FINANCIAL ACCOUNTING & REPORTING

Time allowed- 3:30 hours

Total marks- 100

[N.B. - The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take account of the
quality of language and of the manner in which the answers are presented. Different parts, if any, of the same question
must be answered in one place in order of sequence.]
Marks
1. Top strategists of Sonar Bangla Investment Alliance (SBIA) are about to finalize their recommendation
to its Board of Directors on the acquisition plan of South Asian Heritage Ltd. (SAHL). They are
evaluating the finding of the Financial Analysis Team that; they (Financial Analysis Team) are not
sure whether SAHL audited financial statements exhibit a true and fair view as required by the
Companies Act 1994. The Financial Analysis Team identified that SAHL practices relevant Income
Provisions for recognition & measurement of certain items (as it differs from IFRS) and thus to prepare
and present general purpose financial statements. That might cause a significant departure from the
present economic position of the SAHL. The concerned Management Team responsible for the
formulation of appropriate accounting policies believe compliance to legal form (TAX Provisions) are
more significant than economic substances. Application of country statute (Law/Regulations) for
accounting results in single set of FS, thus facilitates less complex scenario where no difference
(whether adjustable or not) arises, e.g. for PPE.
The FS of SAHL were prepared back calculating of withholding INCOME TAX deducted by the
customers of SAHL. Revenue and cost of services are estimated in order to match the advance TAX
through TDS under section 82C minimum payment of TAX as the deducted TAX almost results in 10-
15% higher than that leviable income tax on accounting profit if calculated applying IFRS.
Requirements:
a) In view of the above explain the difference between – a true fair view vs the true fair view. 5
b) Advise briefly whether the true fair view had been achieved by preparing and presenting FS
applying income tax provision for recognition & measurement of a few items as indicated above? 2
c) Exhibit the state of “substance over form” with hypothetical example in the scenario of
SAHL. 2
d) Advise whether the purpose of FS (assumed general purpose FS) had been achieved through
the adoption of TAX based accounting treatment. If not, why? 3
e) How do you interpret auditor’s ethics certifying SAHL FS? 2
2. Munn Ltd. reported other non-current asset account balances on December 31, 2020, as follows:
Patent ........................................... Tk.192,000
Accumulated amortization .......... (24,000)
Net patent .................................... Tk.168,000
Transactions during 2021 and other information relating to Munn’s other non-current assets included
the following:
i) The patent was purchased from Grey & Company on January 2, 2019, when the remaining legal
life was 16 years. On January 2, 2021, Munn determined that the remaining useful life of the patent
was only eight years from the date of its acquisition.
ii) On January 3, 2021, in connection with the purchase of a trademark from Crossover Ltd, the parties
entered into a non-competition agreement. Munn paid Crossover Tk.800,000, of which three
quarters related to the trademark and one-quarter reflected Crossover’s agreement not to compete
for a period of five years in the line of business covered by the trademark. Munn considers the life
of the trademark to be indefinite.
iii) On January 3, 2021, Neptune Ltd acquired all the non-cash assets and assumed all liabilities of
Amboy Company at a cash purchase price of Tk.1,200,000. Munn determined that the fair value
of the net assets acquired in the transaction is Tk.800,000.
Requirements:
a) Prepare a schedule of amortization for 2021 relating to Munn’s other non-current assets
assuming Munn chooses the maximum amortization period for intangibles. 6
b) Prepare the other noncurrent assets section of the balance sheet for Munn on December 31, 2021. 5
Page 1 of 5
3. a) As an accounts manager in ABC Ltd., you are in charge of preparation of financial statements with
31 December accounting year ends. The 2021 financial statements of the company, which are
prepared in compliance with IASs/ IFRSs, are expected to be authorized for issue in late March
2022. Your accounts assistant manager has approached you for advice on the following cases:
i) ABC Ltd. has a building, comprising, a factory, a warehouse and an administrative office,
which was built at a cost of Taka10 crore and were put into operation starting on 1 January
2014. In January 2021, it was discovered that the company had adopted the accounting policy
of carrying the building at cost without depreciation since the market value of the building has
been increasing. To comply with the relevant IAS/ IFRS and the company’s accounting policy,
the cost of the building should be depreciated using straight line basis over its estimated useful
life of 50 years.
ii) ABC Ltd.’s inventory is carried at cost, since cost is lower than NRV for each unit of inventory.
In the past years, the company has used the FIFO method to determine the cost of inventory.
However, in view of the escalating cost of manufacturing, the company has decided to use the
weighted average cost method to determine the cost of inventory from 1 January 2021. The
cost of inventory under the two methods at the end of 2020 and 2021 are as follows:
FIFO Weighted Average Cost
Tk’000 Tk’000
At 31 December 2020 26,000 24,000
At 31 December 2021 29,000 28,000
Requirement:
Identify the specific accounting issues involved in each case, and pass the relevant journal entries
for the year ended 31 December 2021. Ignore the tax effects. 4+5= 9
b) On 25 January 2022, Delicious Food Restaurant (DFR) was sued by two customers, Mr. X and
Mr. Y, for food poisoning arising from the consumption of DFR’s cooked food. Mr. X alleged that
the food poisoning was related to the food he consumed at DFR on 24 December 2021 and Mr. Y
alleged that the food poisoning was related to the food he consumed at DFR on 15 January 2020.
In 10 February 2022, DFR paid Mr. X and Mr. Y Tk.400,000 and Tk. 600,000 respectively, in out-
of-court settlements. DFR has adopted a 31 December accounting ear-end.
Requirement:
Identify the specific accounting issues involved in each case, and pass the relevant journal entries
for the year ended 31 December 2021. Ignore the tax effects. 6
c) XYZ Ltd. operates a chain of octane/petrol stations. It also provides car wash service at Tk.10 per
car wash. To promote its business, the company introduces a new customer loyalty programme
with effect from 1 December 2021 under which the purchase of every Taka of octane/petrol will
be awarded 1 Free Car Wash (FCW) point and 100 FCW points may be redeemed for a free car
wash. These FCW points provide a material right to the customers that they would not have
received if not for pumping octane/petrol at XYZ Ltd. The redemption expires on 31 March 2022.
During the month of December 2021, the company’s octane/petrol sales under the new programme
amounted to Tk. 1 million. ABC Ltd. expects an 80% redemption rate initially. However, there is
no redemption in December 2021.
Requirements:
i) Determine the consideration that should be allocated to the octane/petrol sales and car wash
in the year 2021. Pass the required journal entries, and the dates thereof. 4
ii) The management continues to expect 80% redemption rate for free car washes and 400,000
of the FCW points were redeemed for free car washes in the month of January 2022.
What will be the total amount of car wash revenue to be recognized for the month of January
2022? Pass the required journal entry to record such amount. 3
iii) 200,000 of the FCW points were redeemed for free car washes in the month of February 2022
and the management now expects that only 75% of the FCW points will be redeemed for free
car washes.
Given the change in expectation, what will be the total amount of car wash revenue to be
recognized by 28 February 2022? Pass the required journal entry to record the car wash
revenue for the month of February 2022. 3
Page 2 of 5
4. You are the Finance Controller of XYZ Limited that wholesales and distributes toys & models and
provides services to other companies. The following balances have been extracted from your books of
accounts as at 31 December 2020.
Amount in Tk.
Ordinary share 800,000
5% redeemable preference shares 200,000
Share premium account 350,000
Retained earnings at 1 January 2020 2,000,000
Revenue 11,899,000
Purchase 8,935,000
Inventories at 1 January 2020 974,000
Staff cost - distribution 270,000
Staff cost - administration 352,000
Depreciation charge for the year
Freehold land and buildings 30,000
Distribution equipment 116,000
Other plant and equipment 160,000
General expenses 432,000
Interest receivables 41,000
Interest payables 35,000
Taxation - charge for the year 336,000
Dividend paid
Ordinary shares - final regarding 2019 60,000
Ordinary shares - interim regarding 2020 30,000
5% redeemable preference shares - for 2020 10,000
Patent rights 200,000
Freehold land & buildings - cost 1,200,000
Distribution equipment - cost 800,000
Other plant & equipment - cost 1,400,000
Accumulated depreciation at 31 December 2020
Freehold land and buildings 130,000
Distribution equipment 320,000
Other plant and equipment 250,000
Trade receivables 1,600,000
Trade Payables 850,000
Cash and cash equivalents 300,000
Tax liability 400,000

Additional information
i) Included in revenue are invoices totaling Tk. 120,000 in relation to distribution services
rendered under a contract to a customer who is very unhappy with the quality of the services
provided. The overall outcome of the contract is uncertain and management believes that of
the Tk. 90,000 costs incurred to date under the contract, probably only Tk. 65,000 will be
reimbursed by this customer.
ii) The patent was acquired during the year. Amortization of Tk. 20,000 should be charged to
administration expenses.
iii) Inventories at 31 December 2020 were valued at Tk. 1,304,000

iv) Costs not specifically attributable to one of the profit or loss expenses headings should be
split 50:50 between distribution costs and administrative expenses.

v) Inventories carried at Tk. 846,000 were purchased from France in euros and payment is due
on 2 March 2021. At the date of the transaction the exchange rate was Tk. 85 to US$1. At 31
December 2020 the exchange rate was Tk. 83 to US$1.

Page 3 of 5
 vi) A final ordinary share dividend for 2020 of Tk. 50,000 was proposed in May 2021, payable
on 28 June 2021.
vii) Tk. 450,000 cash was received during the year as a result of a rights issue of ordinary shares.
The nominal value of the shares issued was Tk. 100,000.
viii) On 1 June 2020, the company made the decision to sell its loss-making soft toy division as a
result of severe competition from the Far East. The company is confident that the closure will
be completed by 30 April 2021. The division's operations represent in 2020 10% of revenue
(after all adjustments), 15% of cost of sales, 10% of distribution costs and 20% of
administrative expenses. No disclosures are necessary in the statement of financial position.
Requirements:
a) Prepare XYZ Limited's statement of profit or loss for the year ended on 31 December 2020. 10
b) Statement of changes in equity for the year ended on 31 December 2020. 5
c) Statement of financial position at that date and movements schedules and notes in accordance with
the requirements of IFRS, to the extent the information is available. 10

5. The draft statements of the financial position of the three companies on December 31, 2021, are shown
below:

Ghora Ltd. Pupe Ltd. Bisree Ltd.

Taka Taka Taka
ASSETS
Non-Current Assets
Property, Plant and Equipment 660,700 635,300 261,600
Intangible Assets 101,300 72,000 -
Investments 350,000 - -
Capital WIP 78,000 3,000 3,500
Right-of-Use Assets 4,500 1,500 4,000
Total Non-Current Assets 1,194,500 711,800 269,100
Current Assets
Inventories 235,400 195,900 65,700
Trade and Other Receivables 174,900 78,800 56,600
Right-of-Use Assets 800 700 500
Advance Deposits & Prepayments 4,500 1,500 4,000
Cash and Cash Equivalents 23,700 25,900 3,400
Total Current Assets 439,300 302,800 130,200
Total Assets 1,633,800 1,014,600 399,300

EQUITY AND LIABILITIES

Equity
Ordinary Share Capital (Tk 1.00 per share) 100,000 500,000 200,000
Revaluation Surplus 125,000 - -
Retained Earnings 1,084,800 312,100 12,000
Total Equity 1,309,800 812,100 212,000

Non-Current Liabilities
Trade and Other Payables 25,500 4,500 5,000
Lease Liabilities 12,000 2,000 2,000
Total Non-Current Liabilities 37,500 6,500 7,000
Current Liabilities
Trade and Other Payables 151,200 101,800 137,400
Lease Liabilities 5,300 700 500
Unearned Revenue 45,000 13,500 4,500
Taxation 85,000 80,000 37,900
Total Current liabilities 286,500 196,000 180,300
Total equity and liabilities 1,633,800 1,014,600 399,300

Page 4 of 5
The following are the additional information:
1) Ghora Ltd. acquired 75% of Pupe Ltd’s ordinary shares on January 01, 2020, for total cash
consideration of Tk. 691,000. Tk. 250,000 was payable on the date of acquisition and the remaining
Tk. 441,000 two years later on January 01, 2022.
On the date of acquisition, Pupe Ltd.’s retained earnings were Tk. 206,700. The non-controlling interest
and goodwill arising on the acquisition of Pupe Ltd were calculated using the proportionate method.
2) The intangible assets in Pupe Ltd’s statement of financial position relate to goodwill which arises
on the acquisition of an unincorporated business, immediately before Ghora Ltd purchased its share
in Pupe Ltd. Cumulative impairment of Tk. 18,000 in relation to this goodwill had been recognised
by Pupe Ltd as of December 31, 2021.
The fair value of the remaining assets, liabilities and contingent liabilities of Pupe Ltd at the date
of their acquisition by Ghora Ltd was equal to their carrying amount with exception of a building
purchased on January 01, 2018, which had a fair value on the date of acquisition of Tk 120,000.
This building is being depreciated by Pupe Ltd on a straight-line basis for over 50 years and is
included in the above statement of financial position at a carrying amount of Tk. 92,000.
An appropriate discount rate is 5%. At this rate the Present Values of Tk.1.00 are: year-1: 0.952;
year-2: 0.907; year-3: 0.864; and year-4: 0.823.
3) Immediately after its acquisition by Ghora Ltd, Pupe Ltd sold a machine to Ghora Ltd. The machine
had been purchased by Pupe Ltd on January 01, 2018, for Tk 10,000 and was sold to Ghora Ltd for
Tk 15,000. The machine was originally assessed as having a total useful life of five years and that
estimate has never changed.
4) Ghora Limited has a partial amount of Capital WIP amounting to BDT 24,500 ready for use as of
Sept 15 2021 which was not re-classified to PPE as accountant thought the same was not put in use.
5) Bisree Ltd is a joint venture, set up by Ghora Ltd and a fellow venturer on March 31, 2020. Ghora
Ltd paid cash of Tk 100,000 for its 40% share of Bisree Ltd.
6) During the current year, Ghora Ltd sold goods to Pupe Ltd for Tk 12,000 and to Bisree Ltd for Tk
15,000, earning a 20% gross margin on both sales. At the year-end, all of these goods were still in
the inventories of purchasing companies.
7) During the reporting year, Ghora Ltd signed contract construction with Pupe Ltd whereby Ghora
Limited have furnished all ingredients to produce the product and Pupe Ltd have agreed to produce
in line with the design provided by Ghora Ltd against service charges of BDT 10 per unit of produce.
Pupe Ltd has supplied 1.83 lacs units. The same was not accounted for yet in anyone's books of
accounts. Furthermore, the VAT authority has issued final penalties of BDT 0.95 lacs for
noncompliance by Pupe Ltd in this relation. The same was un-accounted too.
8) Performance obligation against a portion of Un-earned revenue was disputed and referred to the
Arbitrator. The arbitrator made the binding declaration to all involved parties the following amount
as of 30 Sept 2021:
Ghora Limited Pupe Limited Bisree Limited
Amount of performed obligation in BDT 24,400 3,500 25,000
9) On December 31, 2021, Ghora Ltd’s trade receivables included Tk. 50,000 due from Pupe Ltd.
However, Pupe Ltd’s trade payable included only Tk. 40,000 due to Ghora Ltd. The difference was
due to cash in transit.
10) On December 31, 2021, impairment losses of Tk. 25,000 and Tk. 10,000 respectively in respect of
goodwill arising on the acquisition of Pupe Ltd and the carrying amount of Bisree Ltd. need to be
recognised in the consolidated financial statements.
Requirements:
(a) Prepare the consolidated statement of financial position for Ghora Ltd as of December 31, 2021. 21
(b) Briefly explain the single entity concept and the distinction between control and ownership by
reference to the consolidated statement of financial position prepared in above (a) of this question. 4

---The End---

Page 5 of 5
 FINANCIAL ACCOUNTING & REPORTING
Suggested Answers
March-April 2022

Answer to the Question # 1 (a)

True and fair means:
- Compliance with applicable IFRS
- Adherence to the Companies Act 1994 and/or other Statues
- In the absence of more specific requirements, application of GAAP and where as appropriate adherence to the
accepted industry practices.
Companies Act 1994 uses term “a true and fair view” rather than “the true and fair view”. As there may have number
of “a true fair view” but only one “the true and fair view”. Companies act allow Financial Statements to base on
historical cost and a option of using revaluation method which is entirely optional. The management, who oversee
governance may opt to prepare Financial Statement under cost method or under revaluation method. But in either case
Financial Statements is a true and fair view. But under IFRS, the entity has to use revaluation method if cost method
results material difference with revaluation method in order to facilitate the faithful representation. Thus, in IFRS it is
“the true and fair view”

Answer to the Question # 1 (b)

No, the true and fair view has not been achieved as IFRS requires to priorities “Substance over Form” than that of
legal requirements to ensure faithful representation of the financial state of entity at reporting date. Preparing and
presenting FS applying income tax provision for recognition & measurement of a few items results prioritizing legal
form over economical substance.

Answer to the Question # 1 (c)

SAHL apply cost method to recognize PPE where the carrying value significantly differ (lower) from recoverable cost.
For example, SAHL owns land situated at Gulshan North Avenue has recoverable value of 20 time than that of cost
price it incurred back in 1975.

Answer to the Question # 1 (d)

No, it is not achieved. The purpose of general-purpose FS is to enable wide range of users to make informed economic
decision. If FS does not reflect exact financial position or does not ensure faithful representation, the objective of FS
is not achieved.

Answer to the Question # 1 (e)

The case above does not indicate whether auditors has issued unqualified opinion or modified opinion. Therefore, in
absence of same information no conclusion/comments could be made on auditor ethics.

Answer to the Question # 2 (a)

Schedule of amortization relating to other non-current assets for the year ended December, 31, 2021:
Amortization of intangibles:
Patent .................................... Tk28,000
Trademark ................................... 15,000
Noncom petition agreement ......... 40,000
Goodwill ................................ 10,000
Total amortization expense Tk93,000

Answer to the Question # 2 (b)

Other non-current asset section of balance sheet, December 31, 2021:
Patent, net of accumulated amortization of Tk52,000 Tk140,000
Trademark, net of accumulated amortization of Tk15,000 585,000
Non-competition agreement, net of accumulated amortization of
Tk40,000 160,000
Goodwill, net of accumulated amortization of Tk10,000 390,000

Page 1 of 10
 Computations:
1. Patent On January 2, 2021, Munn determined that the patent has a shorter useful life than originally used in
establishing an amortization schedule. This is a change in estimate and is accounted for prospectively. The
remaining unamortized balance is written off over the new estimate of useful life:
Net patent balance at 1/2/21: (Tk192,000 - Tk24,000*) Tk168.000
Remaining life of patent (divide by)  6
Amortization for 2021 Tk 28,000
*The accumulated amortization at 1/2/21 is computed as (Tk192,00016 years)  2 years = Tk24,000.
2. Trademark the cost of the trademark is three-quarters of Tk800,000, or Tk600,000. Munn considers the
trademark to have an indefinite life, but the maximum period over which intangibles can be amortized is
40 years. The trademark need not be amortized over 20 years even thought this is the legal life of a
trademark. Trademarks are renewable; hence, in reality they have an indefinite legal life. The amortization
for 2021 is Tk600,000 divided by 40 years, or Tk15,000.
3. Non-competition agreement The cost of the non-competition agreement is one-quarter of Tk800,000, or
Tk200,000. The agreement has a useful life of five years; thus, the amortization for 2021 is Tk200,000
divided by five years, or Tk40,000.
4. Goodwill First compute the amount of goodwill.
Purchase price of acquired firm Tk1,200,000
Less: Fair value of net assets acquired 800,000
Excess of cost over net assets acquired Tk 400,000
The goodwill is Tk400,000. No mention is made of the period over which the goodwill is expected to yield
excess earnings. Munn could select a shorter period, but in this solution, the maximum of 40 years is
assumed. The amortization for 2021 is Tk400,000 divided by 40 years, or Tk10,000.
Computations of account balances at December 31, 2021
Patent Trademark Noncompete Agreement Goodwill
Balance, 12/3/19 Tk168,000 -0- -0- -0-
Additions in 2020 Tk600,000 Tk200,000 Tk400,000
Deduct 2020 amortization (28,000) (15,000) (40,000) (10,000)
Balance 12/31/20 Tk140,000 Tk585,000 Tk160,000 Tk390,000

Answer to the Question # 3 (a)

The accounting issues identified in each case are as follows:

(1) Requires correction of errors, in accordance with IAS-8.
(2) Requires year-end adjustment.

Required journal entities:

Correction of errors and year-end adjustment.

Correction of errors
To be accounted for retrospectively as follows:
(i) Cumulative effect: (Tk.10,00,00,000 ÷ 50 X 7 =Tk.1,40,00,000)

Dr. Beginning retained earnings Tk.1,40,00,000

Cr. Accumulated depreciation Tk.1,40,00,000
(correction of error).

(ii) Cumulative effect: (Tk.2,60,00,000 - Tk.2,40,00,000=Tk.20,00,000)

Dr. Beginning retained earnings Tk.20,00,000
Cr. Cost of goods sold Tk.20,00,000
(Change in accounting policy)
Year-end adjustment
(i) Dr. Depreciation expense Tk.20,00,000
Cr. Accumulated depreciation Tk.20,00,000
(Year-end adjustment)
(ii) Dr. Cost of goods sold Tk.10,00,000
Cr. Inventory Tk.10,00,000
(Year-end adjustment)
Page 2 of 10
Answer to the Question # 3 (b)

For the case of Mr. X, the obligating event (food poisoning) has occurred before 31 December 2021, (and given that
it is probable and the amount can be reliably estimated), a provision under IAS-37 should be made in respect of the
year 2021.

The journal entry is as follows:

(ii) Dr. Other losses Tk.4,00,000
Cr. Provision for loss Tk.4,00,000

This may also be analyzed under IAS-10, and the case involving Mr. X will be an "adjusting event", and the loss of
Tk.4,00,000 charged to the 2021 statement of profit or loss and other comprehensive income.

For the case of Mr. Y, the obligating event (food poisoning) has not occurred as at 31 December 2021, and it is
therefore not appropriate to account for the provision in the year 2021. The loss of Tk.600,000 will then be charged to
the 2022 statement of profit or loss and other comprehensive income, and a similar journal entry as above will be made
when paid.

This may however be analyzed under IAS-10 and the case involving Mr. Y will be a "non-adjusting event" which
merely requires disclosure (nature and financial effect) in the notes to the financial statements for 2021.

Answer to the Question # 3 (c) (i)

The accounting measurement and recognition here will be done following the relevant provisions of IFRS-15.

(i) FV of IFCW point = Tk.10 ÷ 100 FCW points = Tk.0.10.

FV of 1,000,000 FCW points =Tk.0.10 x 1,000,000 =Tk.100,000.
FV of 1,000,000 FCW points adjusted for the likelihood that FCW points will be redeemed =Tk.100,000 x
80% =Tk.80,000.

Therefore, the consideration is allocated to the Octane/Petrol sales and car wash, on a relative price proportionate
basis, is as follows:

Stand-alone selling prices Price allocated

Octane/Petrol Tk.1,000,000 1,000,000 ÷ 1,080,000 x Tk.1,000,000 = Tk.926,000
FCW Tk.80,000 80,000 ÷ 1,080,000 x Tk.1,000,000 =Tk.74,000
Total Tk.1,080,000 Tk.1,000,000

The journal entry to record the Octane/Petrol sales and customer loyalty programme as at 31 December 2021 is as
follows:

Dr. Cash Tk.1,000,000

Cr. Octane/Petrol sales revenue Tk.926,000
Cr. Unearned car wash revenue Tk.74,000

Note: There should be a corresponding Dr. Cost of goods sold and Cr. Octane/Petrol inventory of the sale of
Octane/Petrol.

Answer to the Question # 3 (c) (ii)

In this case, the total amount of car wash revenue to be recognized for the month
of January 2022 is (400,000 ÷ 800,000 x Tk.74,000) Tk.37,000
Total amount of car wash revenue to be recognized by 31 January 2022 Tk.37,000
Less : Amount of car wash revenue already recognized in prior periods (0)
Amount of car wash revenue to be recognized for the month of January 2022 Tk.37,000
Page 3 of 10
The journal entry to record the car wash revenue for the month of January 2022 is as follows:

Dr. Unearned car wash revenue Tk. 37,000

Cr. Car wash revenue Tk. 37,000

There should be a corresponding journal entry to record the cost of car wash.

Answer to the Question # 3 (c) (iii)

Given the change in expectation, the total amount of car wash revenue to be recognized by 28 February 2022 is
Tk.59,200 {(400,000 + 200,000) ÷ 750,000 x Tk.74,000}.

Total amount of car wash revenue to be recognized by 28 February 2022 Tk.59,200

Less : Amount of car wash revenue already recognized in prior periods Tk.(37,000)
Amount of car wash revenue to be recognized for the month of February 2022 Tk.22,200

The journal entry to record the cash wash revenue for the month of February 2022 is as follows:

Dr. Unearned car wash revenue Tk.22,200

Cr. Car wash revenue Tk.22,200

There should be a corresponding journal entry to record the cost of car wash.

Page 4 of 10
Answer to the Question # 4

Workings notes:
Amount in Tk.
1 Revenue:
Revenue as per Trial Balance 11,899,000
Less: Contract under dispute (120,000)
Add: Recoverable cost 65,000
11,844,000

2 Analysis of expenses
Cost of sales Distribution cost Admin. Expenses
Opening inventory 974,000
Purchases 8,935,000
Staff cost 270,000 352,000
Depreciation:
Land and buildings 15,000 15,000
Distribution equipment 116,000
Other PPE 80,000 80,000
General expenses 216,000 216,000
Amortization of patent 20,000
Foreign exchange loss (note 3) 20,386
Closing inventories (1,304,000)
8,605,000 697,000 703,386

3 Foreign exchange loss:

Payable at date of transaction 846,000
Payable at year end date (846,000 x 85/83) (866,386)
Exchange loss at end of reporting period (20,386)

4 Continuing / discontinuing analysis

Continuing Discontinued Total
Operation (Tk.) Operation (Tk.) Taka

Revenue (note 1 - 90:10) 10,659,600 1,184,400 11,844,000

Cost of sales ( note 2 - 85:15) (7,314,250) (1,290,750) (8,605,000)
Gross Profit 3,345,350 (106,350) 3,239,000
Distribution cost (note 2 - 90:10) (627,300) (69,700) (697,000)
Admin. Expenses (note 2 - 80:20) (562,708) (140,677) (703,386)
Profit/(loss) from operation 2,155,342 (316,727) 1,838,614
Finance cost (35,000+10,000) (45,000) - (45,000)
Investment income 41,000 - 41,000
Profit/(loss) before tax 2,151,342 (316,727) 1,834,614
Income tax (336,000) - (336,000)
Net profit/(loss) for the year 1,815,342 (316,727) 1,498,614

Answer to the Question # 4 (a)

Statement of profit or loss for the year ended on 31 December 2020

Continuing operations
Taka
Revenue (note 4) 10,659,600
Cost of sales (note 4) (7,314,250)
Gross Profit 3,345,350
Distribution cost (note 4) (627,300)
Admin. Expenses (note 4) (562,708)
Profit from operation 2,155,342
Finance cost (35,000+10,000) (45,000)
Investment income 41,000
Profit before tax 2,151,342
Income tax (336,000)
Profit for the year from continuing operations 1,815,342
Discontinued operations:
Loss for the year from discontinued operations (note 4) (316,727)
Profit for the year 1,498,614

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Answer to the Question # 4 (b)

Statement of changes in equity for the year ended on 31 December 2020

Share Share Retained Total

Capital (Tk.) Premium (Tk.) Earnings (Tk.) Taka

Balance at 1 January 2020 700,000 2,000,000 2,700,000

Changes in equity for 2020:
Issue of share capital 100,000 350,000 450,000
Dividends (90,000) (90,000)
Total comprehensive income 1,498,614 1,498,614
Balance at 31 December 2020 800,000 350,000 3,408,614 4,558,614

Notes
a) The profit from operations is arrived at after charging
Depreciation (30,000+116,000+160,000) 306,000
Amortization of intangibles 20,000
Employee benefits (270,000+352,000) 622,000
Foreign Exchange loss 20,386

b) A final ordinary share dividend for 2020 of Tk. 50,000 is proposed for payment on 28 June 2021.

c) On 1 June 2020 the company classified its soft toy division as held for sale. The division had been loss-making for
some time due to severe competition from the Far East. It is expected that the closure will be completed by 30 April
2021.

Amount in Tk. attributable to the division in 2020 were: revenue Tk. 1,184,000, expenses Tk. 1,505,955 and pre-tax
loss Tk. 321,555

Answer to the Question # 4 (c)

Statement of financial position as at 31 December 2020

Taka Taka
ASSETS
Non-current assets
Property, plant and equipment 2,700,000
Intangible 180,000
2,880,000
Current assets
Inventories 1,304,000
Trade and other receivables (1,600,000 - 55,000) 1,545,000
Cash and cash equivalents 300,000
3,149,000
Total assets 6,029,000

EQUITY AND LIABILITIES

Equity
Ordinary share capital 800,000
Share premium 350,000
Retained earnings 3,408,614
Total equity 4,558,614

Non-current liabilities
Preference share capital 200,000
Current liabilities
Trade and other payables (850,000+20,386 note 3) 870,386
Taxation 400,000
1,270,386
Total equity and liabilities 6,029,000

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PROPERTY, PLANT AND EQUIPMENT

Freehold land Distribution Other plant Total

& buildings equipment & equipment

Cost
At 1 January 2020 1,200,000 800,000 1,400,000 3,400,000
At 31 December 2020 1,200,000 800,000 1,400,000 3,400,000

Depreciation
At 1 January 2020 100,000 204,000 90,000 394,000
Charge for the year 30,000 116,000 160,000 306,000
At 31 December 2020 130,000 320,000 250,000 700,000

Carrying amount
At 1 January 2020 1,070,000 480,000 1,150,000 2,700,000
At 31 December 2020 1,100,000 596,000 1,310,000 3,006,000

INTANGIBLES

Cost at 31 December 2020 200,000

Amortization (20,000)
Carrying amount at 31 December 2020 180,000

Answer to the Question # 5 (a)

Ghora Ltd.
Consolidated statement of financial position
As at December 31, 2021
BDT BDT
ASSETS
Non-current assets
Property, Plant & Equipments (660,700+635,300 + 24,000 1,340,500
(W1)+24,500-1000 (W1) -3,000 (W1)
Intangible assets (101,300 + 144,475) 245,775
Investment in joint venture (W6) 93,600
Capital CWIP (78,000+3000-24,500) 56,500
Right-of-use assets (4,500+1,500) 6,000
1,742,375
Current assets
Inventories (235,400+195,900-2,400(W5)) 428,900
Trade and other receivables (174,900 +78,800-50,000) 203,700
Right-of-use assets (800+700) 1,500
Advance, deposit & prepayments (4,500+1,500) 6,000
Cash and cash equivalents (23,700+25900+10,000) 59,600
699,700

Total assets 2,442,075

EQUITY AND LIABILITY

Equity attributable to the owners of Ghora Ltd.
Ordinary share capital 100,000
Revaluation surplus 125,000
Retained earnings (W4) 1,028,300
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Non-controlling interest (W3) 166,275
Total equity 1,419,575
Non-current liabilities
Trade and other payables (25,500 + 4,500) 30,000
Lease liabilities (12,000 + 2,000) 14,000
44,000
Current liabilities
Trade and other payables (151,200 + 101,800-40,000) 213,000
Lease liabilities (5,300 + 700) 6,000
Un-earned revenue (45,000+13,500) 58,500
Liability for VAT 95,000
Taxation (85,000+80,000) 165,000
Deferred consideration 441,000
978,500
Total equity & liabilities 2,442,075

Workings:

(1) Net Assets - Pupe Ltd.

Year end At acquisition Post-acquisition
BDT BDT BDT
Share capital 500,000 500,000 -
Retained earnings - as per question 312,100 206,700 105,400
Less: Intangible assets (72,000) (90,000) 18,000
FV adjustment of PPE (120,000-(92,000 x 48/46) 24,000 24,000 -
Depreciation thereon (24,000 x 2/48) (1,000) - (1,000)
PURP (W7) (3,000) - (3,000)
760,100 640,700 119,400

(2) Goodwill - Pupe Ltd. BDT

Consideration transferred:
Cash payment at acquisition 250,000
PV of deferred payment (441,000-41,000) 400,000
Non-controlling interest at acquisition (640,700 (W1) x 25%) 160,175
810,175
Net assets at acquisition (W1) (640,700)
Goodwill before impairment 169,475
Impairment to date (25,000)
Goodwill 144,475

(3) Non-controlling interest - Pupe Ltd

BDT
Non-controlling interest at acquisition (W2) 160,175
Share of post-acquisition reserve (119,400 (W1) X 25%) 29,850
Penalty from VAT authority (25% of 95,000) (23,750)
166,275

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 (4) Group retained earnings
BDT
Ghora Ltd. 1,084,800
Unwinding of discount on deferred consideration:
Two years (441,000-(441,0000/1.05^2) (41,000)
Less PUP (W5) (2,400)
Pupe Ltd. (75% of Tk 119,400 (W1)) 89,550
Penalty from VAT authority (75% of 95,000) (71,250)
Share of investment in Bisree Ltd. (W6) 3,600
Less Impairment to date (25,000 + 10,000) (35,000)
1,028,300

(5) PURP in inventory

Pupe Ltd. Bisree Ltd.
BDT BDT
Selling price 100 12,000 15,000
Cost 80 9,600 12,000
Gross margin (Unrealized profit) 20 2,400 3,000

(6) investment in joint venture - Bisree Ltd.

BDT BDT
Cost 100,000
Add: Post acquisition profit 12,000
Less: PURP (W5) (3,000)
9,000
Group share X 40% 3,600
103,600
Less Impairment to date (10,000)
93,600

(7) PURP in PPE

BDT
Carrying amount of PPE in the books of Ghora Ltd (15,000x 1/3) 5,000
Carrying amount of PPE, if transfer had not taken place (10,000X 1/5) (2,000)
3,000

Answer to the Question # 5 (b)

In accordance with the concept, when preparing the consolidated statement of financial position of the Ghora Ltd
group, the assets and liabilities of the parent and subsidiaries are added together, as if the group were a single entity.
(for example, trade receivables of Ghora Ltd and Pupe Ltd are added). This does not apply to Bisree Ltd, which is a
joint venture, not subsidiary.

Single entity concept also means that any intra-group transactions and balances need to be eliminated, as otherwise
would be double counted in the context of the group as a single entity. Hence the intra-group balances between Ghora
Ltd and Pupe Ltd are adjusted to agree and then cancelled out.

Any un-realized profit between parent and subsidiary companies also need to be eliminated (for example machine sold
to Ghora Ltd) since the profit has not yet been realized outside the group.

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It is important to distinguish between control and ownership. Control is reflected by including all of the subsidiary’s
assets, liabilities, income and expenses in the consolidated financial statements even where the parent does not own
100% of that subsidiary. For example, 100% of Pupe Ltd’s inventories Tk. 195,900 is added to Ghora Ltd even though
Ghora Ltd owns 75% of those inventories.

Ownership is then reflected by showing that part of the subsidiary’s net assets and results included in the consolidation,
which is not owned by the parent, as a non-controlling interest. Ghora Ltd’s consolidated statement of financial
position shows non-controlling interest of Tk. 166.275, representing that part of Pupe Ltd not owned by Ghora Ltd.

---The End---

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