the error retrospectively in accordance
with IAS 8.
The financial statements for 2014 and the 2015 draft financial statements, both
reflecting the old policy, show the following.
Statement of changes in equity (extract)
2014 2015
Retained Retained
earnings earnings
Rs. 000 Rs. 000
Opening balance 22,500 23,950
Profit after tax for the period 3,200 4,712
Dividends paid (1,750) (2,500)
Closing balance 23,950 26,162
Borrowing costs written off were Rs. 500,000 in 2014 and Rs. 600,000 in 2015.
The directors have calculated that borrowing costs, net of depreciation which should
have been included in property, plant and equipment had the correct policy been
applied, are as follows.
Rs. 000
At 30 December 2013 400
At 31 December 2014 450
At 31 December 2015 180
Had the correct policy been in force depreciation of Rs. 450,000 would have been
charged in 2014 and Rs. 870,000 in 2015.
Required
Show how the change in accounting policy must be reflected in the statement of
changes in equity for the year ended 31 December 2015. Work to the nearest Rs.
000.
Required
Produce an extract showing the movement in retained earnings, as would
appear in the statement of changes in equity for the year ended December 31,
2015. (11)
During the year ended 30 June 2015 the following transactions took place.
(1) Rs. 45 million was charged against profit in respect of depreciation. The tax
computation showed capital allowances of Rs. 50 million.
(2) Interest receivable of Rs. 50,000 was reflected in profit for the period.
However, only Rs. 45,000 of interest was actually received during the year.
Interest is not taxed until it is received.
(3) Interest payable of Rs. 32,000 was treated as an expense for the period.
However, only Rs. 28,000 of interest was actually paid during the year.
Interest is not an allowable expense for tax purposes until it is paid.
(4) During the year Francesca incurred development costs of Rs. 500,600, which
it has capitalised. Development costs are an allowable expense for tax
purposes in the period in which they are paid.
(5) Land and buildings with a net book value of Rs. 4,900,500 were revalued to
Rs. 6 million.
The tax rate is 30%. Francesca has a right of offset between its deferred tax
liabilities and its deferred tax assets.
Required
Calculate the deferred tax liability on 30 June 2015. Show where the increase or
decrease in the liability in the year would be charged or credited.
Required
(a) Calculate the corporate income tax liability for the year ended 31st December
2016.
(b) Calculate the deferred tax balance that is required in the statement of financial
position as at 31st December 2016.
(c) Prepare a note showing the movement on the deferred tax account and thus
calculate the deferred tax charge for the year ended 31st December 2016
(d) Prepare the statement of profit or loss note which shows the compilation of the
tax expense for the year ended 31st December 2016.
(e) Prepare a note to reconcile the product of the accounting profit and the tax
rate to the tax expense for year ended 31st December 2016.
(f) Entertainment
Shep paid for a large office party during 2017 to celebrate a successful first
two years of the business. This cost Rs. 20,000. Assume that this expenditure
is not tax deductible.
Required
(a) Calculate the corporate income tax liability for the year ended 31st December
2017.
(b) Calculate the deferred tax balance that is required in the statement of financial
position as at 31st December 2017.
(c) Prepare a note showing the movement on the deferred tax account and thus
calculate the deferred tax charge for the year ended 31st December 2017
(d) Prepare the statement of profit or loss note which shows the compilation of the
tax expense for the year ended 31st December 2017.
(e) Prepare a note to reconcile the product of the accounting profit and the tax
rate to the tax expense for year ended 31st December 2017.
Required
(a) Calculate the corporate income tax liability for the year ended 31st December
2017.
(b) Calculate the deferred tax balance that is required in the statement of financial
position as at 31st December 2017.
(c) Prepare a note showing the movement on the deferred tax account and thus
calculate the deferred tax charge for the year ended 31st December 2017
(d) Prepare the statement of profit or loss note which shows the compilation of the
tax expense for the year ended 31st December 2017.
(e) Prepare a note to reconcile the product of the accounting profit and the tax
rate to the tax expense for year ended 31st December 2017.
No additions or disposals of fixed assets were made in the years 2014 and
2015.
(iii) Machinery was acquired on January 1, 2013 and is being depreciated on
straight- line basis over its estimated useful life of 8 years. The tax base of
machinery as at December 31, 2013 was Rs. 90 million.
(iv) Furniture and fittings are also depreciated on the straight line basis at the
rate of 10% per annum. The tax base of furniture and fittings as at December
31, 2013 was Rs. 40.5 million.
(v) Normal rate of tax depreciation on both types of assets is 10% on written
down value.
(vi) The tax rates for 2013, 2014 and 2015 were 35%, 35% and 30% respectively.
Required
For each year:
(a) Calculate the corporate income tax liability for the year.
(b) Calculate the deferred tax balance that is required in the statement of financial
position as at the year end.
(c) Prepare a note showing the movement on the deferred tax account and thus
calculate the deferred tax charge for the year.
(d) Prepare the statement of profit or loss note which shows the compilation of the
tax expense.
(e) Prepare a note to reconcile the product of the accounting profit and the tax
rate to the tax expense. (25)
Required
Based on the available information, compute the current and deferred tax
expenses for the year ended December 31, 2015. (15)
Required
(a) Prepare journal entries in the books of Mars Limited for the year ended June
30, 2015 to record the above transactions including tax and deferred tax.
(b) Prepare a note to the financial statements related to disclosure of finance
lease liability, in accordance with the requirements of IFRS. (18)
(Ignore comparative figures.)
Required
(a) Prepare journal entries in respect of taxation, for the year ended December 31,
2015.
(b) Prepare a reconciliation to explain the relationship between tax expense and
accounting profit as is required to be disclosed under IAS 12 Income Taxes.
(18)
(iv) GI earned interest on Special Investment Bonds amounting to Rs. 1.0 million
and Rs. 1.25 million in the years 2014 and 2015 respectively. This income is
exempt from tax.
(v) GI operates an unfunded gratuity scheme. The provision during the years
2014 and 2015 amounted to Rs. 1.7 million and Rs. 2.2 million respectively.
No payment has so far been made on account of gratuity.
(vi) The applicable tax rate is 35%.
Required
Prepare a note on taxation for inclusion in the companys financial statements for
the year ended December 31, 2015 giving appropriate disclosures relating to
current and deferred tax expenses including a reconciliation to explain the
relationship between tax expense and accounting profit. (20)
Required
Prepare a note on taxation for inclusion in ALs financial statements for the year
ended 31 December 2015 giving appropriate disclosures relating to current and
deferred tax expenses including comparative figures for 2014 and a reconciliation to
explain the relationship between 2015 tax expense and 2015 accounting profit.
(21)
13.1 WASIM
Wasim is an importer and retailer of vegetable oils. Extracts from the financial
statements for this year and last are set out below.
Income statements for the years ended 30 September
Year 7 Year 6
Rs.000 Rs.000
Revenue 1,806
2,160
Cost of sales (1,755) (1,444)
Gross profit 405 362
Distribution costs (130) (108)
Administrative expenses (260) (198)
Profit before tax 15 56
Income tax expense (6) (3)
Profit for the period 9 53
Current assets
Inventories 106 61
Trade receivables 316 198
Cash - 6
422 265
Total assets 500 337
Equity and liabilities
Equity
Ordinaryshares 110 85
Preference shares 23 11
Share premium 15 -
Revaluation reserve 20 20
Retained earnings 78 74
246 190
Current liabilities
Bank overdraft 49 -
Trade payables 198 142
Current tax payable 7 5
254 147
Total equity and liabilities 500 337
Required
Define and calculate the following ratios:
a) Gross profit percentage.
b) Net profit percentage
c) Return on capital employed
d) Asset turnover
e) Current ratio
f) Quick ratio
g) Average receivables collection period
h) Average payables period
i) Inventory turnover
190,000 780,000
Current assets
Inventories 12,000 26,250
Trade receivables 37,500 105,000
Cash at bank 500 22,000
50,000 153,250
Total assets 240,000 933,250
Current liabilities
Trade payables 22,605 117,670
Total equity and liabilities 240,000 933,250
Required
Define and calculate the following ratios for each company:
a) Gross profit percentage.
b) Net profit percentage
c) Return on capital employed
d) Asset turnover
e) Current ratio
f) Quick ratio
g) Average receivables collection period
h) Average payables period
i) Inventory turnover
Required
Explain the ethical issues inherent in the above conversation and what Waheed
should do about them.
During the year ended 31 December 2015 Sindh Industries entered into the
following transactions.
(1) Just before the year end Sindh Industries signed a contract to deliver
consultancy services for a period of 2 years at a fee of Rs. 500,000 per
annum. The full amount of this fee has been paid in advance and is non-
refundable.
(2) Sindh Industries has constructed a new factory. The construction has been
financed from the pool of existing borrowings. Land at a cost of Rs. 1.8 million
was acquired on 1 February 2015 and construction began on 1 June 2015.
Construction was completed on 30 September 2015 at an additional cost of
Rs. 2.7 million. Although the factory was usable from that date, full production
did not commence until 1 December 2015. Throughout the year the
companys average borrowings were as follows:
Annual
interest
Amount rate
Rs. %
Bank overdraft 1,000,000 9.75
Bank loan 1,750,000 10
Debenture 2,500,000 8
An amount of Rs. 450,000 has been included in property, plant and equipment
in respect of borrowing costs relating to the construction of the factory. The
useful life of the factory has been estimated at 20 years. No depreciation has
been charged for the year. The reason for this is that the factory has only been
in use for one month and that the depreciation charge would be immaterial.
(3) A blast furnace with a carrying amount at 1 January 2015 of Rs. 3.5 million
has been depreciated in the draft financial statements on the basis of a
remaining life of 20 years. In December 2015 the directors carried out a review
of the useful lives of various significant items of plant and machinery, including
the blast furnace and came to the conclusion that the useful life of the furnace
was 20 years at 31 December 2015. The reasoning behind this judgement
was that the lining of the furnace had been replaced in the last week of
December 20X6 at a cost of Rs. 1.4 million. Provided that the lining is
replaced every five years, the life of the furnace can be extended accordingly.
You have found a report, commissioned by the previous finance director and
prepared by a firm of asset valuation specialists, which assesses the
remaining useful life of the main structure of the furnace at 1 January 2015 at
15 years and the lining of the furnace at 5 years. You have also found
evidence that the managing director has seen this report.
Jafar has had a conversation with the managing director who told him, We
need to make the figures look as good as possible so I hope youre not going
to start being difficult. The consultancy fee is non-refundable so theres no
reason why we cant include it in full. I think we should look at our depreciation
policies. Were writing off our assets over far too short a period. As you know,
were planning to go for a stock market listing in the near future and being
prudent and playing safe wont help us do that. It wont help your future with
this company either.
Required
(a) Explain the required IFRS accounting treatment of these issues, preparing
relevant calculations where appropriate. (17)
(b) Prepare a revised draft of the statement of profit or loss extract for the year
ended 31 December 2015 and the statement of financial position at that date.
(6)
(c) Discuss the ethical issues arising from your review of the draft financial
statements and the actions that you should consider. (5)
B
Financial accounting and reporting II
SECTION
Answers
2.1 LARRY
Statement of profit or loss
For the year ended 31 December 2015
Rs. in
million
Revenue 3,304
Cost of sales (2,542 + 118 127) (2,533)
Gross profit 771
Other income 20
Distribution costs (175)
Administrative expenses (342)
Profit before tax 274
Income tax expense (75)
Profit for the period 199
Workings
(1) Property, plant and equipment
Rs. in
million
Cost brought forward
Leasehold 300
Computers 50
Revaluation 60
Cost carried forward 410
Accumulated depreciation brought forward (60 + 20) 80
Revaluation (60)
Charge for the year
Leasehold (360 30) 12
Computers (50 5) 10
Accumulated depreciation carried forward 42
Carrying amount carried forward 368
(2) Intangible assets
Rs. in
million
Cost 60
Amortisation (60 3) (20)
Carried forward 40
(3) Allocation of costs
Amounts in Rs. million
Change
in Staff Depreciat Other
inventori costs ion etc expenses
es
Work-in-progress (140 (15)
125)
Staff costs 260
Finished goods (180 (25)
155)
Consultancy fees 44
Directors salaries 360
Doubtful receivables (420 21
5%)
Sundry 294
Amortisation of patent 20
(W2)
Depreciation (12 + 10) 22
(W1)
(40) 620 42 359
2.3 BARRY
Barry
Statement of profit or loss
For the year ended 31st August 2015
Rs. in
million
Revenue 30,000
Cost of sales (W1) (19,650)
Gross profit 10,350
Distribution costs (W1) (1,370)
Administrative expenses (W1) (1,930)
Profit from operations 7,050
Finance costs (350)
Profit before tax 6,700
Tax (W2) (2,500)
Profit after tax 4,200
Barry
Statement of financial position
As at 31st August 2015
Rs. in
million
ASSETS
Non-current assets
Property, plant and equipment 39,600
Current assets
Inventory 4,600
Trade and other receivables (7,400 + 200) 7,600
Cash and cash equivalents 700
12,900
Total assets 52,500
EQUITY AND LIABILITIES
Capital and reserves
Equity shares 21,000
Share premium 2,000
Accumulated profits (W3) 11,800
Total equity 34,800
Revaluation reserve (W4) 4,700
Non current liabilities
Borrowings 5,200
Current liabilities
Trade and other payables 5,300
Taxation (2,100 + 400) 2,500
7,800
Total equity and liabilities 52,500
Depreciation
At 1 Sept 2014 - 3,000 4,000 3,700 - 10,700
Revaluation - (3,000) - - - (3,000)
Charge for year - 1,000 2,550 700 - 4,250
Workings
Workings
Workings
(1) Cost of sales Rs. in 000
As given in the trial balance 134,000
Depreciation of plant and equipment: 20% (197,000 30,000
47,000)
Depreciation of leased vehicles: 24,000/4 years 6,000
Amortisation of leasehold property: 250,000/25 years 10,000
180,000
Finance lease
Fair value of leased assets 24,000
Less: First rental payment, paid in advance (7,000)
1 October 2014
Remaining obligation, 1 October 2014 17,000
Interest at 10% to 30 September 2015 (current liability) 1,700
Lease payment due 1 October 2015 7,000
Capital repayment due (= balance, current liability) (5,300)
Remaining lease obligation = non-current liability 11,700
(3) Loan notes
The effective interest rate is 6%. Actual interest paid was Rs.1,500,000
(in trial balance); therefore the balancing Rs.1,500,000 should be added
to the loan notes obligation, to make the total loan notes liability Rs.50
million + Rs.1,500,000 = Rs.51.5 million.
(4) Taxation
Deferred tax liability b/f 20,000
Deferred tax: credit in the statement of profit or loss 2,000
Deferred tax liability c/f (92,000 25%) 23,000
Tax expense
Income tax on profits for the year 18,000
Deferred tax movement 3,000
Tax charge in the statement of profit or loss 21,000
The annual depreciation charges for plant and equipment and the leased
vehicles are shown in workings (1) Rs. in 000
Cost or Accumulated Carrying
valuation depreciation amount
Leasehold property 220,000 0 220,000
Plant and equipment 197,000 77,000 120,000
(non-leased)
Leased vehicles 24,000 6,000 18,000
441,000 83,000 358,000
63,100
Total assets 159,300
Equity and liabilities:
Equity
Share capital 70,000
Retained earnings (w (iii)) 41,600
117,100
Revaluation reserve (w (iii)) 5,500
Non-current liabilities
Deferred tax 6,000
Current liabilities
Trade payables (23,800 400 + 100 re legal action) 23,500
Bank overdraft 1,300
Current tax payable 11,400
36,200
Total equity and liabilities 159,300
Note: As it is considered that the outcome of the legal action against Sarhad
Sugar Limited is unlikely to succeed (only a 20% chance) it is inappropriate to
provide for any damages. The potential damages are an example of a
contingent liability which should be disclosed (at Rs.2 million) as a note to the
financial statements. The unrecoverable legal costs are a liability (the start of
the legal action is a past event) and should be provided for in full.
Workings (figures in brackets in Rs.000)
(i) Cost of sales: Rs. in 000
Per trial balance 204,000
Depreciation (w (iii)) leasehold property 2,500
plant and equipment 9,600
Loss on disposal of plant (4,000 2,500) 1,500
Amortisation of development costs (w (iii)) 4,000
Research and development expensed (1,400 + 2,400 (w (iii)) 3,800
225,400
(ii) Non-current assets:
Leasehold property
Valuation at 1 October 2014 50,000
Depreciation for year (20 year life) (2,500)
Carrying amount at date of revaluation 47,500
Valuation at 30 September 2015 (43,000)
Revaluation deficit 4,500
Note: development costs can only be treated as an asset from the point
where they meet the recognition criteria in IAS 38 Intangible assets.
Thus development costs from 1 April to 30 September 2015 of Rs.48
million (800 x 6 months) can be capitalised. These will not be amortised
as the project is still in development.
The research costs of Rs.14 million plus three months development
costs of Rs.24 million (800 x 3 months) (i.e. those incurred before 1
April 2015) are treated as an expense.
(iii) Movements on reserves
Revaluation Retained
surplus earnings
Rs. in 000
Balances at 1 October 2014 10,000 24,500
Dividend (6,000)
Comprehensive income 23,100
Revaluation loss (4,500)
Balances at 30 September 2015 5,500 41,600
Rs. in
million
EQUITY AND LIABILITIES
Share capital and reserves
Authorized share capital
50,000,000 shares of Rs. 10 each 500
Rs. in
Notes million
1. Property, plant and equipment
Operating assets 556
Capital work in progress building 20
576
Accumulated
depreciation
As of July 01 2014 - 19.5 22.5 5.9 47.9
For the year - 6.5 18.1
(105 85) + 10% 15 9.5
8
/12)
(105 19) + 10% 8 3/12) 2.1
Disposals - - (5.0) - (5.0)
As at June 30 2015 - 26.0 27.0 8.0 61.0
Carrying amount 375.0 104.0 58.0 19.0 556.0
Depreciation rate - 5% 10% 10%
1.2 Revaluation
During the year 2011, the first revaluation of freehold land was carried out.
The valuation was carried out under market value basis by an independent
valuer, Mr. Dee, Chartered Civil Engineer of M/s SSS Consultants (Pvt.)
Ltd., Islamabad. It resulted in a surplus of Rs. 120 million over book values
which was credited to surplus on revaluation of fixed assets. Had there
been no revaluation, the value of freehold land would be Rs. 255 million.
Note 2015
Rs. in
million
2. Intangible Assets
Cost of computer software/license 10.0
Accumulated Amortization as of July 1, 2014 1.0
Amortization for the year 1.0
Accumulated Amortization as of June 30, 2015 2.0
Carrying value as at June 30, 2015 8.0
Amortization rate 10%
3. Accounts Receivable
Considered good
- Secured 30
- Unsecured 27
57
Considered doubtful 3
60
Less: Provision for bad debts 3.1 3
57
5 Cash at banks
Cash at banks - current accounts 7
saving accounts 5.1 22
29
5.1: It carries interest / mark up ranging from 3% to 7% per annum.
Non-current liabilities
Redeemable preference shares 40.00
Debentures 80.00
Deferred taxation (W 10) 9.00
129.00
Current liabilities
Trade payables 30.40
Accrued expenses (W3) 25.00
Taxation 16.50
Bank overdraft 13.25
85.15
Total equity and liabilities 462.50
Rs. in
million
Carrying amount at the 30 June (as per trial balance)(230.00 40.25) 189.75
Add back depreciation incorrectly charged (see above) 5.75
Carrying amount of property at the start of the year 195.5
Depreciation charge based on the revalued amount (238/34 years) = Rs. 7 million
Dr Cr
Cost of sales (50%) 3.5
Administrative expenses (30%) 2.1
Distribution costs (20%) 1.4
Accumulated depreciation 7.00
Shaheen Limited
Statement of changes in equity 2015
As of June 30, 2015 Rs.000
Issued,
Retained
subscribed &
earnings
paid up capital
Balance July 1, 2014 60,000 32,000*
Correction of prior year error (10,000 20/120) (1,667)
Balance July 1, 2014 (restated) 60,000 30,333
Comprehensive income for the year 17,039
Dividend for the year ended June 30, 2014
(60,000*0.20) (12,000)
Balance June 30, 2015 60,000 35,372
*Retained earnings as at 01-07-09 = 20,000+ (20% of 60,000)=32,000
Workings
W1 Depreciation for the year
On building (36,000/20) 1,800
On plant and equipment (30,000 3,000)/10 2,700
Total 4,500
W3:Taxation
profit before tax 23,567
Disallowances and add backs 5,000
Taxable income 28,567
Current For the year (28,567*0.35) 9,998
For prior years (7,000 5,000) (2,000)
Deferred For the year (5,000 800)*0.35 (1,470)
6,528
Current assets
Stocks in trade 758
Trade receivables 702
Cash and bank 354
1,814
5,286
EQUITY
Issued, subscribed and paid-up capital (W3) 1,750
Share premium (420 x 2/12) 70
Retained earnings (W3) 876
2,696
LIABILITIES
Non-current liabilities
Long term loan 1,600
Deferred tax (22 + 80 x 35%) 50
Provision for gratuity 23
1,673
Current liabilities
Creditor and other liabilities (544 + 96) 640
Income tax payable 37
677
5,286
Rs. in
1 Sales Note million
Manufactured goods
Gross sales 56,528
Sales tax (10,201)
46,327
Imported goods
Gross sales 1,078
Sales tax (53)
1,025
Sales discounts (2,594)
44,758
2 Cost of sales
Raw material consumed (1,751 + 22,603 - 2,125) 22,229
Stores and spares consumed 180
Salaries, wages and benefits (2,367 55%) 2.1 1,302
Utilities (734 85%) 624
Depreciation and amortizations (1.287 70%) 901
Stationery and office expenses (230 25%) 58
Repairs and maintenance (315 85%) 268
25,562
Opening work in process 73
Closing work in process (125)
25,510
Opening finished goods (manufactured) 1,210
Closing finished goods (manufactured) (1,153)
25,567
Finished goods (imported)
Opening stock 44
Purchases 658
702
Closing stock (66)
636
26,203
2.1 Salaries, wages and benefits include Rs. 30 million (54 55%) and Rs. 24
million (44 55%) in respect of defined contribution plan and defined benefit
plan respectively.
Rs. in
3 Distribution costs million
Advertisement and sales promotion 4,040
Outward freight and handling 1,279
Salaries, wages and benefits (2,367 30%) 3.2 710
Utilities (734 5%) 37
Depreciation and amortization (1,287 20%) 257
Stationery and office expenses (230 40%) 92
Repairs and maintenance (315 5%) 16
6,431
Salaries, wages and benefits include Rs. 16 million (54 30%) and Rs. 13
million (4430%) in respect of defined contribution plan and defined benefit plan
3.1 respectively.
Rs. in
4 Administrative expenses million
Salaries, wages and benefits (2,367 15%) 4.1 355
Utilities (734 10%) 73
Depreciation and amortization (1,287 10%) 129
Stationery and office expenses (230 35%) 80
Repairs and maintenance (315 10%) 31
Legal and professional charges 71
Auditor's remuneration 4.2 13
752
Salaries, wages and benefits include Rs. 8 million (54 15%) and Rs. 7 million
(4415%) in respect of defined contribution plan and defined benefit plan
4.1 respectively.
Rs. in
4.2 Auditor's remuneration million
Audit fees 8
Taxation services 4
Out of pocket expenses 1
13
5 Other operating expenses
Donation 5.1 34
Worker's Profit Participation Fund 257
Worker Welfare Fund 98
Loss on disposal of property, plant and equipment 10
399
5.1 Donations
Donations include Rs. 5 million given to Dates Cancer Foundation (DCF). One
of the companys directors, Mr. Peanut is a trustee of DCH.
Donations other than that mentioned above were not made to any donee in
which a director or his spouse had any interest at any time during the year.
Rs. in
6 Other operating income million
Income from financial assets
Dividend income 12
Return on savings account 2
Income from non-financial assets
Scrap sales 16
30
7 Finance costs
Finance charges on short term borrowings 133
Exchange loss 22
Finance charges on lease 11
166
8 Taxation
Current - for the year 1,440
Deferred (3,120 35%) 1,092
2,532
3.1 KLEA
Statement of cash flows for the year ended 31st March 2015
Rs. in 000
Cash flows from operating activities
Profit before taxation 1,606
Adjustments for:
Depreciation (W4) 800
Finance income (50)
Interest expense 320
2,676
Increase in trade receivables (400)
Increase in inventories (1,200)
Increase in trade payables 334
Cash generated from operations 1,410
Interest paid (320)
Income taxes paid (W1) (630)
Net cash from operating activities 460
Cash flows from investing activities
Purchase of intangible assets (W2) (300)
Purchase of property, plant and equipment (W3) (1,600)
Proceeds from sale of equipment 150
Purchase of long-term investments (200)
Finance income received 50
Net cash used in investing activities (1,900)
Hence add back of depreciation and amortisation also takes account of the
profit on disposal of the plant and machinery.
(W5) Disposal
Cost of disposal 600
Accumulated depreciation (500)
Net book value 100
Proceeds of sale 150
Profit on sale 50
Rs.000 Rs.000
Balance b/d 120,000 Disposals account 8,000
Additions 39,000 Balance c/d 151,000
159,000 159,000
Rs.000 Rs.000
Balance b/d 24,000 Disposals account 5,000
Additions 10,000 Balance c/d 29,000
34,000 34,000
Rs.000 Rs.000
Disposals account 6,000 Balance b/d 45,000
Balance c/d 54,000 Charge for year 15,000
60,000 60,000
Rs.000 Rs.000
Disposals account 2,000 Balance b/d 13,000
Balance c/d 15,000 Charge for year 4,000
17,000 17,000
Rs.000 Rs.000
Plant cost 8,000 Plant depreciation 6,000
Fittings cost 5,000 Fittings depreciation 2,000
Cash proceeds
Plant 3,000
Fittings 1,000
Depreciation underprovided
(bal fig) 1,000
13,000 13,000
Rs.000 Rs.000
Cash paid (bal fig) 10,500 Balance b/f corporation tax 21,500
Balance c/f corporation tax 33,000 I&E account corporation tax 22,000
43,500 43,500
3.3 FALLEN
Statement of cash flows for the year ended 31 December 2015
Cash flows from operating activities Rs. in 000
Net profit before tax 4,625
Adjustments for:
Depreciation, (W1-3) 1,472
Interest payable 152
Operating profit 6,249
Increase in deferred repairs provision 186
Increase in inventories (894)
Increase in receivables (594)
Increase in payables 324
Cash generated from operations 5,271
Interest paid (152)
Tax paid (W5) (1,775)
Net cash from operating activities 3,344
(3) Disposals
Plant 276 Cash 168
Loss on sale (to balance) 108
276 276
(4) Dividends
Cash (to balance) 544 Brought forward 234
Carried forward 390 I&E account 700
934 934
(5) Taxation
Cash (to balance) 1,775 Brought forward
Carried forward DT 138
DT 202 CT 2,038
CT 1,730
I&E account 1,531
3,707 3,707
(9) Analysis of the balances of cash and cash equivalents as shown in the
statement of financial position
Cash and cash equivalents consist of cash on hand and balances with banks.
Rs. in 000
2015 2014 Change in
year
Cash at bank and in hand 576 (576)
Bank overdrafts (222) (222)
(222) 576 (798)
Plant cost
Balance b/f 1,220
Disposal (500)
Balance c/f (1,568)
Difference cash purchase (848)
Depreciation of non-current assets:
Building (760 680) 80
Plant (464 (432 244)) 276
The plant had a carrying value of Rs.256,000 at the date of its disposal (500
cost 244 depreciation). As there was a loss on sale of Rs.86,000 (given in
question), the sale proceeds must have been Rs.170,000 (i.e. 256 86).
(W2) Deferred income
Balances b/f current (125)
non-current (200)
(325)
Amortisation credited to cost of sales 125
Balances c/f current 100
non-current 275
375
Difference cash receipt 175
Disposal of plant:
Disposal at net book value (see above) 70
Loss on sale (given in the question) (50)
Difference = Sale proceeds 20
(W4) Share capital
Rs.m
Opening balance, ordinary shares 500
Bonus issue 1 for 10 (from retained earnings) 50
550
Closing balance, ordinary shares 750
Difference: shares issued for cash (nominal value) 200
Plus increase in share premium (350 100) 250
Total cash proceeds of issue of ordinary shares 450
(b) The cash flows generated from operations were Rs.685 million and are more
than enough to pay the interest costs and taxation, but these cash flows are
not as large as the equivalent profit figure. For most companies the operating
cash flows are higher than the profit before interest and tax due to the effects
of depreciation/amortisation charges (which are not cash flows). In the case of
Ittehad Manufacturing Ltd the depreciation/amortisation effect has been more
than offset by a much higher investment in working capital of Rs.645 million.
Inventory has increased by over 50% and accounts receivable by 45%. This
may be an indication of expanding activity, but it could also be an indication of
poor inventory management policy and poor credit control, or even the
presence of some obsolete inventory or unprovided bad accounts receivable.
A cause of concern is the size of the dividends, which seem high at Rs.320
million. This is a very high distribution ratio, and it seems odd that the
company is returning such large amounts to shareholders at the same time as
they are raising finance. Rs.450 million has been received from the issue of
new shares and Rs.200 million from a further issue of loan notes.
The company has invested considerably in new plant (Rs.250 million) and
even more so in development expenditure (Rs.500 million). If management
has properly applied the capitalisation criteria in IAS 38 Intangible Assets, then
this indicates that they expect good future returns from the investment in new
products or processes. The net investment in non-current assets is Rs.680
million which closely correlates to the proceeds from financing of Rs.650
million. In general it is acceptable to finance increases in the capacity of non-
current assets by raising additional finance, however operating cash flows
should finance replacement of consumed non-current assets.
WORKING 1
Rs. in
million
Capital expenditure incurred
Book value of PPE - Closing 129.40
Book value of CWIP - Closing 22.50
Add: Book value of assets sold during the year 15.00
Add: Depreciation for the year 27.70
Less: Book value of PPE - Opening (100.60)
Less: Book value of CWIP - Opening (37.00)
57.00
WORKING 2
Rs. in
million
Gratuity paid during the year
Opening balance 27.50
Provision for gratuity 15.50
43.00
Less: Closing balance (38.60)
Gratuity paid during the year 4.40
WORKING 3
Bad debts expense for the year
Closing balance (28.5 0.95) - 28.5 1.50
Less: Opening balance (24.7 0.95) - 24.7 (1.30)
Add: Bad debts written off 1.00
Bad debts expense for the year 1.20
WORKING 4
Increase in trade debts
Closing balance (28.5 0.95) 30.00
Less: Opening balance (24.7 / 0.95) (26.00)
Add: Bad debts written off 1.00
5.00
WORKING 5
Issue of share capital
Closing balance of paid up capital 396.00
Closing balance of share premium 45.00
Less:
Opening balance of paid up capital (300.00)
Opening balance of share premium (12.00)
Issue of bonus shares (300 x 10%) (30.00)
99.00
Workings 2015
Cash flows from operating activities Rs.m
Profit before taxation 88.00
Adjustment for non-cash charges and other items:
Depreciation 50.00
Impairment of plant and machinery 11.00
Financial charges 75.00
Gain on sale of fixed assets (2.00)
Gain on sale of investments (3.00)
Dividend income (30.00)
Provision for gratuity payable (55 - 50 + 6) 11.00
Working capital changes
Decrease / (increase) in current assets:
Increase in stock-in-trade (97 - 68) (29.00)
Increase in trade debts (see tutorial note) (76.00)
Other current assets (100 - 120) 20.00
Increase / (decrease) in current liabilities:
Trade and other payables ([73 - 7] - [56 - 3]) 13.00
Cash generated from operations 128.00
Financial charges paid (3 + 75 - 7) (71.00)
Income tax paid (5 + 21 + 21 - 12 - 15) (20.00)
Gratuity paid (6.00)
Net cash generated from operating activities 31.00
4.1 HALL
Consolidated statement of financial position as at 31 December 2015
Rs.000
Assets
Non-current assets
Property, plant and equipment (35,000 + 20,000) 55,000
Goodwill 3,000
58,000
Current assets (16,000 + 14,000) 30,000
88,000
Equity and liabilities
Capital and reserves
Share capital 10,000
Retained earnings (W5) 16,000
26,000
Hall
75%
Stand
(3) Goodwill
Rs.000
Cost of shares 12,000
Less Net assets acquired (75% 12,000 (W2)) (9,000)
3,000
4.2 HASSLE
Consolidated statement of financial position as at 31 December 2015
Rs.
Sundry net assets (207,500 + 226,600) 474,100
474,100
474,100
WORKINGS
80%
Strife
4.3 HYMN
Consolidated statement of financial position as at 31 December 2015
Rs.
Assets
Non-current assets
Property, plant and equipment 170,000
Goodwill 29,000
Current assets 275,000
474,000
WORKINGS
(1) Group structure
Hymn
80%
Psalm
4.4 HANG
Consolidated statement of financial position as at 31 December 2015
Rs.
Assets
Non-current assets
Property, plant and equipment (240 + 180) 420,000
Goodwill 26,600
WORKINGS
(1) Group structure
Hang
60%
Swing
4.5 HASH
Consolidated statement of financial position as at 31 December 2015
Rs.000
Sundry net assets (207,500 + 226,600) 434,100
Goodwill (W2) 8,800
442,900
Share capital 120,000
Retained earnings (W5) 92,300
212,300
Non-controlling interests (W4) 24,000
Sundry liabilities (100,000 + 106,600) 206,600
442,900
WORKINGS
(1) Group structure
Hash
80%
Stash
(2) Net assets of Stash
Reporting Date of Post
date acquisition acquisition
Rs.000 Rs.000
Share capital 50,000 50,000
Retained earnings:
At the start of the year
(70,000 24,000) 46,000
Profit for the first 9m
(24,000 9/12) 18,000
70,000 64,000 6,000
120,000 114,000
5.1 HAIL
Consolidated statement of financial position as at 31 December 2015
Rs.000 Rs.000
Assets
Non-current assets
Property, plant and equipment 246,000
Investments (68,000 65,000) 3,000
Goodwill (W3) 6,500
Current assets
Cash at bank and in hand 39,900
Trade receivables 138,300
Inventories 92,400
526,100
Equity and liabilities
Capital and reserves
Share capital 100,000
Capital reserve (W6) 18,000
Retained earnings (W5) 210,480
328,480
Non-controlling interest (W4) 11,420
Current liabilities
Trade payables 183,000
Proposed dividend parent company 3,000
non controlling interest 200
3,200
526,100
WORKINGS
(1) Group structure
Hail
90%
Snow
(3) Goodwill
Rs.000
Cost of shares 65,000
Net assets acquired (90% 65,000) (W2) (58,500)
6,500
5.2 HAIRY
WORKINGS
(1) Group structure
Hairy
80%
Spider
5.3 HARD
Consolidated statement of financial position as at 31 December 2015
Rs.000
Assets
Non-current assets
Property, plant and equipment (225 + 175 17.5 (W6)) 382,500
Goodwill (W3) 14,000
Hard
60%
Soft
5.4 HALE
(a) Consolidated statement of financial position as at 31 December 2015
Rs.000
Assets
Non-current assets
Property, plant and equipment
(152,000 + 129,600 + 28,000 (W2)) 309,600
Goodwill (W3) 61,400
Current assets
Bank (41,000 + 8,000) 49,000
Receivables (104,000 + 84,000) 188,000
Inventory (112,000 + 74,400 3,200 (W6)) 183,200
791,200
Equity and liabilities
Capital and reserves
Share capital 100,000
Retained earnings (W5) 555,200
655,200
Non-controlling interest (W3) 60,000
Current liabilities (52,000 + 24,000) 76,000
791,200
WORKINGS
(1) Group structure
Hale
128
160
= 80% ord
ordords
ords
Sowen
(3) Goodwill
Rs.000
Cost of shares 203,000
Less Net assets acquired (80% 177,000 (W2)) (141,600)
61,400
(4) Non-controlling interest
Share of net assets (20% 300,000 (W2)) Rs.000
60,000
(5) Retained earnings
Rs.000
Hale 460,000
PURP (W6) (3,200)
Sowen (80% 123,000 (W2)) 98,400
555,200
(6) Unrealised profits
% Rs.000
SP 125 16,000
Cost (100) (12,800)
GP 25 3,200
5.5 HELLO
Consolidated statement of financial position as at 31 December 2015
Rs.
Assets
Non-current assets
Property, plant and equipment (225 + 175 + 10 2) 408,000
Goodwill (W3) 8,000
WORKINGS
(1) Group structure
Hello
60%
Solong
6,420
Non-controlling interest (W5) 350
Non-current liabilities
Government grants (230 + 40) 270
Current liabilities
Trade payables (475 + 472) 947
Operating overdraft 27
Income tax liability (228 + 174) 402
1,376
Workings
(W1) Property, plant and equipment
Rs.000
Balance from question Hasan Limited 2,120
Balance from question Shakeel Limited 1,990
Fair value adjustment on acquisition (see below) (120)
Over-depreciation re fair value adjustment year to 31 March 2015 30
4,020
A fair value of the leasehold based on the present value of the future
rentals (receivable in advance) would be the next (non-discounted)
payment of the rental plus the final three years as an annuity at 10%:
Rs.000
PV of rental receipts: Rs.80,000 + (Rs.80,000 2.50) 280
Carrying value on acquisition is (400)
1,274
Rs.000
Parent company share of post-acquisition loss (90%) (360)
Hasan Limited reserves at 31 March 2015 2,900
Goodwill impairment (120)
(W4) Goodwill
Rs.000
At acquisition date
Shares of Shakeel Limited 1,500
Share premium of Shakeel Limited 500
Retained earnings of Shakeel Limited 2,200
Fair value adjustments:
Leasehold (W1) (120)
Software (W1) (180)
3,900
WORKINGS
(1) Group structure
Harry
75%
Sally
6.2 HORNY
Consolidated statement of profit or loss for the year ended 31 December
2015
Rs.000
Revenue 362,000
Cost of sales (169,050)
Gross profit 192,950
Operating costs (93,817)
Operating profit 99,133
Investment income 13,100
Negative goodwill 3,800
Profit before tax 116,033
Income tax (48,400)
Profit after tax 67,633
Non-controlling interest (W3) (2,996)
Profit 64,637
WORKINGS
(1) Group structure
Horny
Smooth
6.3 HERON
Consolidated statement of financial position as at 30 June 2015
Rs.000
Assets
Non-current assets
Property, plant and equipment (31,000 + 15,000) 46,000
Consolidated statement of profit or loss for the year ended 30 June 2015
Rs.000
Revenue (30,000 + 25,000) 55,000
Cost of sales (9,000 + 10,000) (19,000)
Gross profit 36,000
Distribution costs (3,000 + 1,200) (4,200)
Administrative expenses (1,000 + 2,800) (3,800)
Finance costs (2,000)
Profit before tax 26,000
Income tax expense (3,000 + 3,000) (6,000)
Profit for the period
20,000
1
Non-controlling interest (3 8,000) (2,667)
Profit for the financial year attributable to the members of Heron Inc 17,333
Consolidated statement of changes in equity for the year ended 30 June 2015
(extract)
2
Retained earnings brought forward (8,000 + (3 10,500)) 15,000
Profit for the financial year attributable to the members of Heron Inc 17,333
Retained earnings carried forward 32,333
6.4 HANKS
Consolidated statement of financial position as at 31 December 2015
Rs.000 Rs.000
Assets
Non-current assets
Property, plant and equipment
(32,000 + 25,000 + 20,000 + 6,000) 83,000
Goodwill 4,500
87,500
Current assets
Cash at bank and in hand (9,500 + 2,000 + 4,000) 15,500
Receivables (20,000 + 8,000 + 17,000) 45,000
Inventory (30,000 + 18,000 + 18,000 2,100) 63,900
124,400
Total assets 211,900
Equity and liabilities
Share capital 40,000
Share premium account 6,500
Retained earnings (W5) 88,300
134,800
Current liabilities
Trade payables (23,500 + 6,000 + 17,000) 46,500
Proposed dividends to minority shareholders (2,500 2,000) 500
to Hankss shareholders 2,000
49,000
Total equity and liabilities 211,900
Consolidated statement of profit or loss for the year ended 31 December 2015
Rs.000
Revenue (W6) 310,000
Cost of sales (W6) (159,100)
Gross profit 150,900
Distribution costs (W6) (51,000)
Administrative expenses (W6) (29,500)
Profit before taxation 70,400
Tax (W6) (24,000)
Profit after taxation 46,400
Non-controlling interest (W6) (9,200)
Profit 37,200
WORKINGS
(1) Group structure
Hanks
80% 60%
Streep Scott
Scott
Reporting Date of Post
date acquisition acquisition
Rs.000 Rs.000
Share capital 15,000 15,000
Retained earnings 27,000 3,000 24,000
Revaluation reserve 6,000 6,000
48,000 24,000
Goodwill on Scott
Rs.000
Cost of shares 13,000
Net assets acquired (60% 24,000 (W2)) (14,400)
(1,400)
(4) Non-controlling interest
Rs.000
Streep (20% 44,500 (W2)) 8,900
Scott (40% 48,000 (W2)) 19,200
28,100
7.1 ROONEY
(a) Borrowing costs
IAS 23 should be applied in accounting for borrowing costs.
Borrowing costs are recognised as an expense in the period in which they are
incurred unless they are capitalised in accordance with IAS 23 which says that
borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset can be capitalised as part of the cost of that
asset.
A qualifying asset is an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale.
Borrowing costs that are directly attributable to acquisition, construction
or production are taken to mean those borrowing costs that would have
been avoided if the expenditure on the qualifying asset had not been
made.
When an enterprise borrows specifically for the purpose of funding an asset,
the identification of the borrowing costs presents no problem as the amount
capitalised is the actual borrowing costs net of any income earned on the
temporary investment of those borrowings.
If funds are borrowed, generally, the amount of borrowing costs eligible for
capitalisation is determined by applying a capitalisation rate to the
expenditures on that asset calculated as the weighted average of the
borrowing costs applicable to general borrowings.
IAS 23 also contains rules on commencement of capitalisation, suspension of
capitalisation and cessation of capitalisation.
Amount capitalised Rs.000
Cost of manufacture 28,000
Interest capitalised (Rs.20m 5% 2 years) 2,000
30,000
(b) Accounting
Rule
IAS 16 requires that each part of an item (that has a cost that is significant in
relation to the total cost) is depreciated separately. Therefore the cost
recognised at initial recognition must be allocated to each part accordingly.
Accounting
(i) 31st March 2016
Carrying Depreciation Carrying
value value
1.4.2015 31.3.2016
Rs.000 Rs.000 Rs.000
Hydraulic system 9,000 3,000 6,000
Frame 21,000 2,625 18,375
30,000 5,625 24,375
Revaluation loss
(to profit and loss) (3,375)
Fair value. 21,000
The carrying value of the assets should be written down by a factor of
21,000/24,375. This gives a carrying value for the hydraulic system (in
Rs.000) of 5,169 and for the frame 15,831.
The hydraulic plant should be depreciated over two more years and the
frame over 7 more years.
7.2 EHTISHAM
IAS 16 permits assets to be carried at cost or revaluation. Where the latter is
chosen, the asset must be stated at its fair value.
The original depreciation was Rs. 40,000 (Rs. 1,000,000/25 years) per annum.
On 31st March 2014 the asset is two years old. Its carrying value before revaluation
was therefore Rs.1million less accumulated depreciation of Rs.80,000 (2/25 Rs. 1
million).
Rs.
Cost/valuation 1,000,000
Accumulated depreciation (80,000)
Net book value 920,000
In order to effect the revaluation, the cost is uplifted to fair value of Rs.1.15m, the
accumulated depreciation is eliminated, and the uplift to the net book value is
credited to a revaluation surplus account.
Debit Credit
Cost/valuation 150,000
Accumulated depreciation 80,000
Revaluation surplus 230,000
The impact of the journal is as follows:
Before Adjustment After
Cost/valuation 1,000,000 150,000 1,150,000
Accumulated depreciation (80,000) 80,000 nil
Net book value 920,000 1,150,000
The asset is depreciated over its remaining useful economic life of 23 years giving a
charge of Rs. 50,000 (Rs. 1,150,000/23 years) per annum in the year to 31st March 2015.
Debit Credit
Statement of profit or loss 50,000
Accumulated depreciation 50,000
This results in a carrying value as at 31st March 2015 of:
Rs.
Cost/valuation 1,150,000
Accumulated depreciation (50,000)
Net book value 1,100,000
By the 31st March 2015, the balance remaining on the revaluation reserve will be
Rs.220,000.
Rs.
Surplus recognised at 31 March 2014 230,000
Transfer to accumulated profits (10,000)
Net book value 220,000
The fall in property values at the year-end. The asset must be revalued downwards
to Rs.0.8million, a write-down of Rs.300,000.
Rs.220,000 of this is charged against the revaluation reserve relating to this asset,
and the remaining Rs.80,000 must be charged against profits.
The reduction of the carrying amount of the asset is achieved by removing the
accumulated depreciation and adjusting the asset account by the balance.
Debit Credit
Revaluation surplus 220,000
Statement of profit or loss 80,000
Asset at valuation 350,000
Accumulated depreciation 50,000
This balance is depreciated over the remaining useful life of the asset (22 years).
7.3 CARLY
Financial statements for the year ended 31 December 2015 (extract)
Property, plant and equipment
Land and Plant and Computer
buildings machinery equipment Total
Rs. Rs. Rs. Rs.
Cost/valuation
At 1 January 2015 1,500,000 340,500 617,800 2,458,300
Revaluation 250,000 - - 250,000
Additions (W2) - 17,550 - 17,550
Disposals - (80,000) - (80,000)
At 31 December 2015 1,750,000 278,050 617,800 2,645,850
Accumulated depreciation
At 1 January 2015 600,000 125,900 505,800 1,231,700
Charge for the year (W1) 20,000 51,191 44,800 115,991
Revaluation (620,000) - - (620,000)
Disposals - (57,000) - (57,000)
At 31 December 2015 nil 120,091 550,600 670,691
Carrying amount
At 31 December 2014 900,000 214,600 112,000 1,226,600
At 31 December 2015 1,750,000 157,959 67,200 1,975,159
Workings
(1) Depreciation charges
Buildings = (1,500,000 500,000) 2% = 20,000.
Plant and machinery:
Rs.
New machine (17,550 25% /12)
9
3,291
Existing plant (((340,500 80,000) (125,900 57,000)) 25%) 47,900
51,191
Computer equipment = 112,000 40% = Rs.44,800
Disclosure will need to be made in the accounts of the details of the change,
including the effect on the charge in the year.
7.5 FAM
Accounting policies
(a) Property, plant and equipment is stated at historical cost less depreciation, or
at valuation.
(b) Depreciation is provided on all assets, except land, and is calculated to write
down the cost or valuation over the estimated useful life of the asset.
The principal rates are as follows.
Buildings 2% pa straight line
Plant and machinery 20% pa straight line
Fixtures and fittings 25% pa reducing balance
Land and buildings have been revalued during the year by Messrs Jackson &
Co on the basis of an existing use value on the open market.
WORKINGS
Rs.000
(1) Additions to assets under construction 53
Deposit on computer 20
73
Rs.000
600
(2) Depreciation on buildings 40 + (100 2%) 17
2% straight line depreciation is equivalent to a 50 year life.
The buildings are ten years old at valuation and therefore
have 40 years remaining.
Depreciation on plant (1,613 + 154 277) 20% 298
Depreciation on fixtures (390 + 40 41 140 + 31) 25% 70
Total 2,284,076
Workings
W1: Average borrowings Rs.m
13% bank loan outstanding for 10 months
(Rs. 32 million x 306/365 days) 26,827,397
11% bank loan outstanding for 5 months
(Rs. 10 million x 153/365 days) 4,191,781
Average outstanding for the year 31,019,178
(iii) Obsolescence
Debit Credit
Date Particulars
Rs.000 Rs.000
01.07.2014 Building 19,444
Revaluation income 9,444
Surplus on revaluation of fixed assets
(balancing) 10,000
(Reversal of prior year impairment)
Working:
Revaluation income = Rs. 10,000 [ Rs.
10,000 Rs. 9,444] = Rs. 9,444
Building: [Rs. 170,000 Rs. 9,444] Rs.
180,000 =Rs. 19,444
30.06.2015 Depreciation 10,588
Accumulated depreciation Building 10,588
(Record depreciation for the year 2015)
Working: Rs. 180,000 17 = Rs. 10,588
30.06.2015 Surplus on revaluation of fixed assets 588
Retained earnings 588
(Reverse the excess depreciation)
Working: Rs. 10,000 17 = Rs. 588
W1
Outstanding Outstanding
Borrowing
amount month up to Rate of
cost (Rs.)
(Rs.) Months outstanding completion interest
Specific loan
Utilised till first repayment 25,000,000 1-Sep-14 31-Jan-15 5 12% 1,250,000
Utilised after the first
repayment 20,000,000 1-Feb-15 31-May-15 4 12% 800,000
2,050,000
General Borrowings (W4)
Utilised after specific loan
nd
exhausted on 2 payment
to contractor (W3) 8,125,000 1-Dec-14 31-May-15 6 12.08% 490,750
Principal payment of 12.08%
specific loan 5,000,000 1-Feb-15 31-May-15 4 201,333
3rd payment to contractor 12,000,000 1-Feb-15 31-May-15 4 12.08% 483,200
4rd payment to contractor 9,000,000 1-Jun-15 31-May-15 0 12.08% -
1,175,283
Since impairment loss is less than the revaluation surplus on impairment date,
the full amount of impairment would be adjusted against the revaluation surplus.
to be capitalised
Net outstanding
Borrowing cost
amount (Rs.)
Outstanding
Outstanding
(Rs.) @ 13%
Suspension
months
month
From commencement on to June 30 70,000,000 4 0 3,033,333
Amount to be capitalised as on 30-Jun-2014 3,033,333
Rs. (70m -
25m -
0.7m) 44,300,000 2 10,000,000 233,333 34,300,000 457,333 690,666
Rs.(44.3 -
5m -
4.55m) 34,750,000 5 10,000,000 583,335 24,750,000 825,000 1,408,335
Investment income 2015 2,099,001
(Rs.) @ 14%
No. of months
outstanding
outstanding
Suspension
months
Description Amount
Net
8.2 HENRY
Property, plant and equipment
Plant and machinery
Cost Rs.
On 1 January 2015 X
Additions 30,000
On 31 December 2015 X
Accumulated depreciation
On 1 January 2015 X
Charge for the year (30,000 9/12 5) 4,500
On 31 December 2015 X
Carrying amount
On 31 December 2014 X
On 31 December 2015 25,500
Intangible assets
Internally generated research and development expenditure
Cost Rs.
On 1 January 2015 412,500
Additions 45,000
On 31 December 2015 457,500
Accumulated amortisation
On 1 January 2015 -
Charge for the year (W) 68,750
On 31 December 2015 68,750
Carrying amount
On 31 December 2014 412,500
On 31 December 2015 388,750
Working
Amortisation charge (Project A)
Rs.
Total savings (100,000 + 300,000 + 200,000) 600,000
2015 amortisation charge (100,000/600,000 412,500) 68,750
Tutorial notes
The costs in respect of Project B cannot be capitalised as there are uncertainties
surrounding the successful outcome of the project but the machine bought may be
capitalised in accordance with IAS16.
The 2015 costs in respect of Project C can be capitalised as the uncertainties have
now been resolved. However, the 2014 costs cannot be reinstated.
8.3 TOBY
Intangible assets
Goodwill Patents Brands Total
Rs. Rs. Rs. Rs.
Cost
On 1 January 2015 - - - -
Additions (W1) 10,000 20,000 50,000 80,000
On 31 December 2015 10,000 20,000 50,000 80,000
Accumulated amortisation/impairment
On 1 January 2015 - - - -
Written off/amortised during the year
(W1 and W2) 3,000 2,500 7,500 13,000
On 31 December 2015 3,000 2,500 7,500 13,000
Carrying amount
On 31 December Year 0 - - - -
On 31 December 2015 7,000 17,500 42,500 67,000
Workings
(1) Goodwill on acquisition of George
Rs.
Cost of acquisition 105,000
Minus fair value of net assets acquired (100,000 5,000) (95,000)
Goodwill 10,000
Recoverable value (7,000)
Impairment write off 3,000
(2) Amortisation of patent
20,000 8 = Rs.2,500
(3) Amortisation of brand
50,000 5 9/12 = Rs.7,500
Tutorial note
IAS38 Intangible assets prohibits the recognition of internally generated brands (3)
or internally-generated goodwill (4).
8.4 BROOKLYN
1 Development expenditure
IAS 38 on intangibles requires that research and development be considered
separately:
research which must be expensed as incurred
development which must be capitalised where certain criteria are met.
It must first be clarified how much of the Rs.3 million incurred to date (10
months at Rs.300,000) is simply research and how much is development. The
development element will only be capitalised where the IAS 38 criteria are
met. The criteria are listed below together with the extent to which they appear
to be met.
The project must be believed to be technically feasible. This appears to
be so as the feasibility has been acknowledged.
There must be an intention to complete and use/sell the intangible.
Completion is scheduled for June 2016
The entity must be able to use or sell the intangible. Interest has been
expressed in purchasing the knoWhow on completion
It must be considered that the asset will generate probable future
benefits. Confirmation is required from Brooklyn as to the extent of
interest shown by the pharmaceutical companies and whether this is of a
sufficient level to generate orders and to cover the deferred costs.
Availability of adequate financial and technical resources must exist to
complete the project. The financial position of Brooklyn must be
investigated. A grant is being obtained to fund further work and the
terms of the grant, together with any conditions, must be discussed
further.
Able to identify and measure the expenditure incurred. A separate
nominal ledger account has been set up to track the expenditure.
If all of the above criteria are met, then the development element of the Rs.3m
incurred to date must be capitalised as an intangible asset. Amortisation will
not begin until commercial production commences.
2 Provision
Although the claim was made after the reporting period, IAS 10 considers this
to be an adjusting event after the reporting period. The employment of the
individual dates back to 20X2 and so the lawsuit constitutes a current
obligation for the payment of damages as a result of this past event (the
employment).
The amount and the timing are not precisely known but the likelihood of
payment of damages by Brooklyn is probable and so a provision should be
made for the estimated amount of the liability, as advised by the lawyer.
Disclosure, rather than provision, would only be appropriate if the expected
settlement was possible or remote, and the lawyers view is that a payment is
more likely than not.
It is not appropriate to calculate an expected value where there is only one
event, instead a provision should be made for the most likely outcome. The
lawyer has various views on the possible payout, but the most likely payout is
Rs.500,000 as this has a 50% probability. As settlement of the provision is not
anticipated until 2018, the provision should be discounted back at 8% to give a
liability of Rs.476,280.
Provided that the payment from the insurance company is virtually certain, this
should be shown as an asset, also at its discounted value of Rs.47,628, being
10% of the provision.
In both cases the discounting should be unwound over the coming three years
through profit or loss.
3 Revaluation
IAS 16 on Property, Plant and Equipment does not impose a frequency for
updating revaluations. It simply requires a revaluation where it is believed that
the fair value of the asset has materially changed. Hence, if in the past there
have been material differences between the carrying amount and fair value at
the 5 yearly review then Brooklyn should consider having more frequent
valuations following on from this years valuation.
Revaluations should be regular and not timed simply when property prices are
at a peak. It is not acceptable for Brooklyn to defer its next revaluation while
values are low. If property prices do fall in 2016, then it may be necessary to
perform an impairment test in accordance with IAS 36 Impairment of assets.
If it is believed that an asset value has moved materially, then all assets in that
class must be revalued. Hence it is not sufficient for Brooklyn to just revalue
the London property.
IAS 16 does not require the valuation to be performed by an external party,
and so the use of the property manager to conduct the valuations is
acceptable. Notes to the financial statements will disclose that he is not
independent of the company.
270,000,000 270,000,000
01.01.2015 Balance b/d 220,000,000
31.12.2015 Balance b/d 220,000,000
220,000,000 220,000,000
Brand Account
Rupees Rupees
01.01.2014 Brand
recognised 100,000,000 31.12.2014 Amortization 10,000,000
31.12.2014 Balance c/d 90,000,000
100,000,000 100,000,000
90,000,000 90,000,000
Since there is a finite life, the patent must be amortised over its useful
life. The useful life will be shorter of its actual life (i.e. 10 years) and its
legal life (i.e. 5 years. The amortization to be recorded in SOCI is Rs.
2.83 million (Rs. 17 million 10/12 5).
(iii) The acquired brand should be recognised as an intangible in the SOFP
because acquisition price is a reliable measure of its value. The
amortization to be recorded in SOCI is Rs. 0.12 million (Rs. 2 million
10 years x 7/12).
(iv) The carrying value of the intangible asset should be increased to Rs.
10 million in the SOFP. Since there is an indefinite useful life of the
intangible assets, it should not be amortised. Instead, RI should test
the intangible asset for impairment by comparing its recoverable
amount with its carrying amount.
9.1 DAWOOD
The lease has been correctly classified as a finance lease as it is being leased for its
entire useful economic life which indicates that the risks and rewards of ownership
have been transferred to Dawood.
The leased asset should be capitalised as a non-current asset and depreciated over
the 5 year lease period/useful life. By 31st March 2015, the net book value of the
asset will be Rs.225,000, being the cost of Rs.250,000 less 6 months depreciation.
A finance lease creditor should be established initially for Rs.250,000. During the
year, finance costs will be added and the first payment of Rs.29,500 will be
deducted.
The finance costs on the lease of Rs.45,000 (Being total payments of (10
Rs.29,500) cash price Rs.250,000) will be spread over the lease term using the
sum-of-digits method.
n (n 1) 9 10
Sum of digits = = 45
2 2
9.2 FINLEY
Financial statements for the year ended 31 December 2015 (extracts)
Statement of financial position
Non-current assets Rs.
Property, plant and equipment (36,000 9,000) 27,000
Current liabilities
Finance lease obligations (W1) 10,000
Non-current liabilities
Finance lease obligations (W1) 17,950
Workings
(1) Finance lease obligations (boat)
Opening Lease Capital Interest Closing
Year ended balance payment outstanding at 7.5% balance
Rs. Rs. Rs. Rs. Rs.
31 December 2015 36,000 (10,000) 26,000 1,950 27,950
31 December Year 5 27,950 (10,000) 17,950 1,346 19,296
Rs.
Current (balancing figure) 10,000
Non-current 17,950
27,950
9.3 FABIAN
Financial statements for the year ended 31 December 2015 (extracts)
Statement of financial position
Non-current assets Rs.
Property, plant and equipment (126,760 31,690) 95,070
Current assets
Trade and other receivables (W1) 6,250
Current liabilities
Finance lease obligations (W2) 30,056
Non-current liabilities
Finance lease obligations (W2) 69,380
Statement of profit or loss
Operating expenses
Operating lease rentals (W1) 5,450
Depreciation on leased assets (126,760 4) 31,690
Finance costs
Finance lease charges (W2) 12,676
Tutorial note
The notes to the financial statements would disclose the fact that included in trade
and other receivables is Rs.3,750 (W1) due in more than one year.
Workings
(1) Operating lease (car)
Rs.
statement of profit or loss charge = ((7,500 + (36 700)) 6/36) 5,450
=
Cash paid in 2015 (7,500 + (700 6)) 11,700
Minus charged to statement of profit or loss in 2015 (5,450)
Prepayment at end of 2015 6,250
Prepayment at end of 2015 6,250
Cash paid in 2016 (12 700) 8,400
Minus charged to statement of profit or loss in 2016 (5,450 2) (10,900)
Prepayment at end of 2016 3,750
(2) Finance lease obligations (machine)
Opening Lease Closing
Date balance Interest (10%) payment balance
Rs. Rs. Rs. Rs.
2015 126,760 12,676 (40,000) 99,436
2016 99,436 9,944 (40,000) 69,380
Rs.
Current (balancing figure) 30,056
Non-current 69,380
99,436
At 1 January 2015 x
(b) Table
Comparison
WORKINGS
(1) Calculation of finance charge
Rs.000
Minimum lease payments 5 600 2 6,000
Fair value of asset (4,400)
Finance charge 1,600
(2) Allocation of finance charge
At 1 January 2015
Finance lease payables
Amounts payable:
Rs.000
Within one to five years 166,000 (6,500 4 + 35,000 4)
Less future finance charges 18,243 (2,857 + 15,386 *)
147,757
Accruals
Rs.000
Finance leases 46,000 (11,000 + 35,000)
WORKINGS
(1) Snowplough
n (n + 1) 6 (7)
= = 21
2 2
LIABILITIES
Non-current liabilities
Obligation under finance lease 9 6,505,219 10,633,074
Current liabilities
Current portion of obligation under finance
lease 9 4,127,856 3,566,925
9.1 The Company has entered into a finance lease agreement with a bank in
respect of a machine. The finance lease liability bears interest at the rate of
15.725879% per annum. The company has the option to purchase the
machine by paying an amount of Rs. 2 million at the end of the lease term.
The lease rentals are payable in annual instalments ending in June 2015.
There are no financial restrictions in the lease agreement.
Note that there is a rounding adjustment of Rs. 3 in the last interest amount.
Shoaib Leasing Limited
Extracts from the statement of financial position as at June 30, 2016
2016
Rupees
Non-current assets Note 10
Net investment in leases 849,578
Current assets
Current portion of net Investment in leases 663,360
W1 Finance lease:
Recovery
Opening Income Closing
Year Instalment of
Balance at 15% balance
Principal
Rs. Rs. Rs. Rs. Rs.
2015 8,704,310 2,000,000 1,005,647 994,354 7,709,957
2016 (A) 7,709,957 2,000,000 856,493 1,143,507 6,566,450
2017 6,566,450 2,000,000 684,967 1,315,033 5,251,417
2018 5,251,417 2,000,000 487,713 1,512,287 3,739,130
2019 3,739,130 2,000,000 260,870 1,739,130 2,000,000
2020 2,000,000 2,000,000 0 2,000,000 0
(B) 8,000,000 1,433,550 6,566,450
(A)+(B) 10,000,000 2,290,043 7,709,957
W2 Operating lease:
Rs.
Annual instalment 2015 4,000,000
2016 (4,000,000 95%) 3,800,000
2017 (3,800,000 95%) 3,610,000
11,410,000
(b) Neptune Limited
Notes to the Financial Statements
For the year ended December 31, 2015
Gross Net
investment in investment
finance leases in leases
2015 2015
Rs. Rs.
Less than one year 2,000,000 1,143,507
One to five years 8,000,000 6,566,450
10,000,000 7,709,957
Less: unearned finance income (2,290,043)
Net investment in leases 7,709,957
Bank 2,715,224
Lease receivable 2,715,224
(W1)
Net Gross
Year Instalment
Interest Principal Investment Investment
ended at year end
in Lease in Lease
9,450,000 14,276,120
31/06/2015 2,715,224 1,417,500 1,297,724 8,152,276 11,560,896
31/06/2016 2,715,224 1,222,841 1,492,383 6,659,893 8,845,672
31/06/2017 2,715,224 998,984 1,716,240 4,943,653 6,130,448
31/06/2018 2,715,224 741,548 1,973,676 2,969,977 3,415,224
31/06/2019 2,715,224 445,247 2,269,977 700,000 700,000
Generator B
(i) Cash / Bank 6,000,000
Accumulated depreciation Generator 6,000,000
Property, plant and equipment - Generator 12,000,000
Generator C
(i) Cash / Bank 8,000,000
Accumulated depreciation Generator 3,000,000
10,000,00
Property, plant and equipment - Generator 0
Deferred income OR Surplus on revaluation of
fixed assets 1,000,000
W1: Interest
Instalment Principal
Liability against finance lease at
payments balance
13.731%
Balance 1-Jul-2014 20,000
Payments made on 31-Dec-2014 2,500 1,373 (1,127)
30-Jun-2015 2,500 1,296 (1,204)
5,000 2,669 (2,331)
Balance 30-6-2015 17,669
10.1 BADAR
Decommissioning costs
IAS 37 Provisions, Contingent Liabilities and Contingent Assets only permits a
provision to be made if three conditions are met:
(i) The company has a present obligation, either legally or constructively, as a
result of a past event;
(ii) Probable outflow of resources is required to settle the obligation; and
(iii) A reliable estimate is available.
Although there is no legal requirement to restore the site, the company has
established a constructive obligation by setting a valid expectation in the market,
due to its published policies and past practice, from which it cannot realistically
withdraw.
It therefore appears probable that Badar will have to pay money to improve the site
and so a provision should be created for the expected amount. As the expected
payment of Rs.100,000 will not be settled for three years, the provision should be
discounted and entered at its net present value of Rs.75,131 (Rs.100,000/(1.1)3).
Over the three years, the discounting should be unwound and charged to profit or
loss as finance costs, resulting in a provision of Rs.100,000 by the end of the third
year.
The cost of the construction work has been correctly capitalised. The cost of the
future decommissioning work should be added to this asset so that the total costs of
the site can be matched to the revenue from the copper over the period of mining.
This will result in an asset of Rs.575,131 which should be depreciated over the three
year life in line with anticipated revenues.
10.2 GEORGINA
(1) Litigation for damages
Under IAS37, a provision should only be recognised when:
an entity has a present obligation as a result of a past event
it is probable that an outflow of economic benefits will be required to
settle the obligation
a reliable estimate can be made of the amount of the obligation.
Applying this to the facts given:
Georginas legal advisors have confirmed that there is a legal obligation.
This arose from the past event of the sale, on 1 September 2015 (i.e.
before the year end).
Probable is defined as more likely than not. The legal advisors have
confirmed that it is likely that the claim will succeed.
A reliable estimate of Rs.500,000 has been made.
(3) Returns
Applying the IAS37 conditions in (1) to the facts given:
Although there is no legal obligation, a constructive obligation arises
from Georginas past actions. Georgina has created an expectation in its
customers that such refunds will be given.
As at the year end, based on past experience, an outflow of economic
benefits is probable.
A reliable estimate can be made. This could be 1% 400,000 but since
the returns are now all in the actual figure of Rs.3,500 can be used.
Therefore a provision of Rs.3,500 should be made.
(d) IAS 2 Inventories requires that inventories be stated at the lower on cost and
net realisable value. Net realisable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion and the
estimated costs necessary to make the sale.
In this case, cost is Rs.1,800 and net realisable value is Rs.1,600
(e) The company should set up a provision for Rs.100,040, ie should accrue for
the 10% probable liability. It should disclose the possible liability under
contingent liabilities. The disclosure is as noted in (c) except that the financial
effect is Rs.300,120 (30% Rs.1,000,400). The balance should be ignored as
it is a remote contingent liability.
Tutorial note
In (c) above it is not appropriate to provide for 20%receivableRs.500,000, ie
Rs.100,000. This would only be appropriate where the event is recurring many
times over.
In (e) it is appropriate to use the percentages provided, as warranty work is provided
for.
(v) The obligating event is the signing of the lease contract, which gives
rise to a legal obligation.
A provision is required for the unavoidable rent payments.
(vi) Since the declaration was announced after year-end, there is no past
event and no obligation at year-end and is therefore non-adjusting
event.
Details of the dividend declaration must, however, be disclosed.
(iv) The drop in value of investment in shares is a non-adjusting event. Since the
legislation was announced after the reporting date, the event is not a past event.
However, if the amount is material, it should be disclosed in the financial
statements.
(v) This is an adjusting event as it provides evidence of conditions that existed at the
end of the reporting period. The insolvency of a debtor and the inability to pay
usually builds up over a period of time and it can therefore be assumed that it was
facing financial difficulty at year-end.
A bad debts expense of Rs. 1.5 million should be recognised in SOCI.
(vi) It is a non-adjusting event because the declaration was announced after the year-
end and there was no obligation at year end. Details of the bonus shares
declaration must, however, be disclosed.
Wonder Limited
Extracts of Statement of financial position
For the year ended 30 June 2015
Property, plant and equipment 178.50 111.50
Retained earnings 158.65 95.05
Deferred tax liability 41.85 21.45
PPE: Year 2015: 189 - [20 - (20 10% 1.75)] + [56/4 56/7] PPE: Year 2014: 130 - 18.5(Note X)
DTL: Year 2015: [(21.45 + (45 - 27) + {(6+2) 30%}] DTL: Year 2014: 27 - 5.55 (Note X)
Wonder Limited
Extracts from the Statement of profit or loss for the year ended 30 June 2015
Profit before taxation 98.00 101.50
Taxation (34.40) (36.45)
Profit after taxation 63.60 65.05
PBT : Year 2015 : 90 + (20 10% ) + [(56/4) - (56/7)] PBT : Year 2014 : 120 - 18.5 (Note X)
Tax : Year 2015: 32 + [(6+2) 30%] Tax : Year 2014 : 42 - 5.55 (Note X)
Wonder Limited
Extracts of statement of changes in equity for the year ended 30 June 2015
Retained
earnings
Rs.m
Wonder Limited
Notes to the financial statements
For the year ended 31 December 2015
X Correction of error
During the year ended 30 June 2013, the repair works was erroneously
debited to machinery account. The effect of this error is as follows:
2014
Rs.m
Effect on the statement of profit or loss
(Increase) / decrease in expenses or losses
Repairs and maintenance (20.00)
Depreciation (20 10% 9 12) 1.50
Tax expenses (30% (20-1.5)) 5.55
Decrease in profit for the year (12.95)
11.2 DUNCAN
Statement of changes in equity (extract)
Retained Retained
earnings earnings
2015 2014
Rs.000 Rs.000
Opening balance as reported 23,950 22,500
Change in accounting policy (W2) 450 400
Re-stated balance 24,400 22,900
Profit after tax for the period (W1) 4,442 3,250
Dividends paid (2,500) (1,750)
Closing balance 26,342 24,400
Workings
12.1 FRANCESCA
Rs. Rs.
Opening liability 1,340,600
Capital allowances during the year 50,000,000
Depreciation charged during the year (45,000,000)
Revaluation 6,000,000
Carrying value (4,900,500)
Rs.
Charged to the revaluation reserve 329,850
Charged in the statement of profit or loss (balancing figure) 1,650,480
Total movement on the provision of (3,320,930 1,340,600) 1,980,330
Note
There is no adjustment to profit for the interest paid and the interest receivable.
Consider the interest payable. The tax authority will disallow the closing accrual but
will allow last years accrual (that has been paid in this year) as a deduction. These
amounts are equal so there is no net effect.
Similar comments can be made about the interest receivable.
At December 31,
2014
Machinery 150.00 81.00 69.00 24.15
Furniture and fittings 35.00 36.45 (1.45) (0.51)
Deferred tax liability
at December
31,2014 (35%) 23.64
WDV as at
December 31, 2015
Machinery 125.00 72.90 52.10 15.63
Furniture and fittings 30.00 32.80 (2.80) (0.84)
Deferred tax liability
at December
31,2015 (35%) 14.79
Working 1
Carrying amount and tax base of machinery NBV Tax base
Cost b/f 200.0 200.0
Accumulated depreciation b/f (25.0)
At 31 December 2013 175.0 90.0
Accounting depreciation (200/8 years) (25.0)
Tax depreciation (10% of WDV) (9.0)
At 31 December 2014 150.0 81.0
Accounting depreciation (200/8 years) (25.0)
Tax depreciation (10% of WDV) (8.1)
At 31 December 2015 125.0 72.9
Carrying amount and tax base of furniture and fittings NBV Tax base
Cost b/f 50.0 50.0
Accumulated depreciation b/f (10.0)
At 31 December 2013 40.0 40.5
Accounting depreciation (10% 50) (5.0)
Tax depreciation (10% of WDV) (4.05)
At 31 December 2014 35.0 36.45
Accounting depreciation (10% 50) (5.0)
Tax depreciation (10% of WDV) (3.65)
At 31 December 2015 30.0 32.8
Rs. in
million
Deferred tax liability (Opening) 0.55
Deferred tax expense for the year (balancing figure) 0.94
Deferred tax liability as at December 31, 2015 (Rs. 4.25 million x
35%) 1.49
Finance charge accrual for the year ended June 30, 2015
Working: (Rs. 1,600,000 480,000) 13.701% = Rs. 153,451)
W1 Tax computation
Rs.
Accounting profit before tax 4,900,000
Add: Depreciation on leased assets 400,000
Add: Finance charges 153,451
Less: Lease payment (480,000)
Taxable profit 4,973,451
Tax @ 30% 1,492,035
2015 2014
Rs.m Rs.m
W2: Computation of Deferred Tax
Fixed assets (2014: 95-90, 2015: 82.5-80) (W2.1) 0.87 1.75
Provision for bad debts (2014: 1235%, 2015: 1435%)
[W2.2] (4.90) (4.20)
Closing balance of deferred tax (4.03) (2.45)
Less: Opening balance (2.45) (18.90)
Charge for the year (1.58) (21.35)
W2.1 Movement of Fixed Assets Accounting Tax
Opening balance 95.00 90.00
Disposal during the year (2.50) (2.00)
Depreciation for the year - 2015 (10.00) (8.00)
Closing balance 82.50 80.00
13.1 WASIM
Ratios
Year 7 Year 6
Gross profit % =
Gross prof it 405 362
x 100 x 100 = 19% x 100 = 20%
Sales 2,160 1,806
Net profit % =
Net prof it 9 53
x 100 x 100 = 0.4% x 100 = 2.9%
Sales 2,160 1,806
Return on capital employed =
Prof it bef ore interest and tax
Share capital and reserv es+ Long - term debt capital
15 56
x 100 = 6% x 100 = 29%
246 190
Asset turnover =
Sales
x 100
Share capital and reserv es+ Long - term debt capital
2,160 1,806
= 8.8 times = 9.5 times
246 190
Current ratio =
Current assets 422 265
= 1.7 times = 1.8 times
Current liabilities 254 147
Quick ratio =
Current assets excluding inv entory 422 - 106 265 - 61
1.2 times 1.4 times
Current liabilities 254 147
Average time to collect =
Trade receiv ables 316 x 365 198 x 365
x 365 53 day s 40 day s
Sales 2,160 1,806
Average time to pay =
Trade pay ables 198 x 365 142 x 365
x 365 = 41 day s = 36 day s
Cost of purchases 1,755 1, 444
Inventory turnover =
Inv entory 106 x 365 61 x 365
x 365 22 day s = 15 day s
Cost of sales 1,755 1, 444
13.2 AMIR AND MO
Amir Mo
Gross profit % =
Gross prof it 90,000 490,000
x 100 x 100 = 60% x 100 = 70%
Sales 150,000 700,000
Net profit % =
Net prof it
x 100
44,895
x 100 = 30%
270,830
x 100 = 39%
Sales 150,000 700,000
Mo 371,000 +12,000
x 100 = 47%
565,580 + 250,000
Asset turnover =
Sales
x 100
Share capital and reserv es+ Long - term debt capital
Amir 150,000
= 0.7 times
207, 395 +10,000
Mo 700,000
= 0.85 times
565,580 + 250,000
Amir Mo
ratio =
Current
Quick ratio =
Current assets excluding inv entory 50,000 - 12,000
= 1.7 times
153,250 - 26,250
= 1.1 times
Current liabilities 22,605 117,670
Inventory turnover =
Inv entory 12,000 26,250
x 365 x 365 = 73 day s x 365 = 46 day s
Cost of sales 60,000 210,000
420
IAS 8 requires the disclosure of the nature and amount of the effect of the
change in the estimate of useful lives on the profit for the year.
2015
FINANCIAL ACCOUNTING
AND REPORTING II
QUESTION BANK