ADVANCED FINANCIAL ACCOUNTING &

CORPORATE REPORTING [S1]

STRATEGIC LEVEL-1
< Session/ Exam Term >
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Extra Reading Time: 15 Minutes
Maximum Marks: 100 Roll No.:
Writing Time: 03 Hours
(i) Attempt all questions.
(ii) Write your Roll No. in the space provided above.
(iii) Answers must be neat, relevant and brief. It is not necessary to maintain the sequence.
(iv) Use of non-programmable scientific calculators of any model is allowed.
(v) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(vi) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(vii) DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
(viii) Question Paper must be returned to invigilator before leaving the examination hall.
DURING EXTRA READING TIME, WRITING IS STRICTLY PROHIBITED IN THE ANSWER SCRIPT

EXAMINEES ARE ADVISED TO MANAGE SOLUTIONS/ ANSWERS WITHIN PROPOSED TIME

Question No. 1 Proposed Time : 54 Min. | Total Marks : 30

(a) (i) As per International Accounting Standards (IAS) 28 – Investments in Associates and Joint
Ventures, what does ‘significance influence’ mean?
(ii) What are the different ways in which the existence of significance influence can be evidenced?
(b) Masroor Limited bought 80% share capital of Akhter Limited for Rs. 3,240,000 on January 01, 2016. At
that date, Akhter Limited’s retained earnings balance was Rs. 1,800,000.
The extracts of the statements of financial position as at December 31, 2018 and the summarized
statements of profit or loss for the year upto that date are given below:
Statements of Financial Position [Extract]
as at December 31, 2018
Rs. ‘000’
Masroor Limited Akhter Limited
Assets
Non-current Assets 3,600 2,700
Investment in Akhter Limited 3,240 –
Current assets 3,700 3,700
Total assets 10,540 6,400
Equity and Liabilities
Ordinary shares 5,400 1,800
Reserves 4,140 3,600
Current liabilities 1,000 1,000
Total equity and liabilities 10,540 6,400

Statements of Profit or Loss [Summarized]

Rs. ‘000’
Masroor Limited Akhter Limited
Profit before tax 1,530 1,260
Tax (450) (360)
Profit after tax 1,080 900

No entries have been made in the accounts for any of the following transactions:
 Assume that profits accrue evenly throughout the year.

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  It is the group’s policy to value the non-controlling interests (NCIs) at its proportionate share of the
fair value of the subsidiary’s identifiable net assets.
 Ignore tax on disposal.

Required:
(1) Prepare the consolidated statement of financial position and statement of profit or loss as at
December 31, 2018 for Masroor Group in each of the following circumstances (assume no
impairment of goodwill):
(i) Masroor Limited sells its entire holding in Akhter Limited for Rs. 6,500,000 on
December 31, 2018.
(ii) Masroor Limited sells 25% of its holding in Akhter Limited for Rs. 1,600,000 on
December 31, 2018.
(2) Calculate gain on disposal, group retained earnings and carrying value of the retained
investments as at December 31, 2018 in each of the following circumstances:
(i) Masroor Limited sells 50% of its holding in Akhter Limited for Rs. 3,400,000 on
September 30, 2018 and the remaining holding (fair value Rs. 2,500,000) is to be dealt
with as an associate.
(ii) Masroor Limited sells 50% of its holding in Akhter Limited for Rs. 3,400,000 on
September 30, 2018 and the remaining holding (fair value Rs. 2,500,000) is to be dealt
with as a financial asset at fair value through other comprehensive income.

Question No. 2 Proposed Time : 36 Min. | Total Marks : 20

(a) BFZ Limited, a public limited company, which focuses on the sports industry. The company would like
advice on how to treat certain items under IAS 19 – Employee Benefits. The company operates the
BFZ Limited Pension Plan ‘II’, which commenced on January 01, 2019 and the BFZ Limited Pension
Plan ‘I’, which was closed to new entrants from December 31, 2018, but which was open to future
service accrual for the employees already in the scheme. The assets of the schemes are held
separately from those of the company in funds under the control of trustees. The following information
relates to the two schemes:
Pension Plan ‘I’:
The terms of the plan are as follows:
 Employees contribute 6% of their salaries to the plan.
 BFZ Limited contributes, currently, the same amount to the plan for the benefit of the employees.
 On retirement, employees are guaranteed a pension, which is based upon the number of years of
service with the company and their final salary.
The following details relate to the plan in the year to December 31, 2019:

Rs. in million
Present value of obligation – As at January 01, 2019 1,000
– As at December 31, 2019 1,200
Fair value of plan assets – As at January 01, 2019 950
– As at December 31, 2019 1,125
Current service cost 100
Pension benefits paid 95
Total contributions paid to the scheme for year to December 31, 2019 85

Re-measurement gains and losses are recognized in accordance with IAS 19.
Pension Plan ‘II’:
Under the terms of the plan, BFZ Limited does not guarantee any return on the contributions paid into
the fund. The company's legal and constructive obligation is limited to the amount that is contributed to
the fund.

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 The following details relate to this scheme:

Rs. in million
Fair value of plan assets – As at December 31, 2019 105
Contributions paid by company – For year to December 31, 2019 50
Contributions paid by employees – For year to December 31, 2019 50

The interest rate on high quality corporate bonds for the two plans are:

On January 01, 2019 6%

On December 31, 2019 8%

Required:
Show the accounting treatment for the two BFZ Limited Pension Plans for the year ended
December 31, 2019 under IAS 19 – Employee Benefits by preparing notes to statement of financial
position and statement of profit or loss and other comprehensive income.

(b) A company borrowed Rs. 45 million on January 01, 2017 when the market and effective interest rate
was 5%.
On December 31, 2017, the company borrowed an additional amount of Rs. 40 million when the
current market and effective interest rate was 7%. Both financial liabilities are repayable on
December 31, 2021 and are single payment notes, whereby interest and capital are repaid on that
date.

Required:
Discuss the accounting for the above financial liabilities under current accounting standards, using
amortised cost, and additionally using fair value as at December 31, 2017.

Question No. 3 Proposed Time : 45 Min. | Total Marks : 25

(a) As per IAS 21 – The Effects of Changes in Foreign Exchange Rates:
(i) How a foreign currency transaction shall be recorded on initial recognition?
(ii) How will it be reported at the ends of subsequent reporting periods?

(b) Mughal Ltd., was incorporated in year 2005, producing children wear. On January 1, 2010 it acquired
30% interest in Seven Stars Ltd., producing men's garments. Before acquiring shares in Seven Stars
Ltd., Mughal Ltd., also had 100% interest in a subsidiary. On July 1, 2017, it acquired 80% interest in
Moonlight Industries Ltd., which is engaged in producing ladies garments. Draft consolidated financial
statements of Mughal Group are as follows:
Draft Consolidated Statement of Profit or Loss
for the year ended June 30, 2018
(Rs. '000)
Operating profit 5,010
Dividend income from investment 430
Share of profit from associates 800
Interest expense (375)
Profit before taxation 5,865
1,15
Taxation: Current tax 0
Deferred tax 285 (1,435)
Profit after tax 4,430
Profits attributable to:
Mughal Ltd., 4,100
NCI 330
4,430
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 Draft Consolidated Statement of Financial Position
as at June 30, 2018
Rs. ‘000’
Assets 2018 2017
Non-current assets
Property, plant and equipment 12,750 8,690
Goodwill 237 -
Investment in associates 4,800 4,500
Long-term investments 1,000 1,000
18,787 14,190
Current assets
Inventories 4,900 2,000
Trade receivables 5,400 3,700
Cash 8,821 3,490
19,121 9,190
Total Assets 37,908 23,380
Equity and Liabilities
Equity
Share capital (Rs.10 each) 11,500 5,800
Share premium 8,400 6,100
Retained earnings 11,815 8,640
Non-controlling interest 337 -
32,052 20,540
Non-current liabilities
Obligation under finance lease 2,100 500
Deferred tax 101 50
2,201 550
Current liabilities
Trade payables 1,400 900
Current portion of obligation under finance lease 750 650
Tax payable 1,375 640
Accrued finance charges 130 100
3,655 2,290
Total Equity and Liabilities 37,908 23,380
Additional Information:
(i) Depreciation for the year on ‘plant and machinery’ and ‘buildings’ were Rs.600,000 and
Rs.400,000 respectively.
(ii) ‘Plant and machinery’ costing Rs.500,000, having book value of Rs.200,000, were sold for
Rs.500,000.
(iii) New ‘plant and machinery’ were acquired during the year including additions of Rs.2,500,000
acquired under finance lease.
(iv) Mughal Ltd., uses equity method to record investments in associates.
(v) At the time of acquisition, the assets and liabilities of Moonlight Industries Ltd., were as follows:
Rs. '000
Plant and machinery 460
Inventories 131
Trade receivables 90
Cash 330
Trade payables (200)
Tax payable (55)
756
Non-controlling interest (151)
605
Goodwill 237
842
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 (vi) Mughal Ltd., paid the consideration as follows:
Rs. ‘000’
 66,000 shares of Rs.10/- each having market value of Rs.12/- per share 792
 In cash 50
842

Required:
Prepare Consolidated Statement of Cash Flows of Mughal Group for the year ended June 30, 2018
as required by IAS 7 – Statement of Cash Flows, using the indirect method.

Question No. 4 Proposed Time : 27 Min. | Total Marks : 15

M/s Samy is engaged in import, manufacture and supply of wooden sheets for furniture and wooden
flooring. Three years ago, the company hired a director for business development having experience of
international market. He brought new ideas in wooden furniture and flooring resulting significant increase in
growth rate. Below is the summary of annual sales of the company:

Annual Sales
Years
(Rs. in million)
2014 – 15 500
2015 – 16 600
2016 – 17 750

In July 2018, the management was expecting similar growth as in the previous years. The budgeted sales
and profit for the year 2018 was Rs.950 million and Rs.114 million respectively. Below are statements of
profit or loss of the company:

June 30, June 30,

2018 2017
Rs. in million
Revenue 900.00 750.00
Opening inventory 75.00 100.00
Purchases / manufactured 610.00 446.43
Closing inventory (130.00) (75.00)
Cost of sales (555.00) (471.43)
Gross profit 345.00 278..57
Operating expenses (200.00) (150.00)
Profit/ (loss) before tax 145.00 128.57
Income tax expenses (50.75) (38.57)
Profit/ (loss) after tax 94.25 90.00

During the annual review meeting of the company, the directors raised following issues:
(i) Sales increased by Rs.150 million while profit increased by Rs.4.25 million only.
(ii) Closing inventory of last year was only 10% of sales while for the current year it is 14%.
(iii) Actual sales decreased by Rs.50 million as compared to budgeted sales and net profit is decreased
by Rs.20 million which is 40% of differential sales, which is too high as compared to actual net profit %
of 2017.

Required:
(a) Calculate the relevant ratios (working and formulas are not required).
(b) Being Financial Controller prepare a report to Directors replying the issues highlighted above in (i) to
(iii).

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Question No. 5 Proposed Time : 18 Min. | Total Marks : 10
Dutech Private Limited, a newly established company, has started the business of manufacturing
abrasives, to be exported to China. The CEO of the company has attended a seminar on environmental
reporting which explained the issues of pollution caused during the production process and the publication
of environmental reports along with financial statements.

Required:
You, being the management accountant and head of finance, were asked to brief the staff regarding the
importance of environmental reporting specially covering the following:
(i) What is Environmental Reporting?
(ii) Possible media through which the Environmental Report is presented.
(iii) Whether it is mandatory or not for companies to issue Environmental Report?
(iv) The issues (contents) to be included in the Environmental Report.

THE END

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