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Description

FINANCIAL ACCOUNTING AND REPORTING II QUESTION BANK

Question Bank

Financial accounting and reporting II

Second edition published by Emile Woolf Limited Bracknell Enterprise & Innovation Hub Ocean House,

The Ring Bracknell,

Berkshire,

RG12 1AX United Kingdom Email: [email protected] www

© Emile Woolf International,

February 2015 All rights reserved

No part of this publication may be reproduced,

without the prior permission in writing of Emile Woolf Publishing Limited,

or as expressly permitted by law,

or under the terms agreed with the appropriate reprographics rights organisation

You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer

Notice Emile Woolf International has made every effort to ensure that at the time of writing the contents of this study text are accurate,

but neither Emile Woolf International nor its directors or employees shall be under any liability whatsoever for any inaccurate or misleading information this work could contain

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Certificate in Accounting and Finance Financial accounting and reporting II

C Contents Page

Question and Answers Index

Questions Section A

Questions

Answers

Answers Section B

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Certificate in Accounting and Finance Financial accounting and reporting II

Index to questions and answers Question page

Answer page

CHAPTER 2 – IAS 1: PRESENTATION OF FINANCIAL STATEMENTS 2

MINGORA IMPORTS LIMITED

OSCAR INC

CLIFTON PHARMA LIMITED

SARHAD SUGAR LIMITED

BSZ LIMITED

YASIR INDUSTRIES LIMITED

SHAHEEN LIMITED

MOONLIGHT PAKISTAN LIMITED

FIGS PAKISTAN LIMITED

CHAPTER 3 – IAS 7: STATEMENTS OF CASH FLOWS 3

STANDARD INC

BIN QASIM MOTORS LIMITED

ITTEHAD MANUFACTURING LTD

WASEEM INDUSTRIES LIMITED

JALIB INDUSTRIES LIMITED

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

Question page

Answer page

APOLLO INDUSTRY LIMITED

MARVEL ENGINEERING LIMITED

CHAPTER 4 – CONSOLIDATED ACCOUNTS: STATEMENTS OF FINANCIAL POSITION – BASIC APPROACH 4

CHAPTER 5 – CONSOLIDATED ACCOUNTS: STATEMENTS OF FINANCIAL POSITION

HASAN LIMITED

CHAPTER 6 – CONSOLIDATED ACCOUNTS: STATEMENTS OF COMPREHENSIVE INCOME 6

CHAPTER 7 – PROPERTY,

PLANT AND EQUIPMENT 7

EHTISHAM

ADJUSTMENTS LIMITED

IMRAN LIMITED

HUMAYUN CHEMICALS LIMITED

FARADAY PHARMACEUTICAL LIMITED

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Index to questions and answers

Question page

Answer page

SPIN INDUSTRIES LIMITED

SCIENTIFIC PHARMA LIMITED

QURESHI STEEL LIMITED

GRANITE CORPORATION

CHAPTER 8 – IAS 38: INTANGIBLE ASSETS 8

BROOKLYN

ZOUQ INC

STAR-BRIGHT PHARMACEUTICAL LIMITED

RAISIN INTERNATIONAL

CHAPTER 9 – IAS 17: LEASES 9

XYZ INC

SNOW INC

MIRACLE TEXTILE LIMITED

SHOAIB LEASING LIMITED

NEPTUNE LIMITED

QUARTZ AUTO LIMITED

LODHI TEXTILE MILLS LIMITED

NOMAN ENGINEERING LIMITED

CHAPTER 10 – IAS 37: PROVISIONS CONTINGENT LIABILITIES AND CONTINGENT ASSETS AND IAS 10: EVENTS OCCURRING AFTER THE REPORTING DATE 10

GEORGINA

EARLEY INC

ACCOUNTING TREATMENT

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

Question page

Answer page

J-MART LIMITED

AKBER CHEMICALS LIMITED

QALLAT INDUSTRIES LIMITED

SKYLINE LIMITED

WALNUT LIMITED

ATTOCK TECHNOLOGIES LIMITED

CHAPTER 11 – IAS 8: ACCOUNTING POLICIES,

CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 11

WONDER LIMITED

MOHANI MANUFACTURING LIMITED

CHAPTER 12 – IAS 12: INCOME TAXES 12

FRANCESCA

SHEP (I)

SHEP (II)

SHEP (III)

SHEP (IV)

WAQAR LIMITED

SHAKIR INDUSTRIES

MARS LIMITED

BILAL ENGINEERING LIMITED

GALAXY INTERNATIONAL

APRICOT LIMITED

CHAPTER 13 – RATIO ANALYSIS 13

AMIR AND MO

CHAPTER 14 – ETHICAL ISSUES IN FINANCIAL REPORTING 14

ETHICAL ISSUES

SINDH INDUSTRIES LTD

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

SECTION

Certificate in Accounting and Finance Financial accounting and reporting II

A Questions

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

CHAPTER 1 – LEGAL BACKGROUND TO THE PREPARATION OF FINANCIAL STATEMENTS There are no questions specific to chapter one

This is because the learning outcomes in this area concern the preparation of financial statements and these questions have given in relation to chapter 2 in this question bank

CHAPTER 2 – IAS 1: PRESENTATION OF FINANCIAL STATEMENTS 2

LARRY The trial balance of Larry at 31 December 2015 is as follows

Administration charges Bank account Cash Payables’ ledger Accumulated amortisation on patents at 31 December 2015 Accumulated depreciation at 31 December 2015 Receivables’ ledger Distribution expenses Property,

plant and equipment at cost Interest received Issued share capital Loan Patents at cost Accumulated profits Purchases Sales Inventories at 31 December 2014

Rupees in million Dr Cr 342 89 2 86 5 918 189 175 2,830 20 400 18 26 1,562 2,542 3,304 118 ––––– ––––– 6,313 6,313 ════ ════

The following information is also relevant

Inventories on 31 December 2015 amounted to Rs

Current tax of Rs

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

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Questions

MINGORA IMPORTS LIMITED The trial balance of Mingora Imports Limited at 31 December 2015 is as follows

Patent rights Work-in-progress,

Rupees in million Dr Cr 60 125 300 600 1,740 260 60 155 44 360 50 20 125 440 420 92 294 121

The following information is also relevant

Closing inventories of finished games are valued at Rs

Work in progress has increased to Rs

The patent rights relate to a computer program with a three year lifespan

On 1 January 2015 buildings were revalued to Rs

This has not yet been reflected in the accounts

Computers are depreciated over five years

Buildings are now to be depreciated over 30 years

An allowance for bad debts (irrecoverable debts) of 5% is to be created

(4) (5)

There is an estimated bill for current tax of Rs

Required Prepare an statement of profit or loss (analysing expenses by nature for the year ended 31 December 2015 and a statement of financial position as at that date

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

BARRY Barry has prepared the following draft financial statements for your review Barry: Statement of profit or loss for year to 31st August 2015 Rs

in ‘000 Sales revenue Raw materials consumed Manufacturing overheads Increase in inventories of work in progress and finished goods Staff costs Distribution costs Depreciation Interest payable

in ‘000 Assets Non-current Freehold land and buildings Plant and machinery Fixtures and fittings

Total assets

Equity and liabilities Equity shares of Rs

Total equity Revaluation surplus Current liabilities

Non-current liabilities 8% Debentures 2019

Total equity and liabilities

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Questions

Additional information 1

Income tax of Rs

An unpaid under-provision for the previous year’s liability of Rs

There have been no additions to,

non-current assets in the year but the assets under construction have been completed in the year at an additional cost of Rs

These related to plant and machinery

The cost and accumulated depreciation of non-current assets as at 1st September 2014 were as follows:

Freehold land and buildings (land element Rs

Depreciation

There was a revaluation of land and buildings during the year,

creating the revaluation surplus of 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

Staff costs comprise 70% factory staff,

An analysis of depreciation charge shows the following: Rs

in ‘000 Buildings (50% production,

Required Prepare the following information in a form suitable for publication for Barry’s financial statements for the year ended 31st August 2015

Statement of profit or loss Statement of financial position Reconciliation of opening and closing property,

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

OSCAR INC The following trial balance has been extracted from the books of accounts of Oscar Inc as at 31 March 2015

in ‘000 Dr Cr Administrative expenses Share capital Receivables Bank overdraft Income tax (overprovision in 2014) Provision Distribution costs Non-current investments Investment income Plant and machinery At cost Accumulated depreciation (at 31 March 2015) Retained earnings (at 1 April 2014) Purchases Inventory (at 1 April 2014) Trade payables Sales revenue Interim dividend paid

Additional information (1)

Inventory at 31 March 2015 was valued at Rs

150,000

The income tax charge based on the profits on ordinary activities is estimated to be Rs

The provision is to be increased by Rs

There were no purchases or disposals of fixed assets during the year

Required Prepare the company’s 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

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Questions

CLIFTON PHARMA LIMITED The following trial balance relates to Clifton Pharma Limited,

in ‘000 Dr Cr Cost of sales Operating expenses Loan interest paid (see note (1)) Rental of vehicles (see note (2)) Revenue Investment income Leasehold property at cost (see note (4)) Plant and equipment at cost Accumulated depreciation at 1 October 2014:

830,700

The following notes are relevant (1)

The effective interest rate on the loan notes is 6% per year

There are two separate contracts for rental of vehicles

A recent review by the finance department of these contracts has reached the conclusion that Rs

The finance lease was entered into on 1 October 2014 which was when the Rs

and there will be three more annual payments in advance of Rs

7 million,

payable on 1 October in each year

The vehicles in the finance lease agreement had a fair value of Rs

The interest rate implicit in the lease is 10% per year

The other contract for vehicle rental is an operating lease and the rental payment should be charged to operating expenses

(Note: You are not required to calculate the present value of the minimum lease payments for the finance lease

Other plant and equipment is depreciated at 20% per year by the reducing balance method

All depreciation of property,

plant and equipment should be charged to cost of sales

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

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

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)

Prepare a statement of financial position (balance sheet) for Clifton Pharma Limited as at 30 September 2015 (17) (25)

SARHAD SUGAR LIMITED The following trial balance relates to Sarhad Sugar Limited at 30 September 2015:

Leasehold property – at valuation 1 October 2014 (note (i)) Plant and equipment – at cost (note (i)) Plant and equipment – accumulated depreciation at 1 October 2014 Capitalised development expenditure – at 1 October 2014 (note (ii)) Development expenditure – accumulated amortisation at 1 October 2014 Closing inventory at 30 September 2015 Trade receivables Bank Trade payables and provisions (note (iii)) Revenue (note (i)) Cost of sales Distribution costs Administrative expenses (note (iii)) Interest on bank borrowings Equity dividend paid Research and development costs (note (ii)) Share capital Retained earnings at 1 October 2014 Deferred tax (note (v)) Revaluation surplus (Leasehold property)

in ‘000 Dr Cr 50,000 76,600 24,600 20,000 6,000 20,000 43,100 1,300 23,800 300,000 204,000 14,500 22,200 1,000 6,000 8,600 70,000 24,500 5,800 10,000 466,000

466,000

The following notes are relevant: (i)

Non-current assets – tangible: The leasehold property had a remaining life of 20 years at 1 October 2014

The company’s policy is to revalue its property at each year end and at 30 September 2015 it was valued at Rs

43 million

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Questions

On 1 October 2014 an item of plant was disposed of for Rs

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

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

Non-current assets – intangible: In addition to the capitalised development expenditure (of Rs

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

From that date the project incurred development costs of Rs

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

Sarhad Sugar Limited is being sued by a customer for Rs

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

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

The directors have estimated the provision for income tax for the year ended 30 September 2015 at Rs

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

Prepare the statement of financial position as at 30 September 2015

Note: notes to the financial statements are not required

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

BSZ LIMITED The post-closing trial balance of BSZ Limited,

in million Cash at banks – current accounts Cash at banks – in saving accounts Stocks in trade – closing Accounts receivable Provision for bad debts Advances to suppliers Advances to staff Short term deposits Prepayments Sales tax receivable Freehold land – at revalued amount Furniture and fixtures

subscribed and paid up capital (Rs

Additional Information (i)

The first revaluation of freehold land was carried out in 2011 and resulted in a surplus of Rs

The valuation was carried out under market value basis by an independent valuer,

Chartered Civil Engineer of M/s SSS Consultants (Pvt

Islamabad

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,

The cost incurred during the year i

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Questions

Furniture and fixtures worth Rs

A machine was sold on February 28,

13 million

At the time of disposal,

the cost and written down value of the machine was Rs

Bad debts expenses for the year amounted to Rs

0 million

An amount of Rs

All advances given to suppliers are considered good and include an amount of Rs

Cash at banks in saving accounts carry interest / mark-up ranging from 3% to 7% per annum

The authorised share capital of the company is Rs

Required Prepare the statement of financial position as at June 30,

(Comparative figures and the note on accounting policies are not required

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

YASIR INDUSTRIES LIMITED The following trial balance related to Yasir Industries Limited (YIL) for the year ended June 30,

Ordinary share capital (Rs

depreciation – Leasehold property (June 30,

2015) Acc

depreciation – Machines (June 30,

2015) Acc

amortization – Software (June 30,

Dr Cr Rs

Additional Information (i)

Sales include an amount of Rs

made to a customer under sale or return agreement

The sale has been made at cost plus 20% and the expiry date for the return of these goods is July 31,

The value of inventories at June 30,

42 million

A fraud of Rs

A senior employee of the company who left in June 2014,

had embezzled the funds from YIL’s bank account

The chances of recovery are remote

The amount is presently appearing in the suspense account

On January 1,

Interest is paid on these at 12% per annum

Financial charges comprise bank charges and bank commission

The provision for current taxation for the year ended June 30,

5 million

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Questions

(vii) The carrying value of YIL’s net assets as on June 30,

30 million

The income tax rate applicable to the company is 30%

the leasehold property having a useful life of 40 years was revalued at Rs

No adjustment in this regard has been made in the books

Depreciation of leasehold property is charged using the straight line method

Required In accordance with the requirements of the Companies Ordinance,

statement of financial position as of June 30,

statement of profit or loss for the year ended June 30,

(Comparative figures and notes to the financial statements are not required

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

SHAHEEN LIMITED Following is the trial balance of Shaheen Limited (SL) as at June 30,

2015: Rs

in ‘000 Dr Cr 200,000 100,000 35,000 30,000 23,000 5,000 2,000 6,000 86,000

Sales revenue Manufacturing costs Selling and distribution costs Administrative costs Opening inventories Interest on borrowings Provision for income tax Advance income tax paid Property,

plant and equipment Accumulated depreciation on property,

plant and equipment Export licence Trade receivables Cash and bank balances Other receivable and prepayments Trade payables Provisions for litigation Long term borrowings Deferred tax Share capital (Rs

347,525

Additional information (i)

Sales last year (year ended 30 June 2014) included goods invoiced at Rs 10 million which were sent to a customer on June 25,

The goods were returned on August 25,

No correction has been made for the return

The export licence has been obtained for exporting a new product and is effective for five years up to December 31,

However,

the exports commenced from July 1,

Closing inventories are valued at Rs

30 million

Details of property,

plant and equipment are as follows: Land Cost as at June 30,

Plant and Buildings equipment Rs in ‘000 36,000 30,000 3,000 20 years 10 years

The company uses straight line method for charging depreciation

Depreciation is allocated to manufacturing,

distribution and administrative costs at 75%,

will be repaid within 12 months)

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Questions

During the year Rs

Current year’s taxable income exceeds accounting income by Rs

Applicable tax rate for the company is 35%

The statement of financial position as of June 30,

The statement of profit or loss for the year ended June 30,

The statement of changes in equity for the year ended June 30,

(Comparative figures and notes to the financial statements are not required) (25)

MOONLIGHT PAKISTAN LIMITED Following is the summarised trial balance of Moonlight Pakistan Limited (MPL),

for the year ended December 31,

Land and buildings

© Emile Woolf International

in million Debit Credit 2,600 2,104 702 758 354 1,784 220 250 210 400 670 1,200 510 1,600 8 22 544 420 3,608 8,982 8,982

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

Additional Information (i)

The land and buildings were acquired on January 1,

The cost of land was Rs

On January 1,

The estimated life at acquisition was 20 years and the remaining life has not changed as a result of the valuation

Plant is depreciated at 20% per annum using the reducing balance method

On March 31,

The issue has not been recorded in the books of account

Right shares were issued on September 1,

2015 at Rs

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,

MPL operates an unfunded gratuity scheme for all its eligible employees

The provision required as on December 31,

23 million

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

The applicable income tax rate is 35%

Required In accordance with the requirements of Companies Ordinance,

Statement of Financial Position as of December 31,

Statement of profit or loss for the year ended December 31,

(Comparative figures and notes to the financial statements are not required)

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Questions

FIGS PAKISTAN LIMITED Figs Pakistan Limited is a listed company engaged in the business of manufacturing and marketing of personal care and food products

Following is an extract from its trial balance for the year ended 31 December 2015: Debit

wages and benefits Utilities Depreciation and amortization Stationery and office expenses Repairs and maintenance Advertisement and sales promotion Outward freight and handling Legal and professional charges Auditor's remuneration Donations Workers Profit Participation Fund Worker Welfare Fund Loss on disposal of property,

plant and equipment Financial charges on short term borrowings Exchange loss Financial charges on lease

Additional information (i)

The position of inventories as at 31 December 2015 was as follows: Raw material Work in process Finished goods (manufactured) Finished goods (imported)

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

The basis of allocation of various expenses among cost of sales,

distribution costs and administrative expenses are as follows:

Salaries,

wages and benefits Depreciation and amortization Stationery and office expenses Repairs and maintenance / Utilities

Cost of Distribution Administrative sales costs expenses % % % 55 30 15 70 20 10 25 40 35 85 5 10

Salaries,

wages and benefits include contributions to provident fund (defined contribution plan) and gratuity fund (defined benefit plan) amounting to Rs

Auditor’s remuneration includes taxation services and out-of-pocket expenses amounting to Rs

Donations include Rs

One of the company’s directors,

Peanut is a trustee of DCF

The tax charge for the current year after making all related adjustments is estimated at Rs

Taxable temporary differences of Rs

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,

Comparatives are not required

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Questions

CHAPTER 3 – IAS 7: STATEMENTS OF CASH FLOWS 3

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 Property,

plant and equipment Financial assets

Current assets Inventory Trade receivables Cash and cash equivalents

Total equity

Equity and liabilities Equity Issued share capital Share premium account Retained earnings

Total assets

Revaluation surplus

Non-current liabilities Interest-bearing loans and liabilities

Current liabilities Bank overdraft Trade payables Taxation

1,266 400

Total liabilities

Total equity and liabilities

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

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

Finance costs Finance income Profit before tax Income tax expense Profit for the year Additional information (i)

Non-current assets 2015 Intangible assets Property,

Deprec’n

Deprec’n

At 1 April 2014 land was revalued from Rs

2 million

During the year,

plant and machinery costing Rs

150,000

The interest bearing loans relate to debentures which were issued at their nominal value

Ordinary shares were issued for cash during the year

(vii) Dividends paid in the year were Rs

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

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Questions

STANDARD INC The summarised statements of financial position of Standard Inc at 31 December 2014 and 2015 are as follows

in ‘000 Issued share capital 150,000 100,000 Share premium 35,000 15,000 Retained earnings 41,000 14,000 Long-term loans 30,000 70,000 Payables 48,000 34,000 Bank overdraft – 14,000 Tax payable 33,000 21,500 Proposed dividends 15,000 7,500 Depreciation Plant and machinery 54,000 45,000 Fixtures and fittings 15,000 13,000 ———— ———— 421,000 334,000 ———— ———— Freehold property at cost Plant and machinery at cost Fixtures and fittings at cost Inventories Trade receivables Long-term investments Cash at bank

The following information is relevant: (a) (b)

There had been no disposal of freehold property in the year

A machine tool which had cost Rs

3,000,000,

and fixtures which had cost Rs

1,00,0000

Profits and losses on those transactions had been dealt with through the statement of profit or loss

The statement of profit or loss charge in respect of tax was Rs

22,000,000

The premium paid on redemption of the long-term loan was Rs

2,000,000,

which has been written off to the statement of profit or loss

The proposed dividend for 2014 had been paid during the year

Interest received during the year was Rs

450,000

Interest charged in the statement of profit or loss for the year was Rs

6,400,000

Accrued interest of Rs

The government stock is a long term investment

Required Prepare a cash flow statement for the year ended 31 December 2015,

together with notes as required by IAS 7

© Emile Woolf International

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

FALLEN Fallen has prepared the following rough draft accounts for the year ended 31 December 2015

Statement of profit or loss Revenue Cost of sales Gross profit Distribution costs Administration expenses Interest payable Operating profit before tax Taxation (35%) including deferred tax Profit after tax Dividends Retained profit

in ‘000 11,563 (5,502) ——— 6,061 (402) (882) (152) ——— 4,625 (1,531) ——— 3,094 (700) ——— 2,394 ———

Statements of financial position

Leasehold premises (net) Plant,

machinery and equipment (net) Investments at cost Inventories Receivables Bank

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in ‘000 6,600 5,700 5,040 3,780 2,406 2,208 2,880 1,986 2,586 1,992 – 576 ——— ——— 19,512 16,242 ——— ———

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in ‘000 2,280 1,800 2,112 1,800 9,108 6,714 202 138 1,240 1,800 1,202 1,016 1,026 702 222 –

Share capital Share premium Profit and loss account Deferred taxation Long-term loan (10%) Provision for deferred repairs Payables Overdraft Taxation Corporation tax Proposed dividends

The following data is relevant

The 10% long-term loan were redeemed at par

Plant and equipment with a written down value of Rs

168,000

New plant was purchased for Rs

2,500,000

Leasehold premises costing Rs

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

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The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

BIN QASIM MOTORS LIMITED The summarised financial statements of Bin Qasim Motors Limited for the year to 30 September 2015,

together with a comparative balance sheet,

are: Statement of profit or loss

Sales revenue

Cost of sales

(4,284)

Gross profit

Operating expenses

(1,479)

Interest payable

Investment income

Profit before tax

Income tax

Profit for the period

Statement of financial position as at 30 September

Assets Non-current assets Property,

plant and equipment Investment Current assets Inventory Trade accounts receivable Short term treasury bills Bank Total assets Total equity and liabilities Equity: Share capital Reserves: Share premium Retained earnings At beginning of the year Net profit for period Dividends At end of the year

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2015 Rs

2014 Rs

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Revaluation surplus Non-current liabilities Deferred tax Deferred income 10% Convertible loan stock Current liabilities Trade accounts payable Accrued interest Provision for negligence claim Provision for income tax Deferred income Overdraft Total equity and liabilities

The following information is relevant (i)

Non-current assets Rs in ‘000

Property,

plant and equipment is analysed as follows: 30 September 2015

Valuation Depreciation

Valuation Depreciation

Land and buildings

On 1 October 2014 Bin Qasim Motors Limited recorded an increase in the value of its land of Rs

150,000

During the year an item of plant that had cost Rs

Deferred income Bin Qasim Motors Limited sells servicing contracts on certain types of machinery

Payments are received in advance for a service which Bin Qasim Motors Limited must provide over a number of following years

Income that relates to these contracts is deferred and recognised in P&L as the period of service passes

A credit of Rs

Share capital and loan stocks The increase in the share capital during the year was due to the following events: (1)

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On 1 January 2015 there was a bonus issue (out of the revaluation surplus) of one bonus share for every 10 shares held

The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

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

The remaining increase in the ordinary shares was due to a stock market placement of shares for cash on 12 August 2015

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

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

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The Institute of Chartered Accountants of Pakistan

Questions

ITTEHAD MANUFACTURING LTD The financial statements of Ittehad Manufacturing Ltd for the year to 30 September 2015,

together with the comparative statement of financial position (balance sheet) for the year to 30 September 2014 are shown below: Rs

in million Sales revenue Cost of sales (note 1) Gross profit for period Operating expenses (note 1)

Interest – Loan note Profit before tax Taxation Net profit for the period Statement of financial position as at 30 September: 2015 Rs

in million Non-current assets Property,

plant and equipment Intangible assets (note 2) Current assets Inventory Accounts receivable Cash Total assets Equity and liabilities Ordinary shares of Rs

2016 Rs

670 2,560

300 2,130

Extract from statement of changes in equity 2015 2014 Rs

in million 1,600 1,000 620 800 (320) (200) (50) 10 – 1,860 1,600

Retained earnings – brought forward Profit for the year Dividends Bonus issue Transfer from revaluation surplus Retained earnings – carried forward

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The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

Notes to the financial statements: (1) Cost of sales includes depreciation of property,

50 million

Intangible non-current assets: Deferred development expenditure

Goodwill

Deferred tax

Bank overdraft

Accrued loan interest

Deferred income

Taxation

Non-current liabilities:

Current liabilities: Accounts payable

The following additional information is relevant: (i)

Intangible non-current assets:

The company successfully completed the development of a new product during the current year,

Property,

plant and equipment/revaluation surplus:

The company revalued its buildings by Rs

The surplus was credited to a revaluation surplus

New plant was acquired during the year at a cost of Rs

The remaining movement on property,

plant and equipment was due to the disposal of obsolete plant

Share issues: On 1 October 2014 a bonus issue of 1 new share for every 10 held was made from retained earnings

Ittehad Manufacturing Ltd made a further issue of ordinary shares for cash during the year

Required (a)

A statement of cash flows for Ittehad Manufacturing Ltd for the year to 30 September 2015 prepared in accordance with IAS 7 Statement of Cash Flows

Comment briefly on the financial position of Ittehad Manufacturing Ltd as portrayed by the information in your statement of cash flows

(5) (25)

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The Institute of Chartered Accountants of Pakistan

Questions

WASEEM INDUSTRIES LIMITED The following statements of financial position relate to Waseem Industries Limited for the years ended December 31:

ASSETS Non-current assets Fixed assets Property,

plant and equipment Capital work-in-progress Long term investments Long term deposits Total non-current assets

Current assets Stocks-in-trade Trade debts Advances,

prepayments and other receivables Cash and bank balances Total current assets

37 11 154

40 20 146

TOTAL ASSETS

94 16 110

118 12 130

22 6 46 74

EQUITY AND LIABILITIES Shareholders' equity Share capital Share premium Unappropriated profit Non-current liabilities Long term finances

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The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting II

Other relevant information is as follows: (i)

An interim bonus issue of one for five ordinary shares was made during the year out of share premium

The company also approved final cash dividend of 10% (2014: 8%),

During the year,

The details relating to disposal of property,

plant and equipment are as follows: Carrying amount Sale proceeds Rs

m Plant and machinery Vehicles

Advances,

prepayments and other receivables include advance tax of Rs

7 million)

In 2015,

Accrued mark-up on long term finances amounting to Rs

Financial charges included in the profit and loss account are Rs

Income tax expense for the year 2015 amounted to Rs

Required Prepare a cash flow statement in accordance with the requirements of IAS 7 Cash Flow Statement” using the indirect method

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The Institute of Chartered Accountants of Pakistan

Questions

JALIB INDUSTRIES LIMITED Jalib Industries Limited is a listed company

The relevant information contained in the financial statements for the year ended December 31,

Rupees in million

Non-current assets Property,

plant and equipment Capital work in progress Current assets Stock in trade Trade debts Advances and other receivables Cash and bank

Equity Issued,

subscribed and paid-up capital Share premium Unappropriated profit Non-current liabilities Deferred liabilities Long term loans Current liabilities Current portion of long term loans Creditors,

accrued and other liabilities Dividend payable

Statement of profit or loss 2015 Rupees in million

Sales Cost of goods sold Gross profit Operating expenses Financial charges Loss on sale of fixed assets

00 (1,774

50) 760

50 (554

00) (10

60) (569

10) 191

40 (104

20) (106