CAF7 financial accounting and reporting II questionbank ICAP

2015

FINANCIAL ACCOUNTING
AND REPORTING II
QUESTION BANK

CAF-07



ICAP

Question
Bank

P

Financial accounting
and reporting II


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Certificate in Accounting and Finance
Financial accounting and reporting II

C
Contents
Page

Question and Answers Index

v

Questions
Section A

Questions

1

Answers

93

Answers
Section B

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Financial accounting and reporting II

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Certificate in Accounting and Finance
Financial accounting and reporting II

I

Index to questions and answers
Question
page

Answer
page

CHAPTER 2 – IAS 1: PRESENTATION OF FINANCIAL STATEMENTS
2.1

LARRY

2

94

2.2

MINGORA IMPORTS LIMITED

3

95

2.3

BARRY

4

97

2.4

OSCAR INC

6

99

2.5

CLIFTON PHARMA LIMITED

7

101

2.6

SARHAD SUGAR LIMITED

8

103

2.7

BSZ LIMITED

10

105

2.8

YASIR INDUSTRIES LIMITED

12

108

2.9

SHAHEEN LIMITED

14

112

2.10

MOONLIGHT PAKISTAN LIMITED

15

114

2.11

FIGS PAKISTAN LIMITED

17

115

CHAPTER 3 – IAS 7: STATEMENTS OF CASH FLOWS
3.1

KLEA

19

119

3.2

STANDARD INC

21

121

3.3

FALLEN

22

124

3.4

BIN QASIM MOTORS LIMITED

24

126

3.5

ITTEHAD MANUFACTURING LTD

27

129

3.6

WASEEM INDUSTRIES LIMITED

29

131

3.7

JALIB INDUSTRIES LIMITED

31

134

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Financial accounting and reporting II

Question
page

Answer
page

3.8

APOLLO INDUSTRY LIMITED

32

136

3.9

MARVEL ENGINEERING LIMITED

34

137

CHAPTER 4 – CONSOLIDATED ACCOUNTS: STATEMENTS OF
FINANCIAL POSITION – BASIC APPROACH
4.1

HALL

36

139

4.2

HASSLE

37

140

4.3

HYMN

37

141

4.4

HANG

38

143

4.5

HASH

38

144

CHAPTER 5 – CONSOLIDATED ACCOUNTS: STATEMENTS OF
FINANCIAL POSITION - COMPLICATIONS
5.1

HAIL

39

146

5.2

HAIRY

40

148

5.3

HARD

41

150

5.4

HALE

42

152

5.5

HELLO

42

153

5.6

HASAN LIMITED

43

155

CHAPTER 6 – CONSOLIDATED ACCOUNTS: STATEMENTS OF
COMPREHENSIVE INCOME
6.1

HARRY

45

159

6.2

HORNY

46

161

6.3

HERON

47

163

6.4

HANKS

48

164

CHAPTER 7 – PROPERTY, PLANT AND EQUIPMENT
7.1

ROONEY

50

168

7.2

EHTISHAM

51

170

7.3

CARLY

51

172

7.4

ADJUSTMENTS LIMITED

52

173

7.5

FAM

53

175

7.6

IMRAN LIMITED

54

177

7.7

HUMAYUN CHEMICALS LIMITED

55

179

7.8

FARADAY PHARMACEUTICAL LIMITED

55

180

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Index to questions and answers

Question
page

Answer
page

7.9

SPIN INDUSTRIES LIMITED

56

182

7.10

SCIENTIFIC PHARMA LIMITED

56

183

7.11

QURESHI STEEL LIMITED

57

184

7.12

GRANITE CORPORATION

58

185

CHAPTER 8 – IAS 38: INTANGIBLE ASSETS
8.1

FAZAL

59

186

8.2

HENRY

59

186

8.3

TOBY

60

187

8.4

BROOKLYN

60

188

8.5

ZOUQ INC

61

189

8.6

STAR-BRIGHT PHARMACEUTICAL
LIMITED

62

190

8.7

RAISIN INTERNATIONAL

62

191

CHAPTER 9 – IAS 17: LEASES
9.1

DAWOOD

64

192

9.2

FINLEY

64

192

9.3

FABIAN

64

193

9.4

XYZ INC

65

194

9.5

SNOW INC

65

197

9.6

MIRACLE TEXTILE LIMITED

66

199

9.7

SHOAIB LEASING LIMITED

66

200

9.8

NEPTUNE LIMITED

67

202

9.9

QUARTZ AUTO LIMITED

67

204

9.10

LODHI TEXTILE MILLS LIMITED

68

205

9.11

NOMAN ENGINEERING LIMITED

68

206

CHAPTER 10 – IAS 37: PROVISIONS CONTINGENT LIABILITIES AND
CONTINGENT ASSETS AND IAS 10: EVENTS OCCURRING AFTER THE
REPORTING DATE
10.1

BADAR

69

207

10.2

GEORGINA

69

207

10.3

EARLEY INC

70

209

10.4

ACCOUNTING TREATMENT

70

210

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Financial accounting and reporting II

Question
page

Answer
page

10.5

J-MART LIMITED

71

211

10.6

AKBER CHEMICALS LIMITED

72

212

10.7

QALLAT INDUSTRIES LIMITED

72

213

10.8

SKYLINE LIMITED

73

213

10.9

WALNUT LIMITED

74

214

10.10

ATTOCK TECHNOLOGIES LIMITED

75

215

CHAPTER 11 – IAS 8: ACCOUNTING POLICIES, CHANGES IN
ACCOUNTING ESTIMATES AND ERRORS
11.1

WONDER LIMITED

76

216

11.2

DUNCAN

77

217

11.3

MOHANI MANUFACTURING LIMITED

78

218

CHAPTER 12 – IAS 12: INCOME TAXES
12.1

FRANCESCA

79

219

12.2

SHEP (I)

79

220

12.3

SHEP (II)

80

221

12.4

SHEP (III)

81

222

12.5

SHEP (IV)

82

224

12.6

WAQAR LIMITED

82

225

12.7

SHAKIR INDUSTRIES

83

227

12.8

MARS LIMITED

84

228

12.9

BILAL ENGINEERING LIMITED

85

230

12.10

GALAXY INTERNATIONAL

85

231

12.11

APRICOT LIMITED

86

232

CHAPTER 13 – RATIO ANALYSIS
13.1

WASIM

87

233

13.2

AMIR AND MO

88

233

CHAPTER 14 – ETHICAL ISSUES IN FINANCIAL REPORTING
14.1

ETHICAL ISSUES

90

235

14.2

SINDH INDUSTRIES LTD

90

236

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SECTION

Certificate in Accounting and Finance
Financial accounting and reporting II

A
Questions

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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
2.1

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.
(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.

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Questions

2.2

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

Patent rights
Work-in-progress, 1 January `2015
Leasehold buildings at cost
Ordinary share capital
Sales
Staff costs
Accumulated depreciation on buildings, 1 January 2015
Inventories of finished games, 1 January 2015
Consultancy fees
Directors’ salaries
Computers at cost
Accumulated depreciation on computers, 1 January 2015
Dividends paid
Cash
Receivables
Trade payables
Sundry expenses
Accumulated profits, 1 January 2015

Rupees in million
Dr
Cr
60
125
300
600

1,740
260
60
155
44
360
50
20
125
440
420
92
294
121

––––––

––––––

2,633
════

2,633
════

The following information is also relevant.
(1)

Closing inventories of finished games are valued at Rs. 180 million. Work in
progress has increased to Rs. 140 million.

(2)

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

(3)

On 1 January 2015 buildings were revalued to Rs. 360 million. 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. 120 million which has not yet
been recognised.

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.

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Financial accounting and reporting II

2.3

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

30,000
(9,500)
(5,000)
1,400
(4,700)
(900)
(4,250)
(350)
––––––

6,700
════
Statement of financial position as at 31st August 2015

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

Rs. in
‘000

20,000
14,000
5,600

–––––––

39,600
Current assets
Prepayments
Trade receivables
Cash at bank
Inventories

200
7,400
700
4,600

–––––––

12,900

–––––––

Total assets

52,500

–––––––

Equity and liabilities
Equity shares of Rs. 1 each
Accumulated profit
Share premium

21,000
14,000
2,000

–––––––

Total equity
Revaluation surplus
Current liabilities

37,000
5,000
5,300

Non-current liabilities
8% Debentures 2019

5,200

–––––––

Total equity and liabilities

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═════

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Questions

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 year’s 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:

Freehold land and buildings
(land element Rs. 10 million)
Plant and machinery
Fixtures and fittings
Assets under construction

Cost

Depreciation

Rs. in ‘000
19,000

Rs. in ‘000
3,000

20,100
10,000
400

4,000
3,700
-

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)
Plant and machinery
Fixtures and fittings (30% production, 70% administration)

1,000
2,550
700

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, plant and equipment

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Financial accounting and reporting II

2.4

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

210
600
470
80
25
180
420
560
75
750
220
180
960
140
260
2,010
120
3,630

3,630

Additional information
(1)

Inventory at 31 March 2015 was valued at Rs. 150,000.

(2)

The income tax charge based on the profits on ordinary activities is estimated
to be Rs. 74,000.

(3)

The provision is to be increased by Rs. 16,000.

(4)

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.
(18)

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Questions

2.5

CLIFTON PHARMA LIMITED
The following trial balance relates to Clifton Pharma Limited, a public listed
company, at 30 September 2015.
Rs. 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:
- leasehold property
- plant and equipment
Investments
Share capital
Share premium
Retained earnings at 1 October 2014
Loan notes (see note (1))
Deferred tax balance at 1 October 2014 (see note (5))

Inventory at 30 September 2015
Trade receivables
Trade payables
Bank

134,000
35,000
1,500
8,600
338,300
2,000
250,000
197,000
40,000
47,000
92,400
280,000
20,000
19,300
50,000
20,000
23,700
76,400
14,100
12,100
830,700

830,700

The following notes are relevant

(1)

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

(2)

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. 7
million of the total rental cost of vehicles relates to a finance lease rather than
an operating lease or rental arrangement.
The finance lease was entered into on 1 October 2014 which was when the
Rs. 7 million was paid: the lease agreement is for a four-year period in total,
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. 24 million at 1 October 2014 and they
should be depreciated using the straight line method to a nil residual value.
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.)

(3)

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.

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Financial accounting and reporting II

(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)

2.6

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)

Rs. 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.

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Questions

On 1 October 2014 an item of plant was disposed of for Rs. 2·5 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. 1·4 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. 11·4 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)

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Financial accounting and reporting II

2.7

BSZ LIMITED
The post-closing trial balance of BSZ Limited, a listed company, as at June 30,
2015 is given below:
Debit
Credit
Rs. 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 - cost
Accumulated depreciation – Furniture and fixtures
Machines - cost
Accumulated depreciation – Machines
Building on freehold land – cost
Accumulated depreciation – Building
Computer software – cost
Accumulated amortization – Computer software
Deferred taxation
Short term loan
Accounts payable
Accrued liabilities
Provision for taxation
Issued, subscribed and paid up capital (Rs. 10 each)
Surplus on revaluation of fixed assets
Accumulated profits

7
22

90
60
3
16
6
11
4
12
375
27
8
85
27
150
26
10

875

2
40
85
75
7
17
400
120
65
875

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.

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Questions



Furniture and fixtures worth Rs. 8 million were purchased on April 1,
2015.



A machine was sold on February 28, 2015 to NJ Enterprise at a price of
Rs. 13 million. At the time of disposal, the cost and written down value
of the machine was Rs. 15 million and Rs. 10 million respectively.

(iii)

50% of the accounts receivable were secured and considered good. 10%
of the unsecured accounts receivable were considered doubtful. Bad debts
expenses for the year amounted to Rs. 1.0 million. An amount of Rs. 1.4
million was written off during the year.

(iv)

All advances given to suppliers are considered good and include an
amount of Rs. 4.0 million paid for goods which will be supplied on December
31, 2016.

(v)

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

(vi)

The authorised share capital of the company is Rs. 500 million.

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)

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Financial accounting and reporting II

2.8

YASIR INDUSTRIES LIMITED
The following trial balance related to Yasir Industries Limited (YIL) for the year
ended June 30, 2015:

Ordinary share capital (Rs. 10 each)

Retained earnings
Sales
Purchases
Production labour
Manufacturing overheads
Inventories (July 1, 2014)
Administrative expenses
Distribution expenses
Financial charges
Cash and bank
Trade creditors
Accrued expenses
10% redeemable preference shares
Debentures
Deferred tax (July 1, 2014)
Suspense account
Leasehold property - at cost
Machines – at cost
Software – at cost
Acc. depreciation – Leasehold property (June 30, 2015)
Acc. depreciation – Machines (June 30, 2015)
Acc. amortization – Software (June 30, 2015)
Trade receivables

Dr
Cr
Rs. in million
120.00
10.20
472.40

175.70
61.00
39.00
38.90
40.00
19.80
0.30
13.25
30.40
16.20
40.00
80.00
6.00
30.00
230.00
168.60
20.00
40.25
48.60
12.00
66.00
889.30

889.30

Additional Information
(i)

Sales include an amount of Rs. 27 million, 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, 2015.

(ii)

The value of inventories at June 30, 2015 was Rs. 42 million.

(iii)

A fraud of Rs. 30 million was discovered in October 2014. 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.

(iv)

On January 1, 2015 YIL issued debenture certificates which are repayable in
2020. Interest is paid on these at 12% per annum.

(v)

Financial charges comprise bank charges and bank commission.

(vi)

The provision for current taxation for the year ended June 30, 2015 after
making all the above adjustments is estimated at Rs. 16.5 million.

© Emile Woolf International

12

The Institute of Chartered Accountants of Pakistan


Questions

(vii) The carrying value of YIL’s 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.)

© Emile Woolf International

13

The Institute of Chartered Accountants of Pakistan


Financial accounting and reporting II

2.9

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. 10 each and fully paid)
Retained earnings

12,000
6,000
37,800
4,725
14,000
12,000
5,000
31,525
5,000
60,000

20,000
347,525

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, 2014 under a sale or
return agreement, at cost plus 20%. The goods were returned on August 25,
2014. No correction has been made for the return.

(ii)

The export licence has been obtained for exporting a new product and is
effective for five years up to December 31, 2019. However, the exports
commenced from July 1, 2015.

(iii)

Closing inventories are valued at Rs. 30 million.

(iv)

Details of property, plant and equipment are as follows:
Land
Cost as at June 30, 2014
Fully depreciated amounts included in cost
Estimated useful life at the date of purchase

20,000

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%, 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).

© Emile Woolf International

14

The Institute of Chartered Accountants of Pakistan


Questions

(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 year’s 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)

2.10

MOONLIGHT PAKISTAN LIMITED

Following is the summarised trial balance of Moonlight Pakistan Limited (MPL), a
listed company, for the year ended December 31, 2015:

Land and buildings - at cost
Plants – at cost
Trade receivables
Stock in trade at December 31, 2015
Cash and bank
Cost of sales
Selling expenses
Administrative expenses
Financial charges
Accumulated depreciation as on January 1, 2015 – Buildings
Accumulated depreciation as on January 1, 2015 – Plants
Ordinary shares of Rs. 10 each fully paid
Retained earnings as at January 1, 2015
12% Long term loan
Provision for gratuity
Deferred tax on January 1, 2015
Trade payables
Right subscription received
Revenue

© Emile Woolf International

15

Rs. 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